ICBC Law

BC Injury Law and ICBC Claims Blog

Erik MagrakenThis Blog is authored by British Columbia ICBC injury claims lawyer Erik Magraken. Erik is a partner with the British Columbia personal injury law-firm MacIsaac & Company. He restricts his practice exclusively to plaintiff-only personal injury claims with a particular emphasis on ICBC injury claims involving orthopaedic injuries and complex soft tissue injuries. Please visit often for the latest developments in matters concerning BC personal injury claims and ICBC claims

Erik Magraken does not work for and is not affiliated in any way with the Insurance Corporation of British Columbia (ICBC). Please note that this blog is for information only and is not claim-specific legal advice.  Erik can only provide legal advice to clients. Please click here to arrange a free consultation.

Posts Tagged ‘Undeclared Income’

Undeclared Income And Tort Recovery Difficulties

March 20th, 2013

Although income loss from ‘undeclared’ sources is recoverable in a BC personal injury claim attempting to do so can create some practical difficulties.  First off testifying to actual income differing from declared income can open the door to consequences to Revenue Canada.  Second, proving the loss can become a real barrier for a Plaintiff.  This second concern was highlighted in reasons for judgement released recently by the BC Supreme Court, Prince George Registry.

In the recent case (Welygan v. Willms) the Plaintiff was injured in a 2008 motorcycle accident.  While much of her claim was rejected at trial the Court did accept that she suffered from some injury and wage loss.   The Plaintiff worked in the food service industry and derived some of her income in tips.  Her tips were undeclared.  The Court did not accept the level of loss that the Plaintiff testified to and in doing so the Court provided the following comments highlighting the difficulty in assessing losses based on undeclared income:

[396]     Her only irregular employment was as a server in bars from time to time where she earned minimum income supplemented with undeclared income from tips.

[397]     Undeclared tips is a commonplace occurrence for young people working in the food service industry, although it makes it more difficult to determine the plaintiff’s actual pre-accident income when the only evidence of the value of the tips comes from her “estimate” at trial, unsubstantiated by any written record.

[398]     The plaintiff possessed a certificate from a medical terminology course that she never used, and says she had aspirations to go to hairdressing school although she had not made any inquiries or taken any steps towards that end.

[399]     I am unable to assess her pre-trial loss of income claim on any other basis than her history of earnings from the food service industry, using her income tax information, and adding a somewhat arbitrary amount for tips that I will accept she was receiving but not reporting, for the time period in which I conclude she was incapable of returning to that work because of injuries related to the accident.

[400]     I have found that the plaintiff recovered from her disabling pain from the accident by the end of 2008, and by that point in time her pre-existing psychiatric illnesses had settled back to their pre-accident level and were no longer exacerbating her physical pain.

[401]     The plaintiff says she intended to continue working at Steamers Pub until September 2008 and then go to hairdressing school.

[402]     She was making approximately $660 per month in 2008 from Steamers Pub, up to the time of the accident, from her income tax records.

[403]     In addition she says she was making about $900 per month from undeclared tips.

[404]     I am not prepared to accept a figure of $900 per month for tips without some independent proof. I will accept an amount of half that number of $450 per month for tips.


Undeclared Income Compensation and the Reality of Trial Testimony

June 22nd, 2012

As previously discussed, while income loss from ‘under the table’ earnings can be recovered in a personal injury claim in BC, doing so often requires testifying to untruthful past tax filings with respect to past earnings.  The papertrail this creates puts plaintiffs with undeclared earnings in a difficult position if they seek to recover damages for their full losses as was demonstrated in reasons for judgement released this week by the BC Supreme Court, Vancouver Registry.

In this week’s case (Wong v. Hemmings) the Plaintiff was injured in two collisions.  She worked as a server for the Fairmont Hotel.  As with many servers, her income was derived from wages and tips.  Her injuries impacted her vocational abilities and damages were awarded for past and future diminished earning capacity.  In presenting her case the Plaintiff presented evidence as to her actual earnings which differed from her declared earnings to Revenue Canada.  Mr. Justice Fitch summarized this evidence as follows and provided the following comments with respect to her undeclared earnings:

[75] It is noteworthy that the plaintiff was informed by the Fairmont, in writing, in early 2011 that her gratuities from credit card sales alone for 2010 were $30,652.82. The plaintiff was advised by her employer that, “this information may be helpful to you when you are preparing your 2010 tax return”.

[76] The plaintiff testified that she makes about $63,000.00 a year. She said it is her practice to declare about $5,000.00 in tip income each year. She is aware that she is obliged to declare all income, including tips and gratuities, on her tax return. She testified that she was, “following industry standard” in not declaring the full amount of her tips and gratuities. She testified that she does not know anyone in the restaurant service industry who declares the full amount of their tips. Having said that, the plaintiff admitted knowing that failing to declare all of her tips and gratuities was wrong. She testified that she could not have supported herself and her daughter had she declared and been taxed on the full amount of her income. She testified that, consistent with her past practice, it was not her intention to declare the full amount of her tip income on her 2011 tax return…

[125] The defendants assert that the plaintiff should not be granted a past wage loss award that includes undeclared tips. They assert this position to preserve an ability to argue the issue in another forum as counsel for the defendants otherwise concedes that this Court is bound by Iannone v. Hoogenraad (1992), 66 B.C.L.R. (2d) 106 (C.A.), leave to appeal dismissed [1992] S.C.C.A. No. 185, which holds that failure to declare tip income is no bar to the recovery of undeclared tips as past wage loss.

[126] The defendants also submit that the plaintiff has failed to establish what she would have earned in gratuities on her cash sales. As noted above, the Fairmont’s records reflect only the total amount of the plaintiff’s cash sales as a server. Any tip received by a server on a cash sale would be known only to them. The defendants point out that in 2006, for example, and assuming an average 12% tip on cash sales, the tips received by the plaintiff on cash sales represented 8.6% of her total tip earnings. Using this as a baseline, the defendants argue that the plaintiff’s past tip loss should be discounted by 8.6% to reflect the amount of cash tips allegedly lost but not proven.

[127] The defendants are, at least in theory, on firmer ground on this issue. Iannone stands for the proposition that the plaintiff has the burden of leading evidence of past wage loss and that it will be a difficult burden to discharge where there is no confirmatory evidence, such as income tax returns, to establish that the amount claimed would, in fact, have been earned. In this case, however, I am satisfied that the plaintiff has met her burden of proof on this issue. The records of the Fairmont Hotel clearly establish the total of the plaintiff’s cash sales as a server. The plaintiff testified that she would receive, on average, a 12% tip on her cash sales. I accept her evidence on this point.


Unintended Consequences: ICBC Wage Loss Claims and Undeclared Income

September 20th, 2010

As I’ve previously written, if a person does not declare their earnings when paying their taxes they can still advance a wage loss claim in a personal injury lawsuit, however, doing so not only makes the claim more difficult to prove but also could expose the Plaintiff to repercussions from Revenue Canada.  Reasons for judgement were released last week demonstrating why this is so.

In last week’s case (Thomas v. Thompson) the Plaintiff was involved in a 2005 motor vehicle collision in Kelowna, BC.  He went to trial without a lawyer and advanced a claim for damages for over $1.3 million.   Fault for the crash was admitted by the Defendant.  At trial many of the Plaintiff’s claims were rejected by the trial judge however the Court did accept that the Plaintiff suffered from “continuing pain” as a result of the collision and this would need to be treated on an ongoing basis with medication.  As a result the Plaintiff was awarded damages for non-pecuniary loss and cost of future care.

The Plaintiff gave evidence that he earned an average income of more than $60,000 per year in the period shortly prior to the crash.  However, his tax returns did not reflect this.  Despite the unreported nature of the pre-injury income Mr. Justice Brooke accepted that the Plaintiff did earn a “substantial income” in the years prior to the crash.  The Court rejected the claim for loss of past and future income, however, finding that the Plaintiff’s injuries, while on-going, did not impair his earning capacity.

The end result is that, in advancing an unsuccessful claim for past loss of income, the Plaintiff testified in open court as to the amount of income he earned that he failed to report to Revenue Canada.   As reasons for judgement are publicly available there is nothing stopping government agencies such as Revenue Canada from pursuing Plaintiffs who give such evidence for payment of back taxes and penalties.  These can, of course, be substantial.  The difficulties with advancing wage loss claims when the history of earnings is unreported is demonstrated by the following passage from the trial judge:

[24]         I now turn to the damages claimed by the plaintiff, and the question of credibility.

[25]         First of all, the plaintiff said under oath that he earned an income in 2004 of $63,886 and in 2005 from January 3 to June 28 an income of $31,444 (or more than $60,000 on average a year), in home renovation work. Mr. Dave Novak gave evidence for the plaintiff that he hired him on a regular basis to do home improvements and renovations, based on an estimate in advance, for which he sometimes paid in cash and sometimes by cheque. He did not disagree with the amounts shown by Mr. Thomas on forms of sales orders, but acknowledged that he had no firm recollection. In his 2003 tax return summary, Mr. Thomas reported an income of $21,815 employment insurance benefits. No reference is made to income from employment. In 2004 Mr. Thomas reported an income of $6,840 from employment insurance, and other income of $500 for a total of $7,340. In 2005 Mr. Thomas reported no income, and in 2006 and following Mr. Thomas reported an income of Social Assistance payments varying from a little more than $2,000 a year to almost $11,000 a year. There is no reference to any employment income in any tax return placed in evidence. Mr. Thomas explains this by saying that he did not understand that tax was payable on earned income where the tax payer did not charge GST or PST. I find this to be preposterous. What Mr. Thomas is saying is that he is well informed enough to claim employment insurance benefits, but not well informed enough to report actual income. It is noted that in each year his tax return was prepared by H&R Block, a commercial tax preparer. I also note that Mr. Thomas made an assignment in bankruptcy on August 24, 2007 in which he disclosed liabilities of in excess of $41,000 made up of student loans and credit card debts. While I accept that Mr. Thomas has been challenged in his language skills in the past, and I must consider what role if any this might have played, I find his understanding and usage was fluent and effective and I can only conclude either that he knowingly failed to disclose his true income in his tax returns, or that he did not earn the kind of income that he claims to have made in the home renovation business.

[26]         I find that Mr. Thomas was working in 2003, 2004 and 2005 and earning a substantial income. But, not only was he failing to report that income but he seemingly was drawing employment insurance which is, of course, payable upon being fit but unable to find work.


Can Past Wage Loss be Recovered in an ICBC Claim When You're Paid "Under the Table"?

August 17th, 2009

When a person is injured through the fault of another in British Columbia and suffers a past wage loss from an “under the table” job can that past wage loss be recovered in a personal injury action? The answer is yes, however, it is much more difficult to do so than in cases where past income is accurately reported to Revenue Canada.

In a 1992 case from the BC Court of Appeal (Iannone v. Hoogenraad) the law was summarized as follows:

This plaintiff, like others in similar circumstances, had the burden of leading evidence of past accident wages losses.  That will be a difficult burden to discharge where there is no corroborating evidence such as income tax returns, but it is not an impossible burden to discharge.  Here the trial judge was satisfied on the evidence that the injuries sustained by the plaintiff prevented him from earning income which he would otherwise have earned.  The burden of proof was therefore discharged.  The loss was proven.  It is not, in my opinion, open to the defendant to avoid compensating for that loss on the ground that unreported income was taken into account in computing it.

Reasons for judgment were released today by the BC Supreme Court demonstrating the difficulty in succeeding in a past wage loss claim in these circumstances.

In today’s case (King v. Horth) the Plaintiff was injured in a 2006 Car Crash in Saanich, BC (greater Victoria).  The Plaintiff claimed damages for various losses including past loss of income.  At trial he asserted that “he would have been capable of earning greater income as a gardener had he not been injured in this accident”. This claim was largely rejected and paragraphs 25-26 of the decision demonstrate Mr. Justice Johnston’s skepticism of this claim for lost income where pre accident income was not reported to Revenue Canada:

[25]      A second concern respecting Mr. King’s credibility relates to his claim for loss of earning capacity arising out of this accident. This claim centers around his assertion that he would have been capable of earning greater income as a gardener had he not been injured in this accident. Prior to this accident the plaintiff did not record, in any fashion, the income he claims that he earned as a gardener, nor did he declare that income on his income tax returns. There is some evidence from a former employer that he had employed Mr. King as a gardener before the accident, however, that employer kept no record of the plaintiff’s work hours or his wages.

[26]      In a document he submitted to ICBC in February 2006, the plaintiff stated his occupation as a surveyor. He did not mention any work as a gardener. Mr. King testified that he felt it was advisable not to refer to his gardening income in his dealings with ICBC, at least in the beginning, because that income had been earned “under the table.”

In addition to making it more difficult to succeed in a past wage loss claim, a further dilemma that can arise in these types of cases are problems with Revenue Canada after trial.  Whether or not a past income award is made at trial, Revenue Canada can come after a Plaintiff for back taxes when these types of cases are advanced.

The reason for this is, to discharge the burden of proof, a Plaintiff usually needs to take the stand and testify under oath as to how much money he/she earned historically but failed to report to Revenue Canada.  Trial testimony is generally a public record and Revenue Canada can use this sworn evidence to come after Plaintiffs.  So, in summary, pay your taxes!