Undeclared Income Compensation and the Reality of Trial Testimony
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:
 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”.
 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…
 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  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.
 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.
 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.