T.C. is the mother of C.C., who was involved in a serious accident. T.C. was entitled to IRB following the accident, but was providing attendant care to her son, and being paid $6,000.00 a month for these services. The Personal attempted to argue that this was post accident income from self employment and deductable from her IRB payments.

Arbitrator Fidel ruled that, no, this wasn’t income from self employment. His decision turns on the classification of these payments by the Income Tax Act. Two tax court rulings that these types of payments are not “income” were challenging to the Personal’s case.

T.C.’s claim for accident benefits arose after her son was seriously injured in a motor vehicle accident on October 31, 2012. C.C. was involved in a motor vehicle accident while he was a pedestrian. He sustained life-threatening injuries resulting in a need for 24-hour attendant care supervision.  By February 28, 2013, the insurer determined that C.C. had sustained a catastrophic impairment in the accident pursuant to the Schedule.

As a result of this accident, T.C. became entitled to an ongoing income replacement benefit beyond 104-weeks after being diagnosed with: a major depressive disorder; an adjustment disorder; PTSD; a GAF score of 51-55 indicating moderate difficulty in social and occupational functioning.

The parties agree that C.C. requires 24-hour adult support and supervision. T.C. is the primary attendant care provider. C.C. receives an attendant care benefit from the insurer in the amount of $6,000, which he gives to T.C. The parties agreed that this was incurred under the SABS.

T.C. was paid an income replacement benefit in the amount of $400.00 weekly from November 7, 2012 to March 30, 2013. The insurer reduced the income replacement benefit to $0.00 on March 22, 2013, on the basis that the $6,000.00 the applicant received monthly from C.C. constituted post-accident income and was therefore deductible from her IRB pursuant to s. 7(3) of the SABS.

The insurer submitted that the monthly payment being received by the applicant for providing attendant care to her son is “income from self-employment” and therefore should be deducted from her income replacement benefit. They argued that with the legislative changes to the meaning of “incurred” in the 2010 Schedule, these payments of attendant care are more akin to income, because of the need of the family member, or friend providing the service, to prove an economic loss.

 The applicant argued that Canadian Tax Courts have found these amounts to not be taxable, ie that they are not income under the Income Tax Act. Although she receives $6,000.00 per month in attendant care payments to care for her son, the applicant states that these monies are more akin to gifts, inheritances, allowances between family members, or other transactions that are not taxed.

Arbitrator Fidel relied heavily on two informal Tax Court decisions Maurice and Pellerin

In Maurice, Justice Tardif looked at the issue of whether attendant care monies received by a mother for her disabled son under the SAAQ in Quebec was taxable income. Importantly, the Court found that the mother was neither an employee nor an independent contractor. In making this determination, the Court commented that the Income Tax Act did not specifically define the concept of “business” but s. 248(1) specified various activities that are included in that concept:

“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for the purposes of paragraph 18(2)(c), section 54.2, subsection 95(1) and paragraph 110.6(14)(f), an adventure or concern in the nature of trade but does not include an office or employment. (emphasis added)

 Justice Tardif stated that “[t]he courts generally define the concept of business by contrasting it with the concept of employment.” He noted that according to the leading decision in Wiebe Door Services Ltd. v. Minister of National Revene, the Federal Court of Appeal referred to a four-in-one test being: 1) control, 2) ownership of the tools, 3) chance of profit, 4) risk of loss.

 Based on this test, Justice Tardif found that the mother was not an employee or an independent contractor. She was not free to organize her time, there was no control over profit or loss.

 Justice Tardif stated:

It has long been recognized that not all “accretions to wealth” are included as income. Inheritances and gifts are “accretions to wealth” but are nevertheless not taxed because they are not income from employment, property, or business. Profits from hobbies are accretions to wealth, but they, too, are not taxed for the same reason.

In the case at bar, the appellant chose to assume responsibility for her daughter herself, not for the pecuniary benefits she could derive therefrom but rather to fulfil her obligation of support, rightly considering that she was the person best qualified to look after her child. The monetary benefits resulting from that maternal family activity are no more taxable than profits from hobbies or simply amounts that some people give to their non-working spouses to attend to their family’s various needs.

 In Pellerin, Justice Tardif, found this was in no way a business relationship; affection stemming from the parental bond was the primary and fundamental reason for the relationship and the notion of profit was non-existent. There was no relationship of subordination. The Tax Court found that the monies being received by the parent for attendant care were not taxable income.  Section 2(2) of the ITA states that taxable income “is the taxpayer’s income,” it therefore appears that the Tax Court is saying that when interpreting the ITA, monies received in this way are not considered income for the purpose of the ITA.

Arbitrator Fidel concludes:

On the evidence, I find that the applicant was not involved in a business by giving her son the attendant care he needs and receiving the monies paid to him as an attendant care benefit. The only characteristic of a business is the regular amount being received from C.C. Otherwise, the applicant has not set up a business. She has not applied for an HST number, she has not filed taxes as a self-employed person, the Tax Court tells her, in non-binding decisions, that the amounts she is receiving are not considered taxable income for the purpose of the ITA and finally she did not provide care for her son in order to earn a profit. Even the insurer was not treating this as self-employed income at the outset. It did not ask the applicant about business deductions in order to quantify the amount of income that could be deducted from the IRB. In fact, it never made its position clear, that it considered the applicant to be self-employed until the first day of hearing when I was asked to rule on whether it could go ahead with the defence.

It seems odd that T.C. would be able to have her cake and eat it too. In effect, an insured who is entitled to receive an IRB tax free can also now receive $72,000 per year tax free for providing attendant care services to a co-insured where an arm’s length service provider would be taxed on that $72,000 income.  In this case, the insured is entitled to a non-taxable IRB of $20,800 per year because they cannot work due to the same loss, even though that person can provide this level of service to their co-insured.  In a non-automobile accident context, one would otherwise have to give up one’s job to provide full-time attendant care.  In the automobile accident context however, the insured who is providing the attendant care service can now receive both an IRB of up to $20,800 per year because she is psychologically disabled, and $72,000 per year for providing attendant care services.  This seems to offend the rule of double dipping, but that may be an issue with the wording of the SABS.

If you have any questions about this blog or a similar file please contact our Catastrophic Loss practice group.