Insurer Must Accept Tax Returns as Proof of Income - Li Pan and Allstate

March 23, 2018, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

Li Pan and Allstate

Date of Decision:
January 29, 2018
Heard Before: Adjudicator Alan Smith

IRB BENEFITS: Applicant provides tax records to prove income; some records are based on an estimate; Adjudicator accepts the CRA records as proof of income and orders IRBs calculated per schedule; Adjudicator confirms that CPP must be applied for and deducted form IRB as accident insurer is the benefit of last resort.

Ms. Hua Li Pan was injured in a car accident on August 28, 2014 sought accident benefits from Allstate but when the parties were unable to resolve their disputes through mediation Ms. Pan applied for arbitration at the FSCO.


  1. Is Ms. Pan entitled to receive a weekly income replacement benefit from one-week post-accident to date and ongoing in an amount to be determined?
  2. Is Ms. Pan entitled to interest for the overdue payment of benefits?
  3. Is Allstate liable to pay a special award because it unreasonably withheld or delayed payments to Ms. Pan?


  1. Ms. Pan is entitled to receive a weekly income replacement benefit from one-week post-accident to February 28, 2016, in an amount to be determined.
  2. Subject to an offset for Canada Pension Plan Disability Benefits, Ms. Pan is entitled to receive a weekly income replacement benefit from February 29, 2016 and ongoing, in an amount to be determined.
  3. Ms. Pan is entitled to interest for the overdue payment of benefits.   

Ms. Pan was 54 years old and worked as a residential and office cleaner pre-accident.  Allstate agreed on November 26, 2015 to pay Ms. Pan $200.00/week retroactively from one week post-accident.  These payments are ongoing pending a determination of the correct quantum. Ms. Pan did not work after the accident.

On September 20, 2017, Allstate deemed Ms. Pan catastrophically impaired. Forty percent of the impairment is of a psychological nature. Ms. Pan has not applied for Canada Pension Plan (“CPP”) disability benefits.

The sole remaining substantive issues to be decided are what was Ms. Pan’s pre-accident income for the purposes of calculating the quantum of IRB payable and whether CPP benefits should be off-set against the IRB.

The Arbitrator reviewed the documentary evidence and noted that Allstate did not file any documentary evidence or expert reports, except for a six-page document of its own creation entitled “Production Request Timeline”, Allstate alleged, was an accurate summary of when Allstate had requested various documents from Ms. Pan regarding her IRB claim.

Ms. Pan relied on her income tax returns and Canada Revenue Agency Notices of Assessment for 2013 and 2014.  The 2013 return noted that Ms. Pan earned $3,438.00 in income plus $492.00 in self-employed commissions from Bonny, along with $20,000.00 from 1029259 Ontario Ltd.  At the Hearing Ms. Pan also entered an expert accounting report which attempts to analyze her 2013 income.  In her written submissions Ms. Pan accurately summarizes that report, stating, “…the [accountants] took a conservative approach with respect to Ms. Pan’s 2013 income, by associating just $3,930.00 out of $23,930.00 (16.4% of her total annualized income) to the period of August 28, 2013 – December 31, 2013”.  In 2014, Ms. Pan earned and declared $29,695.00 in income after expenses but before taxes.  She also proffered a hand-written list of customers, complete with specific names, addresses, phone numbers, total amounts paid and method of payment.


Ms. Pan testified with the aid of a Mandarin Chinese interpreter.  Ms. Pan stated that she did not remember exactly when she started working for Bonny.  She also was unable to verify if the T4 amount reported on her income tax return in 2013 from Bonny was accurate.  She testified that at some point in later 2013, she could not recall exactly when, she started her own cleaning business.  Ms. Pan gave conflicting testimony as to whether, and how often, she worked at her husband’s company in 2013.  Ms. Pan tried, but was unable to recollect, exactly when in 2013 she performed cleaning services.  Ms. Pan testified that she performed some work throughout 2013, including after August of that year, but was uncertain how much. She only worked for herself in 2014.  The $32,800.00 gross business income reported in her 2014 tax return was an estimate.

Ms. Pan stated that the receipts for services document provided at the Hearing was created after the accident.  It was only a summary.  She had made some kind of a written record at the time the services were provided but no longer had those documents.  She explained that, “I forget…lost many things”.  She indicated that she would be paid most of the time in cash, and occasionally by cheque. Ms. Pan indicated that the summary contained most of her customers, but that she did not include some customers because she had forgotten their contact information.  That was the reason why her customer list contains less revenues than indicated in her tax return.

The Adjudicator reviewed the Law regarding IRBs. The Schedule is clear in its details.

Ms. Pan submits that she has proven her case on a balance of probabilities.  She has provided not only her complete income tax returns and notices of assessment, but also her customer chart with names, addresses and phone numbers.  If Allstate sought to challenge her income and her IRB quantum to which she is entitled, it had ample time and information upon which to attempt to do so.  Instead, it has never produced any competing evidence, and even at the Hearing, it failed to provide any evidence to support its speculative theories of Ms. Pan's revenues and expenses.  There is simply no competing calculation as to quantum. 

Ms. Pan argues that there is a presumption that tax returns are accurate, in the absence of reliable evidence to the contrary.  Ms. Pan also cites Norbert J. Boyer and Allstate Insurance Company, in which the Arbitrator states, “In my view, given the importance of filing complete and accurate income tax returns, Mr. Boyer’s 2003 return should be presumed to be accurate in the absence of reliable evidence to the contrary.” Ms. Pan argues that if the final quarter of 2013’s income is not accepted then the court could prorate her income based on the first three quarters of the year.

The Adjudicator noted that Ms. Pan has the burden to prove her claims with other reliable evidence on a balance of probabilities.  Ms. Pan bears the onus of proving her gross weekly income.  There is no obligation on Allstate to provide an alternate calculation for income replacement benefits.  The oral testimony of Ms. Pan alone, without any corroborative documentary evidence, is not sufficient to discharge the onus in establishing income from self-employment.  That onus can only be discharged through reliable and credible documentation of Ms. Pan’s earnings and expenses.


The documents relied upon at the hearing are based solely on her recollection and estimates.  Accordingly, the documents created by Ms. Pan are no more reliable than her oral testimony, which was spotty at best… No reliable, verifiable, contemporaneous documents corroborating her revenue or expenses were entered into evidence.  No witnesses who could corroborate the hours worked, amounts paid, or services rendered, were called….

Anyone who operates a business without keeping records runs a variety of risks, including the possibility that he or she will be unable to prove pre-accident income in the event of an automobile accident.  A significant part of any decision regarding pre-accident income must be an evaluation of the credibility of Ms. Pan’s testimony. 

As noted Ms. Pan suffers from a forty percent psychological disability.  The Adjudicator was prepared to assume that some of her powers of observation, judgment and memory, and ability to describe clearly what she has seen and heard, pursuant to Faryna v. Chorny,may be adversely affected.

The Adjudicator rejected Allstate’s submission that the lack of documentation substantiating Ms. Pan pre-accident income is determinative of the issue. Proof of pre-accident income is no different than any other issue in an arbitration i.e., a determination must be made about the credibility of the witnesses and how much weight is to be given to be given to each piece of evidence. The Adjudicator also agreed with Ms. Pan that an insured person’s income tax returns are prima facie proof of employment income and concur with her analysis contained in written submissions:

On this basis the Adjudicator determined that he accepts Ms. Pan’s testimony, the customer list and the CRA documents proffered as sufficiently credible, reliable, and unrefuted evidence and therefore find that Ms. Pan has met her burden of proof, on a balance of probabilities, regarding pre-accident income.

However. the Adjudicator disagreed with Ms. Pan on the amount of income to be attributed to the last third of 2013.  Given the apparent lack of records, the income quantum for the September to December 2013 period is based on unsubstantiated assumptions.  As Allstate put it in its written submissions, “it cannot be the law that a simple guess is sufficient to justify the payment of income replacement benefits”.  Nonetheless, the Adjudicator was satisfied that the amount reported by Ms. Pan as self-employed income to CRA in 2014 is a valid and reliable number and can be properly determined for purposes of calculating the IRB.

On this basis the quantum of IRB will be calculated pursuant to the Schedule based on 2014 reported income divided equally between the number of pre-accident weeks in 2014.

Regarding CPP Disability benefits Ms. Pan is obliged to apply for and exhaust her collateral benefits before resorting to the Accident Benefit’s carrier who is the payor of last resort.  This is reflected in the language of the Schedule.

Posted under Accident Benefit News, Automobile Accident Benefits, Car Accidents, Income Replacement Benefits

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