When Are Payments for Loss of Income Deductible?

Summary: The New SABS (O. Reg. 34/10) have introduced changes which will require continued efforts on the part of an adjuster to confirm what benefits may be considered payments for loss of income, and subsequently, what will be deductible as other income replacement assistance.

Payments for loss of income which are deductible from an IRB are outlined in paragraph 3(7)(d) of the New SABS.  This paragraph is a change from the Old SABS subsection 2(9), apparently codifying previous FSCO arbitrations decisions, such as Sharma-Singh and Co-operators General (A07-000588).

For details on other income replacement assistance, we refer you to our ADS Blog.

So what changes did the New SABS bring?

Insurance Contract – The first change deals with contracts under which periodic payments of insurance are deemed to be payments for loss of income.  Specifically, payments are now deemed to be payments for loss of income “irrespective of whether the contract for the insurance provides”:

•    A waiting period,
•    A deductible amount or similar limitation, or
•    Is paid for in whole or in part by the employer.

These factors were not considered in the Old SABS (O. Reg. 403/96), but have come about through FSCO decisions.

Employment Status – A second change deals with the employment status of the insured while the contract of insurance is in effect.  Where the Old SABS required the insured to be “employed at the time the contract for the insurance is entered into“, the New SABS requires the insured to be “employed while the contract for the insurance is in effect“.

It appears clear, therefore, that documentation will be required to confirm both when the policy was in effect, but also when the insured was employed.

What hasn’t changed?  The reference to the insured’s income as the basis for the calculation of the maximum benefit remains the same.  As well, CPP disability pension benefits are still considered payments for loss of income.

So how does this impact you?

Well, it means continuing to collect documentation to address the points above.  You will likely require copies of the following documentation to adequately determine whether a payment can be considered a payment for loss of income:

•    Policy
•    Application for the policy
•    Employment information which deals with the insured’s employment periods

Final Note:  It appears, although is not yet conclusive, that all payments for loss of income will now be deducted on a gross basis, consistent with the move from 80 per cent of net income to 70 per cent of gross income, in accordance with subsection 4(1). For more details, we refer you to our related blog on Other Income Replacement Assistance.

If you have questions, whether general or file specific, don’t hesitate to contact the accountants at ADS Forensics. We can be reached at answers@adsforensics.com or 1-800-380-7908 ext ASK (275).

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