Tag: Laxdal v. Robbins

Clarity Provided by BC Court of Appeal on Tax Deductions in ICBC Loss of Income Awards


There has been some uncertainty in the law over the past few years over the amount that is to be deducted by trial judges when awarding past income loss in tort claims arising from BC motor vehicle collisions.  This issue was clarified in reasons for judgement released today by the BC Court of Appeal.
In today’s case (Laxdal v. Robbins) the Plaintiff was injured in a motor vehicle collision and sued for damages.  She was awarded $3,306 for past loss of income.  Section 98 of the Insurance (Vehicle) Act requires past income loss awards to be reduced to “net income loss” after taking income tax into account.
The trial judgement did not reduce the wage loss award finding that “In my view, the authorities support the conclusion that where the gross award is at or below the amount exempt from taxation, there would be no tax payable so that the net past income loss would be the same as the gross past income loss….Accordingly there will be no deduction for income tax as the amount of past wage loss is below the personal exemption”
ICBC disagreed and appealed this finding.  ICBC argued that any past loss of income awards need to be combined with actual income earned during the year of the loss and tax consequences need to be determined using the global figure.  The BC Court of Appeal agreed and provided the following clarity in this contentious area of personal injury law:

[18]         I have concluded that the trial judge was incorrect in interpreting ss. 95 and 98 of the Insurance (Vehicle) Act as not requiring a reduction in her award for past loss of income to reflect the tax consequences when that loss is combined with earned income during the same period. The words of those sections must be read in their grammatical and ordinary sense.

[19]         Having found that the losses all occurred in 2006, the trial judge ought to have combined the respondent’s 2006 income with the past income loss award for the purpose of determining the income she would have earned for income tax purposes “as if she had continued working” (as per Tysoe J.A. at para. 185 of Lines). To achieve this result, the appellant proposed the use of what has been referred to as the “stacking approach”.

[20]         I am satisfied that, where an income loss can be attributed to a particular tax year or years, the language of ss. 95 and 98 of the Insurance (Vehicle) Act requires a resort to the stacking approach. Although Tysoe J.A. explained in the examples he referred to in Lines that “it was the intention of the Legislature to give a discretion to the judge to determine what period or periods are appropriate for the determination of net income loss in all of the circumstances”, once that determination is made, the legislation requires a deduction from the gross income loss to take into account the provisions of the Income Tax Act of British Columbia, the Income Tax Act of Canada and the Employment Insurance Act of Canada for the relevant year or years…

[22]         As Tysoe J.A. observed in Lines at para. 180:

… It does seem somewhat odd for the income loss allocated to a particular year to be reduced according to one set of tax rules (i.e., the tax rules for the preceding year), while the plaintiff’s actual earnings for that year are taxed according to a different set of tax rules (i.e., the tax rules for the year in which the income was earned).

[23]         The application of the stacking approach in accordance with the legislation will result in the combination of the award for past income loss with the other income earned for the same year, but the application of the enumerated legislation from the preceding year to only that portion of the total income for that year represented by the award. While the result is a cumbersome calculation, I see no need to resort to any exceptional construction of the legislation, as discussed by Lamer J., as he then was, in R. v. Paul, [1982] 1 S.C.R. 621 at 662, in order to achieve the legislative intent of ss. 95 and 98 of the Insurance (Vehicle) Act. Section 95(a) of the Insurance (Vehicle) Act refers in each of its subsections to taxes or premiums as the enumerated Acts “read on December 31 of the calendar year before the calendar year in respect of which the net income loss is to be determined”. In my view, this wording accommodates awards for either single or multiple years of income loss by permitting a judge to allocate the loss as discussed at para. 184 of Lines, and to then subject the award for that year or years to the effect of the specified legislation based on their provisions for the preceding year.

[24]         A feature of the present legislation that does not arise in this case is the inability of a person injured in a motor vehicle collision to take advantage of any tax planning, such as a contribution to a Registered Retirement Savings Plan. In Lines Tysoe J.A. concluded at paras. 190-194 that such a notional contribution could not be allowed when calculating net income loss under ss. 95 and 98. While the inability to take advantage of such tax planning will not place the injured person in the same position that he or she would have been in, but for the accident, the application of the stacking approach will come as close to so doing as possible, while at the same time giving effect to the intent of the Legislature.

[25]         In this case, the respondent’s total reported income for the year 2006 was $40,175.00. The respondent paid $6,024.05 for federal and provincial income tax that year, which represented an overpayment of $202.26.

[26]         I conclude that the appropriate means by which to arrive at the respondent’s net past income loss is:

a)       to determine her income from other sources during 2006 ($40,175.00);

b)       add that figure to her income loss after taking into account the sick benefits she received ($3,306.24);

c)       determine the tax that would be payable on $43,481.24, based upon the 2005 income tax rules and regulations by computing the amount in accordance with the provisions of theIncome Tax Act of British Columbia, the Income Tax Act of Canada and the Employment Insurance Act of Canada applicable to the calendar year ending December 31, 2005 and on $40,175.00 based upon the 2006 income tax rules and regulations by computing the amount in accordance with the provisions of the Income Tax Act of British Columbia, the Income Tax Act of Canada and the Employment Insurance Act of Canada;

d)       subtract the difference between the two tax figures determined in c, above;

e)       then deduct d from the income loss award, net of sick benefits that she received.

More from BC Supreme Court on LVI Crashes, Net Past Income Loss Awards

(Note: the case discussed in this post was overturned by the BCCA addressing the issue of tax consequences in ICBC past income loss awards.)
In reasons for judgement published today by the BC Supreme Court (Laxdal v. Robbins) Madam Justice Gerow discussed two interesting issues that often come up in ICBC Claims.
The first is the “LVI Defence“.  In today’s case the Plaintiff was injured in a 2006 car crash in Nanaimo, BC.  This collision appears to fit ICBC’s LVI criteria in that the Plaintiff’ vehicle suffered minimal damage and this was stressed by the defence at trial.  In finding that the Plaintiff indeed suffered injury in this crash despite the rather insignificant amount of vehicle damage Madam Justice Gerow had this very practical take on the evidence presented:

[17] Although the severity of the accident is a factor that should be taken into consideration when determining whether Ms. Laxdal suffered injuries in the motor vehicle accident and the extent of those injuries, it is not determinative of either issue. Rather, the whole of the evidence must be considered in determining those issues.

[18] In this case, the uncontradicted evidence of both Ms. Laxdal and Dr. Roy, her family doctor, is that Ms. Laxdal suffered a soft tissue injury in the accident. As a result, I have concluded that Ms. Laxdal’s injuries were caused by the motor vehicle accident of September 11, 2006.

The court went on to award $15,000 for the Plaintiff’s pain and suffering for “mild to moderate soft tissue injury in her neck and back with some pain radiating into her shoulders.  Her injuries had mostly recovered…approximately 8.5 months after the accident, and it is unlikely that there will be any significant residual symptoms as a result of the accident“.

The second issue dealt with by the court worth noting was the award for past loss of income and the proper calculation of “net income loss”.

There is a debate amongst lawyers in the Personal Injury Bar with respect to the proper calculation of “net income loss” when the amount of past wage loss in a BC Vehicle Crash tort claim for any given year is so small that the figure would be tax exempt but when added up with the other income earned by the Plaintiff the gross figure would be taxable.  The answer to this question is important as it effects the amount that can be awarded for past wage loss in a BC Car Crash tort claim due to s. 98 of the Insurnance (Vehicle) Act.

In today’s case, Madam Justice Gerow decided as follows:

In my view, the authorities support the conclusion that where the gross award is at or below the amount exempt from taxation, there would be no tax payable so that the net past income loss would be the same as the gross past income loss….Accordingly there will be no deduction for income tax as the amount of past wage loss is below the personal exemption.”

This is a great result for BC Plaintiff’s injured in car crashes who suffer a modest past wage loss as it permits the gross amount to be recovered so long as the award fall below the personal income tax exemption for any given calendar year.  I imagine ICBC is not as pleased as Plaintiffs are with this interpretation and perhaps this issue will go up to the Court of Appeal for consideration.  If it does I will be sure to write about the result.

More on ICBC Injury Claims, Past Wage Loss and Tax Consequences

When advancing a personal injury claim against another as a result of a BC Car Crash claims for past wage loss are limited to wage loss less income tax.  This is so because of s. 98 of the Insurance (Vehicle) Act which reads as follows:
Despite any other enactment or rule of law but subject to this Part, a person who suffers a loss of income as a result of an accident or, if deceased, his or her personal representative, is entitled to recover from designated defendants, as damages for the income loss suffered after the accident and before the first day of trial of any action brought in relation to it, not more than the net income loss that the person suffered in that period as a result of the accident.
Over the years there was some uncertainty as to how this section of the Insurance (Vehicle) Act operated with respect to claims for past wage loss that extended for multiple years.  For example, if a person suffered 2 years of wage loss of $25,000 per year how would tax be calculated?  Would it be the tax payable on $25,000 per year or would it be the tax payable on the whole $50,000 as if it was earned on the date of trial or settlement?  In March, the BC Court of Appeal released reasons for judgement clarifying this section stating in essence that if income loss can be attributed to any given year then the taxes payable on that income for that year should be deducted.
There is one scenario, however, that has not been clarified by the BC Court of Appeal and that is what income taxes are payable when the amount of past wage loss for any given year is so small that the figure would be tax exempt but when added up with the other income earned by the Plaintiff the gross figure would be taxable?
Reasons for judgement were released this week by the BC Supreme Court dealing with this issue.  In this week’s case (Laxdal v. Robbins) the Plaintiff was involved in a 2006 BC Car Crash.  Madam Justice Gerow found that the Plaintiff suffered a past wage loss of $3,306.24 in 2006.  ICBC’s lawyers argued that this amount should be further reduced to reflect the income taxes payable when adding this figure to the Plaintiff’s total 2006 earnings.  In rejecting this argument the Court held as follows:
In my view, the authorities support the conclusion that where the gross award is at or below the amount exempt from taxation, there would be no tax payable so that the net past income loss would be the same as the gross past income loss….Accordingly there will be no deduction for income tax as the amount of past wage loss is below the personal exemption.”
This is a great result for BC Plaintiff’s injured in car crashes who suffer a modest past wage loss as it permits the gross amount to be recovered so long as the award fall below the personal income tax exemption for any given calendar year.  I imagine ICBC is not as pleased as Plaintiff’s are with this interpretation and perhaps this issue will go up to the Court of Appeal for consideration.  If it does I will be sure to write about the result.

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ERIK
MAGRAKEN

Personal Injury Lawyer

When not writing the BC Injury Law Blog, Erik is the managing partner at MacIsaac & Company, based in Victoria, B.C. He is also involved with combative sports regulatory issues and authors the Combat Sports Law Blog.

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