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.