Gross versus Net Disability Payments and their Deductions from IRBs – Seriously, is this still an issue?

When an individual is injured in a motor vehicle accident, navigating the financial aftermath can be as challenging as the physical recovery. A critical component of this process is understanding Income Replacement Benefits (IRB), which are designed to support accident victims who are unable to return to work. A recent decision,  17-001274 v Unifund Assurance Company, sheds light on the intricacies of calculating these benefits and the importance of interpreting the Statutory Accident Benefits Schedule (SABS) accurately.

The IRB Issues Chart from the Case

Before diving into the details, let’s look at a chart summarizing the key periods and amounts in dispute regarding the IRBs in this case:

This chart provides a snapshot of the dispute: whether the IRB should be calculated using the gross or net amount of short-term and long-term disability benefits.

The Story

Imagine G.K., an individual whose life took an unexpected turn on November 5, 2014. On this day, as a pedestrian, G.K. was struck by a motor vehicle, an event that led to a cascade of medical and financial challenges. Following the accident, G.K. applied for disability benefits through his employer, Brewer’s Retail Inc., where he had been working diligently until the accident rendered him unable to continue.

From April 1, 2015, G.K. started receiving disability benefits, which were provided to him net of tax. This means that the taxes on these benefits were deducted at the source and directly remitted to the Canada Revenue Agency before G.K. ever saw a penny. The accountant representing G.K., Ian Wollach, a Chartered Professional Accountant, took a firm stance on this matter. He argued that the disability benefits should be deducted on a net basis from the IRB for several reasons:

1) Interpretation of “Received By”: Wollach contended that the phrase “received by” in the SABS was crucial for interpreting the quantum of IRB benefits. The argument was that since G.K. only received the net amount after taxes, this should be the figure considered for IRB calculations.

2) Actual Receipt of Benefits: The applicant emphasized that the gross disability benefits, which were taxed before reaching him, were never truly “received by” him in their entirety. Hence, only the net amount, which he actually received, should be factored into the IRB.

3) Nature of Remedial Legislation: Wollach pointed out that the SABS is remedial legislation, designed to help those in need. He noted that while the Schedule frequently mentions terms like “gross employment income” and “gross weekly payment,” the clarity of the language did not preclude the consideration of net amounts in specific contexts, especially given the remedial nature of the legislation.

The Arbitrator’s Decision and Logic

The arbitrator, Ian Maedel, approached the case with a meticulous analysis of the SABS, particularly sections 4(1) and 7(1), which guide the calculation of IRBs. The decision was rooted in a strict interpretation of the Schedule’s language, which consistently referred to “gross” amounts.

The arbitrator reasoned that:

– The SABS’s use of “gross” amounts in its language was intentional and clear, leaving little room for interpretation that would allow for net amounts to be used.

– The principle of no double recovery, a cornerstone of the SABS, was best upheld by using gross amounts to prevent individuals from receiving more than their due compensation.

– The phrase “received by” should not be isolated from the context of the entire Schedule, which aims for a fair and equitable treatment of insured parties.

In conclusion, the arbitrator sided with the insurer’s method, confirming that the SABS mandates the deduction of the gross disability benefits when calculating IRBs. This decision underscores the importance of adhering to the letter of the law as written in the SABS, and it serves as a critical precedent for similar cases in the future.

Conclusion: The Significance of the Decision

Short-term and Long-term Disability Benefits (STD and LTD) are deductible on a gross basis. Often, the Insurer (for example, Sun Life, Manulife etc) will withhold income tax from these payments and remit them to the government, on the Injured’s behalf. Despite these deductions, the gross amount received is what is deductible, pursuant to the SABS s. 7(1).

This decision is important for anyone dealing with IRBs because it clarifies how benefits should be calculated when other forms of income replacement assistance are involved. It reinforces the need to understand the specific language of the SABS and how it applies to real-world situations. For those navigating the aftermath of a motor vehicle accident, this case serves as a reminder of the complexities involved in the financial recovery process and the importance of seeking knowledgeable guidance.