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Tag: Unreported Income

The Evidentiary Value of Past Tax Returns In Undeclared Income Claims

Written by admin on . Posted in ICBC Wage Loss. 54 Comments on The Evidentiary Value of Past Tax Returns In Undeclared Income Claims

Although damages for past loss of income can be assessed even if a Plaintiff does not accurately report income to Revenue Canada, the figures reported on tax filings have a high evidentiary value in Court.  This was demonstrated in reasons for judgement released this week by the BC Supreme Court, Vancouver Registry.
In this week’s case (Saadati v. Moorhead) the Plaintiff was involved in a number of collisions.  The Plaintiff worked as a truck driver and advanced a claim for lost income of $6,000 per month for a period of two years.  Prior to trial the Plaintiff  was declared mentally incompetent and could not testify on his own behalf.   The Court was presented with evidence addressing the Plaintiff’s claim for past loss of income, most notably evidence of very low reported earnings in the years prior to the collision.  The Court relied heavily on this, accepting the reported earnings as accurate, and dismissed the Plaintiff’s claim for past loss of income.  In reaching this decision Mr. Justice Funt provided the following reasons:
[74]         It is also clear that the plaintiff earned very little income during his 2001 to 2004 taxation years. The plaintiff did not report any income for his 2001, 2002 and 2003 taxation years and for 2004 only $12,796 in taxable capital gains was reported. In sum, his tax returns for the years prior to the accident show very little income. I note that in 2007 the plaintiff reported $22,500 in employment income.
[75]         There was evidence that the plaintiff during the years prior to the July 5, 2005 accident did not appear to be in financial difficulties and was able to provide for his wife and two sons. The Court will not impute income to the plaintiff for these years. He filed tax returns which he would have certified to be correct (the Income Tax Act, RSC, 1985, c. 1(5th supp.) also provides significant penalties for a false tax return). As many people do, he may have kept his financial affairs to himself. The imputation of income would be tantamount to finding possibly gross negligence or tax evasion which is unwarranted, especially having regard to the fact that the plaintiff is not able to testify to explain matters and defend his reputation.
[76]         In Hoy v. Williams, 2014 BCSC 234, Justice Kent set forth the test to determine whether an award for past income loss should be made.
[141]    Compensation for past loss of earning capacity is to be based on what the plaintiff would have, not could have, earned but for the injury that was sustained: Rowe v. Bobell Express Ltd., 2005 BCCA 141 at para. 30; M.B. v. British Columbia, 2003 SCC 53 at para. 49. The burden of proof of actual past events is a balance of probabilities. An assessment of loss of both past and future earning capacity involves consideration of hypothetical events. The plaintiff is not required to prove these hypothetical events on a balance of probabilities. The future or hypothetical possibility will be taken into consideration as long as it is a real and substantial possibility and not mere speculation: Athey v. Leonati at para. 27; Morlan v. Barrett, 2012 BCCA 66 at para. 38.
[77]         As stated previously, I have found that the July 5, 2005 accident did not aggravate the plaintiff’s pre-existing physical injuries but that it did cause a personality change and cognitive difficulties.
[78]         The plaintiff has not provided sufficient evidence that “by reason of his [psychological] injuries, [he was] unable to do many things that, but for his injuries, he could have done to earn income” (Rowe v. Bobell Express Ltd., 2005 BCCA 141, at para. 34) or would have earned income.
[79]         The Court, therefore, dismisses the plaintiff’s claim for an award for past wage loss.
 

Unintended Consequences: ICBC Wage Loss Claims and Undeclared Income

Written by admin on . Posted in ICBC Wage Loss, Uncategorized. 113 Comments on Unintended Consequences: ICBC Wage Loss Claims and Undeclared Income


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.