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The Madness of Income under the SABS

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In a recent decision, ADR Mongeon wrestles with the curious case of income never received.

In Qureshi and State Farm, the Applicant claimed he worked for “Fire Experts” a fire safety company. In support of this, he offered two cheques that were never cashed for $2,000.00 each. His evidence was that his employer had told him not to cash the cheques. He conceded that he was never paid for his work. Just prior to the arbitration, he re-filed his tax returns for the year of the accident, and declared $4,000.00 in gross employment income from this employment. 

Let’s briefly chat about what “gross employment income” is:

“gross employment income” means salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada), but excludes any retiring allowance within the meaning of the Income Tax Act (Canada) and severance pay that may be received.

You will note a distinct disconnect between several of the income sources above. The definition requires both EI, and severance pay to have been “received” but lacks any clarity to if employment income had to be received in order to qualify as “gross employment income.”

Of course, this leaves the system open to fraud and misrepresentation. One of the checks that has been put into the system is the requirement that any income be reported under the Income Tax Act. Failure to do so will result in the IRB payable being calculated “without reference” to the unreported income:

(5) If, under the Income Tax Act (Canada) or legislation of another jurisdiction that imposes a tax calculated by reference to income, a person is required to report the amount of his or her income, the person’s income before an accident shall be determined for the purposes of this Part without reference to any income the person has failed to report contrary to that Act or legislation.

This leads to an interesting problem. In this case, the Applicant admits that he was never paid for his “work”. What duty did he have to report it? Note section 5(1) of the Income Tax Act:

5 (1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year.

To be subject to taxation in a given year, the income has to be received in that calendar year. This leads to the question of why the IRB should be calculated with reference to income that was never received? 

Maybe it is just loose language in the statute. Observe section 7(3):

(3) The insurer may deduct from the amount of an income replacement benefit payable to an insured person,

(a) 70 per cent of any gross employment income received by the insured person as a result of being employed after the accident and during the period in which he or she is eligible to receive an income replacement benefit; and

(b) 70 per cent of any income from self-employment earned by the insured person after the accident and during the period in which he or she is eligible to receive an income replacement benefit.

From this section, are we being told that employed persons have to receive income in order for it to be deducted from incomre replacement benefits, but self employed persons only have to “earn” it? What is the difference? 

There is only one solution to the problem at this time: Investigate, Investigate, Investigate. Statements from the employer and co-workers could help. An EUO at an early stage would set a baseline for any “changes” to the story at a later date. 

Some clarity as to if the income has to be “received” in order to count would be nice. We may have to wait for an appeal decision for that. 

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