Tag Archives: self-employed

How are loans considered in an Income Replacement Benefit (IRB) calculation?

Generally, loans received by an insured, regardless of the source, are not considered income for IRB purposes. But, as with most situations, and because this would be a really short topic otherwise, it’s not quite so cut and dry.

Traditionally, this issue is more prevalent after an accident than before, but the same principles apply. Whether it is a self-employed individual who cannot work post-accident and is taking loans from their business to survive, or an employee who is receiving loans from his employer, family, or friends, you need to understand whether the receipt of money is related to employment or self-employment activities.


Subsection 4(1) of the SABS defines gross employment income as “salary, wages and other remuneration from employment…”

Subsection 3(1) of the SABS defines self-employment as a “trade, occupation, profession or other type of business…” It would appear then that income from self-employment would be as a result of providing services as a business to customers in return for money or other payment type.

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Is Interest Income Considered when Calculating an Income Replacement Benefit?

There are a number of ways that someone might earn interest income, be it on an investment, or as a result of late payment from a client. As with any income, interest must be reported for taxes. But, whether interest is included in the calculation of an income replacement benefit (IRB), is entirely dependent on whether the income was earned as a result of employment activities.

For the difference between employed and self-employed, please see our blog post on employment status.


Subsection 4 (1) of the Statutory Accident Benefits Schedule (SABS), defines gross employment income as “salary, wages, and other remuneration from employment.” We note, of significance, is the connection between the income and employment.

For employed individuals, excluding self-employed, there are limited situations in which interest income is received as a result of their employment.  Continue reading

Employment Expenses Must be Considered when Calculating an Income Replacement Benefit

There are many factors that can affect income for an insured. Employment expenses are one piece of this puzzle.

If an employee, in the course of employment, is required to pay certain expenses as a means to earn income, they could have employment expenses. These expenses may be reported on a person’s income tax return, although the allowable amount of expenses will vary depending on how the individual earns income.

These employment expenses are different from business expenses which would be claimed by someone who is self-employed.

For more information on employment status, head over to our blog on that very topic. To learn more about the difference between employed and self-employed, we’ve handily covered that topic in another blog post.

What bearing do these expenses have on an Income Replacement Benefit (IRB)?

Expenses an employee incurs in performing their job, and which are deductible for tax purposes pursuant to the Income Tax Act, would also be deducted in the calculation of an insured’s income for IRBs.

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Is Your Claimant Employed, Self-Employed or Unemployed? It isn’t as easy as you think.

Defining a claimant’s employment status is integral in the calculation and determination of an Income Replacement Benefit (“IRB”).

Whether an individual is employed, self-employed, or unemployed at the time of the motor vehicle accident is used to determine the period upon which the insured’s income is calculated as well as the actual income – both key in calculating the IRB.

So where does your insured fit in?

Are they employed?

Let’s start by looking at employed individuals. The Statutory Accident Benefits Schedule (“SABS”) for accidents prior to September 2010 considered an individual to be employed

“if, for salary, wages, other remuneration or profit, the person is engaged in employment, including self-employment, or is the holder of an office, and “employment” has a corresponding meaning” (O. Reg. 403/96, s. 2 (5))

The current SABS has removed the definition for employed, and instead defines how to calculate gross employment income (O.Reg.34/10, s.4(1)). There is no readily apparent reason for this change. However, the exclusion of the employed definition is important, as there does not appear to be a replacement in the new legislation for the term “engaged”. There is now, also a definition for a self-employed person, which did not previously exist.

It should be noted that we have come across several matters where adjusters mistakenly determined the insured was employed, when in fact they were self-employed. This can be a misunderstanding on the part of the insured, with no ill intent, if the adjuster doesn’t fully understand the questions to ask. The result can be significantly miscalculated IRBs.

An example of an insured who would claim to be employed, but is actually self-employed, would be an insured who owns a corporation. For tax purposes, they would personally report as an employee of that corporation, and as such, may indicate to be employed for IRB purposes. Decisions such as Carr and Lombard (FSCO A00–000441) and Rocca and GAN (FSCO Appeal P99-00039) support the fact the insured should be considered self-employed as the owner of the business. But as with all things SABS, it isn’t that cut and dry.

The Piper and Zurich (FSCO 002585) decision, which relates to the Old SABS (prior to September 2010), determined the insured was the owner of the business, but had treated himself as a separate entity from the business for such an extended period of time that for SABS purposes he could be considered employed. This decision is further proof there is no black and white when it comes to these decisions, although the new SABS has definitely added clarity with the new self-employed definition.

One last thing to be mindful of: While an individual might have multiple employers at the same time, if they are shopping their wares to various parties, it might be a sign of self-employment. A good example is a groundskeeper. If the groundskeeper works for multiple residential locations, and is responsible for all equipment and supplies, they are likely self-employed. However, if the groundskeeper works at two golf courses as part of the lawn maintenance crew, where all equipment is provided, and he earns regular wages, it’s likely he is employed. Just a further example of why a thorough understanding of the relationship is required.

Are they self-employed?

Now let’s consider whether an insured is self-employed. Under the Old SABS, an insured’s employment status was often a matter of looking at the substance of the relationship between the insured and the business. However, as mentioned above, the current SABS introduces a definition of a self-employed individual which likely adds some clarity to whether an insured can be considered employed if they are a business owner.

Subsection 3(1) of the SABS states that a self-employed person:

(a) engages in a trade, occupation, profession or other type of business as a sole proprietor or as a partner, other than a limited partner, of a partnership, or

(b) is a controlling mind of a business carried on through one or more private corporations some or all of whose shares are owned by the person; (O. Reg. 34/10, s. 3 (1))

It is often easiest to determine into which category the insured falls, simply by reviewing their personal, and if appropriate their corporate tax returns. It is important to note that while an individual who owns a corporation would report themselves to be an employee of that corporation for tax purposes, as outlined above, if they are both a shareholder and controlling mind of the corporation, they would be considered self-employed for the purposes of calculating an IRB.

Further complexity exists for individuals who are treated as self-employed individuals, often subcontractors by other firms, and report to CRA as such, but in reality should be considered employed. For a detailed discussion on assessing whether an individual such as this is employed or self-employed, we recommend you read this blog.

Are they unemployed?

What is really left to write? If a claimant does not fall into the employed or self-employed category, then they are considered unemployed for the purposes of an IRB calculation.

So, why is employment status essential?

It is the very basis upon which the insured’s eligibility for an IRB is determined (s.5), and subsequently, the basis upon which the pre-accident period is determined (s.4). Consequently, determining the insured’s employment status is the starting point for calculating an insured’s pre-accident income. For more information on pre-accident periods, head over here to read our blog post on that topic.

What this means for you:

Never take an OCF-1 or OCF-2 as gospel, without other supporting information. The forms are completed by individuals without the requisite knowledge of this industry.

Be sure to ask the appropriate questions about the relationship between the insured and the business for which they work, the customers of the business, and how the insured is paid. These three questions can provide a lot of insight.

Once you have determined the employment status, and selected the pre-accident period, it is time to calculate the IRB. For additional help with the methodology, feel free to review some of the additional ADS blogs.

To help you identify the likelihood that an insured is either employed or self-employed, ADS has created a form, which you can request here.

As always, please contact one of our accountants here at ADS Forensics if you have any questions.

The Insured Was Paid in Cash; Now What?

Cold, hard cash can be very hard to trace. This makes accounting for cash wages in Income Replacement Benefit (IRB) calculations tricky.

There are any number of instances when a person might be paid in cash: tips for waiting tables, housekeeping, contractors, whether employed or self-employed, and often when working for family members.

So, how do we prove a claimant earned a particular wage where they were paid in cash?

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Offsetting pre-accident employment income with self-employment losses


The Henderson-Briehl arbitration decision became the guide for calculating pre-accident income for an individual who had both employment income and self-employment losses under the Old SABS (O. Reg. 403/96). However, the New SABS (O. Reg. 34/10) appears to revert back to the methodology which was regularly used prior to that decision.  As such, from September 1, 2010, self-employment losses can offset employment income in calculating an insured’s pre-accident income.

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The Eligibility Criteria and Period of Benefit for an Income Replacement Benefit – New and Old


The past 14 years have seen a few tweaks to both the Eligibility Criteria and the Period of Benefits for an IRB.  The New SABS (O. Reg. 34/10) is no different.

We have addressed the changes below, including the removal of the Whiplash Associated Disorder (WAD), and the changes to the Election among Income Replacement, Non-earner and Caregiver benefits found in the new Section 35.

For ease of reference, we have also included the wording of the sections of the New SABS for your review.

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