How Are Victims of An Automobile Accident Protected Against Loss of Income?

Income Replacement Benefits Are Non-Taxed Monies Paid to An Injured Person Who Suffers a Loss of Income Due to An Automobile Accident.
Article Author, Giancarlo MazzitelliBy: Giancarlo Mazzitelli

The Income Replacement Benefit involves monies paid to an individual pursuant to the Statutory Accident Benefits Schedule or “SABS” section of an automobile insurance policy as a result of an automobile accident.  The Income Replacement Benefit is governed by the SABS per O. Reg. 34/10 as a regulation to the Insurance Act, R.S.O. 1990, c. I.8 which, among other things, prescribes the automobile insurance coverage available and applicable to automobiles insured within Ontario.  In order to qualify for the Income Replacement Benefit the person applying for the coverage must have suffered a ‘substantial inability to perform the essential tasks of that employment’ pursuant to section 5(1)1 of the SABS which states, among other things:

Eligibility Criteria

5. (1) The insurer shall pay an income replacement benefit to an insured person who sustains an impairment as a result of an accident if the insured person satisfies one or both of the following conditions:

1. The insured person,

i. was employed at the time of the accident and, as a result of and within 104 weeks after the accident, suffers a substantial inability to perform the essential tasks of that employment, or

ii. was not employed at the time of the accident but,

A. was employed for at least 26 weeks during the 52 weeks before the accident or was receiving benefits under the Employment Insurance Act (Canada) at the time of the accident, ...

The test for Substantial Inability is determined by a medical practitioner, typically in the form of an assessment and is documented via a Disability Certificate (OCF-3).

How Is My Income Replacement Benefit Calculated?

The Income Replacement Benefit is calculated pursuant to SABS section 7 and is based on seventy (70%) percent of your gross income up to a maximum of four hundred ($400.00) dollars per week.  Additionally, the Income Replacement Benefit is also inapplicable for the first week of eligibility.  Specifically, section 7(2) of SABS states:

(2) For the purposes of subsection (1), the weekly base amount in respect of an insured person is determined as follows:

1. Determine whichever of the following amounts is applicable:

i. 70 per cent of the amount, if any, by which the sum of the insured person’s gross weekly employment income and weekly income from self-employment exceeds the amount of the insured person’s weekly loss from self-employment, if the weekly income replacement benefit is for one of the first 104 weeks of disability, or

ii. the greater of the amount determined for the purposes of subparagraph i and $185, if the weekly income replacement benefit is for a week for which the person is entitled to receive an income replacement benefit after the first 104 weeks of disability.

2. To the amount determined under paragraph 1, add 70 per cent of the amount of the insured person’s weekly loss from self-employment that he or she incurs as a result of the accident.

Is the Income Replacement Benefit Subject to Tax?

The short answer is no.  Generally, no income tax is payable on the award of damages or settlements in a personal injury case; however, it is important to seek the advice of your tax accountant to review any special circumstances; albeit, the statute appears quite clear whereas the Income Tax Act, R.S.C. 1985, c 1 (5th Supp), states:

Amounts Not Included In Income

81 (1) There shall not be included in computing the income of a taxpayer for a taxation year,

Statutory Exemptions

(a) an amount that is declared to be exempt from income tax by any other enactment of Parliament, other than an amount received or receivable by an individual that is exempt by virtue of a provision contained in a tax convention or agreement with another country that has the force of law in Canada;

Furthermore section 81(1) (g.1) touches on personal injury as an exemption that any awards acquired, in respect of physical or mental injuries are not to be classified as income.

Income From Personal Injury Award Property

(g.1) the income for the year from any property acquired by or on behalf of a person as an award of, or pursuant to an action for, damages in respect of physical or mental injury to that person, or from any property substituted therefor and any taxable capital gain for the year from the disposition of any such property,

(i) where the income was income from the property, if the income was earned in respect of a period before the end of the taxation year in which the person attained the age of 21 years, and

(ii) in any other case, if the person was less than 21 years of age during any part of the year;

Self-Employed, Income Replacement Benefit

It is important to note that there are special circumstances where the calculations of Income Replacement Benefit are not straightforward and require the assistance of a forensic litigation accountant.  These circumstances are most prevalent with self-employed individuals where the true loss is difficult to determine rather than black and white.  In respect to the costs associated for the assistance of a forensic litigation accountant, section 7(4) states that an insurer shall pay an expense incurred on behalf of the insured, for preparation of the Forensic Accounting Report and section 7(5) sets an upper limit payable to the accountant, by the insurer, for the preparation of the report as follows:

(4) The insurer shall pay an expense incurred by or on behalf of an insured person for the preparation of a report for the purpose of calculating the person’s income from employment or self-employment if all of the following conditions are satisfied:

1. The insured person is applying for an income replacement benefit under this Part that is based on the employment or self-employment considered in the report.

2. The report is prepared by a member of a designated body within the meaning of the Public Accounting Act, 2004.

3. The expense is reasonable and necessary for the purpose of determining the insured person’s entitlement to an income replacement benefit.

(5) The insurer is not required to pay more than a total of $2,500 for the preparation of one or more reports under subsection (4) in respect of an insured person.

Optional Benefits, Increased Benefit Payouts

Insurers do offer options to extend your medical rehabilitation benefits and income replacement benefits.  Most people do not see the benefit to doing this until it is too late, meaning until an accident occurs and the benefit is needed.  Accordingly, speak to your insurance professional before an incident occurs.

Increasing My Income Replacement Benefits

Anyone can call their insurer at any time to increase their benefits. Typically, the insurer can send you details of optional increased coverage and the nominal premium increases.

Commonly Asked Questions:
  • When Do Income Replacement Benefits Start?
  • What Evidence Is Required to Claim Income Replacement Benefits?

If you or a loved one has been injured in a motor vehicle accident and has incurred and will continue to incur an income loss, please fill out the contact form below. United Legal Services is dedicated to ensuring you receive the compensation you deserve.

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