Tax Returns May Be Insufficient Evidence of Pre-Accident & Post-Accident Income/(Loss)
Are tax returns always sufficient evidence of pre-accident and post-accident income/(loss) for purposes of quantifying income replacement benefits (IRB)?
Historically, it has been our approach to review the circumstances of the claim and the tax returns provided in order to determine whether they provide sufficient evidence of pre-accident and post-accident income/(loss) when quantifying IRBs.
However, this is often a polarizing question amongst claimants, lawyers, accountants, and insurers when attempting to determine IRB quantum.
Fortunately, the recent Licence Appeal Tribunal (LAT) decision, Roland Etuka-Ayorinde and Aviva Insurance Company of Canada (20-003837/AABS), specifically examines IRB quantum when solely tax returns were provided as evidence of pre-accident and post-accident income/(loss).
In this decision, the Applicant was involved in a motor vehicle accident on September 24, 2017, and, as a result, sought entitlement to IRBs in the amount of $400.00 per week.
The Respondent agreed that the applicant was entitled to IRBs, however, it argued that the Applicant had not provided sufficient information to quantify the IRBs.
The Adjudicator states that there are two ways in which the self-employed Applicant can determine their gross employment income:
- He may determine it on the 52 weeks prior to the accident, starting on the day before the accident; or
- He can determine his gross employment income on the last fiscal year-end of his business.
In support of the quantum of IRBs claimed, the Applicant solely provided tax returns for 2016 and 2017, the year before the accident and the year of the accident, respectively. The Applicant argued that these documents demonstrated a significant decrease in income as a result of the accident and, therefore, they were sufficient information to quantify his IRBs.
The Adjudicator acknowledged the decrease in income reported by these tax returns. However, in the absence of additional income documents from the Applicant, the Adjudicator stated, “I agree with the Respondent and find that the Applicant has not met his burden to prove that he is entitled to a weekly IRB quantum of $400.00, as claimed.”
Specifically, the Adjudicator stated, “The tax returns provided lack the requisite detail to determine the Applicant’s loss from self-employment. The Applicant must show that he sustained a loss of income from self-employment during the period he claims IRBs. Here, he has shown that he experienced a significant decrease in income from 2016 to 2017. However, the accident occurred on September 24, 2017, about three-quarters into the fiscal period and there is no information to specify what income was earned pre-accident. Further, the period claimed spans into 2018 and the Applicant provided no income information for that period.”
As a result, the Adjudicator concluded, “I am unable to award the payment of IRBs considering the lack of clarity on the Applicant’s pre-accident income and post-accident loss from self-employment.”
Therefore, this decision supports our approach to review the circumstances of the claim and the tax returns provided in order to determine whether they provide sufficient evidence of pre-accident and post-accident income/(loss) when quantifying IRBs. Often additional information is required in order to verify pre-accident and post-accident income/(loss).
Read the decision in full detail here:
Roland Etuka-Ayorinde and Aviva Insurance Company of Canada (20-003837/AABS)
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