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Calculating Self-Employment Income Losses Following an Auto Accident

After an injury-causing motor vehicle collision, automobile insurance companies may be responsible for providing injured policyholders with income replacement benefits (IRBs) if their newly acquired medical conditions make it impossible for them to continue working. IRBs do not replace all of an accident victim’s pre-accident income. Rather, they provide payments of up to 70% of the victim’s gross weekly income, although no more than $400 per week.

An insurance company may also make deductions from IRB to account for any post-accident income received by the victim. This includes deductions for 70% of “any gross employment income received” or “income from self-employment earned” after the accident and during the period when the victim is eligible to receive IRB.

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Surani v. Perth Insurance Company: Is Passive Business Income “Earned”?

When it comes to self-employment income, does it matter if you passively earn money through a business or are an active participant? An Ontario Divisional Court judge recently confronted this question. In this case, an accident victim challenged her insurance company’s decision to deduct her post-accident passive earnings from her business as self-employment income for purposes of calculating her IRB.

The applicant is a pharmacist by trade. She and her husband worked in a family-owned pharmacy business located in Scarborough. The spouses were involved in a car accident in late 2010. Due to her accident-related injuries, the applicant was not able to return to work at the pharmacy. As a result, she hired other persons to perform the work for the business.

Despite the applicant’s inability to work, the pharmacy business itself continued to do well. The applicant and her husband received periodic distributions of income from the business. This post-accident business income led to the dispute with her insurance company.

The insurer claimed the applicant’s passive business income counted as “self-employment income” and could therefore be deducted from IRB under the SABS. The applicant disagreed and took the matter to arbitration before the Financial Services Regulatory Authority of Ontario (FSRA). (Prior to April 2016, the FSRA handled such disputes; today, such matters are handled by the Licence Appeal Tribunal of the Safety, Licensing Appeals and Standards Tribunal Ontario.) The arbitrator agreed with the applicant’s position, i.e. that her post-accident business income was not “earned” income as defined by the SABS.

The insurer then appealed the arbitrator’s decision. At the time, such appeals were handled by a delegate named by the Director of Arbitrations at FSRA. The Director’s Delegate reversed the arbitrator’s decision, agreeing with the insurer that the applicant’s business earnings could be deducted from her IRB.

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Judge: No Meaningful Difference Between Income “Earned” and “Received”

It was now the applicant’s turn to appeal, this time to the Divisional Court. Unfortunately, the judge ultimately agreed with the Director’s delegate and the insurance company’s interpretation of the law. Here is a brief explanation of the Court’s reasoning.

There was no dispute the applicant was self-employed. The main point of contention was whether or not her income from said self-employment was “earned” rather than “received,” and whether that made a difference under the law. The applicant pointed to the wording of the SABS itself. As noted above, the Schedule states an insurer may deduct up to 70% of “any income from self-employment earned by the insured person after the accident.” In contrast, the immediately preceding paragraph states an insurer may also deduct up to 70% of any “gross employment income received by the insured person as a result of being employed before the accident.”

The applicant contended the use of the word “earned” in the self-employment paragraph was significant, as it required “some effort and activity by the income recipient.” The applicant also noted the word “earned” was inserted into the self-employment paragraph by a subsequent amendment to the SABS adopted by the legislature. Therefore, by the applicant’s reading, any passive income she earned as the co-owner of the pharmacy should not count as “earned” income toward IRB.

The Divisional Court, concurring with the Director’s Delegate’s analysis, decided this amounted to splitting hairs. The “overall structure” of the self-employment paragraph, when read in the context of the entire SABS, is that the calculation of any IRB deductions “focuses on the loss and profit of the business” itself and not the active participation, or lack thereof, of the individual owner. Nor was there any particular significance to the alternating uses of the terms “earned” and “received” in the SABS. Indeed, the judge said the arbitrator’s initial decision in favour of the applicant was largely based on a misinterpretation of the use of the term “earned” in an unrelated tax law.

In the final analysis, the Divisional Court said the purpose of IRBs is to “provide compensation for income loss – but subject to statutory limits.” In cases where the accident victim “has a business that continues to operate after the accident and to generate income,” there is no income loss. That said, if a business owner incurs losses due to the need to “hire replacement staff,” that may be subject to compensation under the SABS.


If you are unable to return to work, or have lost self-employment income, as the result of an auto accident, it is important to keep detailed records of your losses. Such evidence will assist the insurance company–and if necessary a tribunal–in accurately assessing your losses and determining how much in IRB you are entitled to under the SABS. Depending on when your accident occurred, for self-employed individuals, your “weekly income or loss from self-employment” under the SABS is based on 1/52 of the amount of income or loss for the last completed tax year of your business.

To learn how our Ontario accident benefit lawyers may be able to assist you after sustaining injuries in a motor vehicle collision, contact Preszler Injury Lawyers today by calling 1-800-JUSTICE.

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