Monthly Archives: January 2015

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.

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”:

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The key factors which indicate if benefits are deductible from an Income Replacement Benefit

Summary: It appears the driving consideration on whether an amount is deductible is whether or not the payment is for loss of income, specifically an indemnity payment, and not how regularly payments are received by the insured, whether or not they cover the entire period of disability, or the length of the waiting period.

These decisions relate to the SABS-1996 (O. Reg. 403/96). However, other than what is explained in our Other Income Replacement Benefit post, it appears the findings in the decisions discussed below will stand.


In considering whether payments are for loss of income, Arbitrator Rogers in Bhola and Personal (FSCO A06 001473) outlined the following factors:

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Non-Indemnity Payments — Not payments for loss of income, and not deductible from Income Replacement Benefits

Summary: The Insured received collateral benefits which were deemed to be of a non-indemnity nature, and as such, not payments for loss of income under an income continuation benefit plan. On this basis, they are not deductible from an Income Replacement Benefit (IRB).

This decision relates to accidents which occurred from November 1996 to September 2010.=

Roana Codling-Mokoena and CAA Insurance Company, FSCO A04 B000017, October 17, 2006 – Arbitrator Leitch

Date of MVA – September 20, 2000.

The insurer disputed payment of IRBs, arguing the IRBs should be reduced by the insured’s receipt of benefits under a disability insurance policy she purchased prior to the accident from Crown Life.

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An Introduction to Other Income Replacement Assistance (OIRA)

Summary: A new term for what was previously called collateral payments for loss of income under the prior legislation, OIRA appears to bring together s.7(1) and (2) of the Old SABS. The only significant change appears to be the addition of “gross”…but does that have an impact?

An Introduction:

The New SABS (O. Reg. 34/10) introduces us to “Other Income Replacement Assistance” (s 4(1)). Commonly referred to as collateral benefits, the new definition highlights that OIRA:

  • Relates to the current accident
  • Is the amount of any gross weekly payment for loss of income that is being received, or that may be available to the person but is not being received as an application has not been made.
  • The following are excluded benefits: the Employment Insurance Act (Canada), payments under a sick leave plan that is available to the person but is not being received, and certain payments under a workers’ compensation law or plan that is not being received by the person

The content of this definition, appears to bring together subsection 7(1) and (2) of the Old SABS.  As a result, the only significant portion of this change appears to be that “net weekly payments for loss of income” has become “gross weekly payment for loss of income”.

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Dividends — are they income for IRBs and what do they say about employment status?

Summary: Unfortunately, this one isn’t so clear cut. Under the majority of cases, dividends are not income for IRB purposes. However, they may be a sign of other income sources.

So, why do we care about dividends when calculating Income Replacement Benefits (IRB)? Let’s look first at when an individual might receive dividends.

When would an individual receive dividends?

If a corporation earns a profit, they have the choice of either reinvesting in the company — retained earnings — or sharing that profit with its shareholders — dividends. Dividends are distributed from after tax income, and as such the business does not report it as an expense on the business income statement. This is different from employment income paid to an insured from the same business. Wages are a pre-tax distribution and reported as an expense on the income statement.

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How do Canada Pension Plan Disability Benefits impact the IRB?


If received, CPP disability benefits are deductible as other income replacement assistance in calculating the IRB payable. But it is important to understand the interplay with other benefits, and other components of CPP disability benefits that shouldn’t be considered.


This discussion must start with qualifying for the Canada Pension Plan (CPP) disability benefits. An insured may qualify to receive CPP disability benefits if they:

  • are under 65 years of age;
  • meet the CPP contribution requirements; and,
  • have a severe and prolonged disability.

That said, the insured must be approved by a Service Canada medical adjudicator, which takes approximately four months, and the decision is based on a number of requirements. This just means there is no certainty when or if benefits will be received.

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Are Canada Pension Plan child benefits deductible from an IRB?

Summary: Unlike CPP disability benefits, CPP child benefits are not deductible as payments for loss of income from the IRB.

What is the CPP Child Benefit, and when is it paid?

Let’s first look at what a qualifying child is:

  • The natural child of the CPP contributor
  • A child “adopted legally” or “in fact” by the CPP contributor while under the age of 21
  • A child “legally” or “in fact” in the custody and control of the CPP contributor while under the age of 21

Further, the dependent child must be either:

  • under the age of 18, or,
  • if between the ages of 18 and 25, they must be a full time student.

In regard to the benefit itself, there are two different types available:

  • For a child who is in the care of an individual receiving the CPP disability benefit; and,
  • For a child who was in the care of an individual at the time of the individual’s death.

In both instances, the individual must have made enough contributions to CPP to qualify. To determine whether an insured might qualify for CPP disability benefits, see our blog on that very topic.

The CPP child benefit is paid monthly and fluctuates annually with the Consumer Price Index. The payment is received as a single lump sum amount, combined with the CPP disability benefit. It is for this reason, you must be able to assess if CPP child benefits are being received.

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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 an insured earned a particular wage when they were paid in cash?


As with most income, cash wages should be considered when calculating an IRB, however, the following must be considered:

  • Is there reasonable evidence of receipt of cash for services rendered?
  • Has the income been reported for tax?

Starting at the Tax Return

Pursuant to s.4(5) of the Statutory Accident Benefits Schedule (SABS) if an insured has not reported the cash as income on their tax return, it is not considered in calculating the Insured’s pre-accident income for IRB purposes.

So all you need to do is report the cash for tax?

No, it isn’t that easy. There are times, especially with family businesses, in which you need to ensure the income reported for tax purposes is fair market value in relation to the work completed.

To further complicate the issue, there is a delay in reporting income for taxes. For example, an employed individual does not have to prepare a tax return for a particular year’s income until April 30 of the following year. This means, if the accident occurs in July, for example, it would take almost a year to confirm if the insured has reported this cash income for tax.

This leads us to our next issue. How do we quantify something the insured may not have tracked? There is no one way, and it is definitely determined on a case-by-case basis, but the following will give you some general guidance.

Quantifying Cash Income – Where to begin

As forensic accountants, we play a role in assessing the existence and quantum of cash income an insured may have received. This will obviously vary on a case-by-case basis. However, it is important to recognize that in some cases there might not be a perfect solution. It’s cash after all!

Ascertaining a precise calculation in an income situation where cash wages are involved can often be impossible. As such, the test is often reasonability for an IRB calculation. Is it reasonable the insured:

  • Earned the indicated level of wages
  • During the time period indicated
  • Performing the job indicated

How do we Test Reasonability?

Step 1 – Gather background information

Understanding the insured’s employment situation is an important piece of this puzzle. Common questions we ask, include:

  • Is the insured related to the employer (see related Family blog)?
  • What were the average hours worked by the insured each week?
  • What tasks did the insured performed?
  • How was the level of pay determined?
  • What are industry averages?

Step 2 – Request supporting documentation

There will not always be documentation available, or at least not obvious documentation. So you may need to look for documentation that supports the reasonability of the insured’s claim, as opposed to the specific receipt of income.

  • Historic tax returns to compare reported income year-to-year.
  • Signed receipts from the employer, prepared prior to the accident not retroactively.
  • Documents to support the earnings and work availability for other employees at the same employer, or to support the wages paid to the insured’s replacement. There will be privacy issues, so don’t expect to receive names with this request.
  • The insured’s bank statements may provide a means to match the timing of any deposits with the story provided by the insured. However, cash rarely all hits a bank account, and so draw conclusions from this source cautiously.

Step 3 – Assess Reasonability

As we have previously stated, it is unlikely the documentation you receive will validate the insured’s receipt of cash income with absolute certainty. So, you now need to assess its reasonability.

  • Compare documents from different periods to look for consistency.
  • Compare the reported income with industry statistics, including specific geographic regions, industries, and age brackets.
  • Request information from third parties, such as industry associations or other employers in the same industry.
  • Review the individual’s lifestyle for assessing reasonability, although this can be much more difficult to assess without the insured’s cooperation.


There are limited FSCO / LAT decisions that address cash income directly. However, there have been a number which address an insured’s lack of documentation and how to support an insured’s income in those situations.

Without getting into specifics, here are some as a starting point:

  • Li Pan and Allstate Insurance (FSCO A16-003705), which allowed the IRB calculation to be based on the limited documentation available and discusses the importance of credibility.
  • Qureshi and State Farm Mutual (FSCO A14-066819), which states, “However, after reviewing the Schedule, I cannot find any provision that suggests exactly what evidence an Insurer has to have to establish employment and income.”
  • Mills and Canadian General (FSCO P-005599), which states, “The goal should be finding a reasonable basis for making the calculation, not punishing poor record keepers.”

Red Flags to Keep Watch For

All the steps you have taken thus far, were to assess reasonability. Red flags exist to help identify something which isn’t as you would expect or doesn’t appear reasonable.  It’s important to remember though, that an unlikely occurrence isn’t an impossible occurrence.

While the examples below are by no means exhaustive, they do provide a starting point for your investigation.

  • Variance from industry statistics – a waitress working in a small town is unlikely to earn $300 in tips on a Tuesday evening, although that same waitress working during a film festival in a major metropolis can easily earn over $300 in tips on the same evening.
  • Inconsistency with historic tax returns or income reported on other sources. An example is Employment Insurance benefits being received while the insured claims to have been working.
  • Bank statements show varying levels of deposits month to month, but the income level reported remained the same.
  • An employer who will not sign off or confirm an employee’s wages.
  • An insured having started a job right before the accident or claiming an income level very close to the policy limit.

In these instances, the claim should be investigated further to rule out any concerns.

What this means for you

If an insured claims to have received cash wages which have not previously been reported on an income tax return, it is essential to assess the reasonability of the insured having received the income claimed.

Follow the steps above, and always keep your eyes open for situations that don’t seem reasonable in the circumstance. There will always be outliers, situations that fall outside the norm, but that may just be an indicator that additional investigation is required.

As always, the team at ADS Forensics would be pleased to talk with you further if you have questions, whether general or about a specific claim. You can reach us at or 1-800-380-7908 ext ASK (275).

When is a Collateral Benefit Deductible?

When it comes to calculating Income Replacement Benefits (IRB) for a claimant, we need to look at every financial aspect of the claim, including collateral benefits.

But what, exactly, constitutes a collateral benefit and when is it a factor in calculating the IRB payable?

This post relates to the post-September 2010 legislation. For our blog on the pre-September 2010 legislation, you may find it here.


Under the post-September 2010 legislation, collateral benefits are received by an insured as a result of a prior incident, meaning an incident which occurred prior to the automobile accident.They are deductible from the amount payable for IRBs and Non-Earner benefits (NEB), only if they are being received by the insured and considered temporary when the insured first qualified for the IRB or NEB.

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