A Loan From Your Company is Not Necessarily Post Accident Income

January 29, 2008, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Arbitrator:  Denise Ashby

Decision date:  January 16, 2008

Kim Thanh Tran was injured in a motor vehicle on October 31, 2002.  He applied for and received Statutory Accident Benefits (SABs) from TD Home and Auto Insurance.  TD terminated his income replacement benefits.

The issue to be decided at the preliminary hearing was whether TD could deduct 80% of the post accident payments that Mr. Tran received from his company from his income replacement benefits (IRBs).

As a result of the car accident Mr. Tran suffered a complex injury to his right hand which included an amputation of the tip of his thumb.  Mr. Tran has also been diagnosed with post traumatic stress disorder, depression, anxiety phobia, cognitive impairment, chronic pain and sleep disorder as a result of the car accident.

Mr. Tran immigrated to Canada from Vietnam in 1979.  He completed high school in Canada and obtained work as a cleaner.  He later started his own cleaning company in 1989 and his younger brother became a partner in the business.  The company was active at the time of the car accident.

Mr. Tran and his brother both testified at the preliminary issue hearing.  The arbitrator felt that they both gave their evidence in a forthright and honest manner.  A report from an Occupational Therapist was filed.  That report noted that Mr. Tran had difficulty with recall and mood.  The arbitrator held that where Mr. Tran´s evidence differed with his brother then his brother´s evidence would be preferred.  The parties also filed an agreed Statement of Facts which provided that Mr. Tran continues to meet the post 104 week test for entitlement to IRBs.  The agreed Statement also noted that Mr. Tran entered into a loan agreement with the company where he received $6,000.00 per month with an interest rate of 6%.  Mr. Tran also continued to own 50% of the cleaning company.  Surveillance showed that Mr. Tran attended at the cleaning company´s office on an irregular basis.  It also showed that he visited suppliers with a company employee and had a key with which he has locked the office at the end of the day.  Mr. Tran´s brother says that when Mr. Tran attends the business his memory and concentration are impaired by pain and he cannot productively contribute to the business.

The monthly loan payments were to be made as long as required.  TD took the position that the loan payments were really salary paid to Mr. Tran.

Mr. Tran´s brother testified that Mr. Tran had responsibility for a cleaning contract after the accident to try and reintegrate him back to the business.  The experiment was a failure and the contract was lost.  After that Mr. Tran had no responsibility for their company´s contacts.  Mr. Tran did continue to attend at the cleaning company´s office and used some of the company´s equipment.  The issue was what conclusion was to be drawn from Mr. Tran´s participation in the business.

The Trans testified that Mr. Tran spends time at the company office playing computer games and talks with staff and family.  While Mr. Tran has telephone access the receptionist would direct his calls to his brother.  Mr. Tran sometimes visits suppliers and customers but these were primarily friends for over 20 years.  These visits were primarily social and not business.  Mr. Tran did have access to a company vehicle.   Since the accident Mr. Tran continued to be listed as President and a director as well as cheque signing authority.  It was also noted that Mr. Tran´s doctor advised that Mr. Tran be involved in the business to help deal with depression.

The brothers testified that the loan agreement was entered into after the car accident and that there was an expectation that the loan would be repaid from the insurance claims that Mr. Tran was pursuing.  The evidence also showed that the cleaning company has grown and prospered since the car accident.  The interest provisions of the loan agreement have been applied to all funds paid to Mr. Tran.

The arbitrator was satisfied that Mr. Tran´s attempts to resume participation in the cleaning company were a failure.  Further, considering the advice of Mr. Tran´s doctor, the arbitrator held that the trips to suppliers and customers and the visits to the office were not for business but were social in nature.  The arbitrator concluded that Mr. Tran´s brother was the directing mind of the cleaning company and that Mr. Tran´s involvement was rehabilitative.  Mr. Tran had no viable role in the day to day business or ongoing governance.  The arbitrator further concluded that the payments by the cleaning company to Mr. Tran were a loan.

The arbitrator then had to consider whether the loan payments were employment income as provided under the SABs and if they are income then TD would be permitted to deduct 80% of the loans from Mr. Tran´s IRB payments.

Section 6(2) of the SABs permits the insurer to deduct, from the insured´s IRB payments, 80% of the net income received by the insured from any employment subsequent to the accident.

While a loan may be considered income under the Income Tax Act, for the purposes of the SABs, the arbitrator was required to consider the definition of "employment" under the SABs.  The SABs provided that a person is employed when they are engaged in employment, including self-employment.  In this case, it was acknowledged that Mr. Tran was unable to participate in any employment for which he was reasonably suited by education, training or experience.  The arbitrator held "engage" to mean active participation in a job, trade, profession or business.  Given that Mr. Tran was determined to be unable to engage in employment, and engaging in employment is a prerequisite to permit the insurer to deduct post accident income, then the arbitrator concluded that TD could not deduct the loan payments from Mr. Tran´s IRB payments as he was not engaged in employment at the time that he received the loan payments.  The arbitrator also included that the loan payments would not be included in income as income from self employment is defined in s.62 (1) of the SABs.

The key to this case was the factual evidence regarding Mr. Tran´s activities at his business.  The evidence provided by Mr. Tran, and more particularly from his brother, was credible and believable.  The evidence showed that while post accident payments were being made to Mr. Tran by the company these payments were considered a loan, with proper documentation.  Further, Mr. Tran´s post accident activities were not considered to be activity in the course of employment but more of a therapeutic/socializing nature.

Posted under Accident Benefit News, Amputation and Disfigurement, Automobile Accident Benefits, Car Accidents, Chronic Pain, Pain and Suffering

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About Deutschmann Law

Deutschmann Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.deutschmannlaw.com or call us toll-free at 1-866-414-4878.

It is important that you review your accident benefit file with one of our experienced personal injury / car accident lawyers to ensure that you obtain access to all your benefits which include, but are limited to, things like physiotherapy, income replacement benefits, vocational retraining and home modifications.

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