Financial Services Commission of Ontario
Commission des services financiers de l’Ontario
Neutral Citation: 2009 ONFSCDRS 98
Appeal P09-00010
OFFICE OF THE DIRECTOR OF ARBITRATIONS
LOMBARD GENERAL INSURANCE COMPANY OF CANADA
Appellant
and
EJAZ BUTT
Respondent
BEFORE:
David Evans
REPRESENTATIVES:
Dave A. Messam for Lombard General
Allen Wynperle for Mr. Butt
HEARING DATE:
By written submissions filed April 21, 2009, and teleconference June 10, 2009
PRELIMINARY ISSUES
APPEAL ORDER
Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:
Paragraph 2 of the arbitrator’s order dated March 3, 2009, is rescinded and replaced with:
Lombard General Insurance Company of Canada shall recalculate the amount of Mr. Butt’s income replacement benefit, taking into account the capital cost allowance on Mr. Butt’s taxi.
The arbitrator remains seized of determining the amount of Mr. Butt’s income replacement benefit.
There shall be no order as to expenses.
July 16, 2009
David Evans
Director’s Delegate
Date
REASONS FOR DECISION
I. NATURE OF THE APPEAL
Lombard General Insurance Company of Canada appeals the arbitrator’s interim order dated March 3, 2009 that, pursuant to the SABS–1996,1 the capital cost allowance for Mr. Butt’s taxi should not have been taken into account in calculating his income replacement benefit.
II. BACKGROUND
Mr. Butt was injured in a motor vehicle accident on October 3, 2003. The arbitrator found that Mr. Butt was entitled to post 104-week income replacement benefits (IRBs) under the SABS s. 5(2)(b) “any occupation” test.
He was self-employed and claimed a capital cost allowance (CCA) for a taxi.
The arbitrator found that the CCA should not have been taken into account when calculating the IRB. She found that this error unreasonably reduced Mr. Butt’s IRBs, entitling him to a yet-to-be-determined special award. The recalculation she ordered affects the amount of interest and of the maximum special award.
In a decision dated April 22, 2009, I acknowledged the appeal from this aspect of the order because the arbitrator failed to consider Royal Insurance Company of Canada and Aramakis, (OIC P96-00081, January 7, 1998).
I subsequently held a joint teleconference with the parties on June 10, 2009. They agreed that I could proceed on the record based on the submissions filed by Lombard, and counsel for Mr. Butt advised that he would be filing no submissions. Counsel for Lombard later confirmed that Lombard was prepared to waive its expenses of the appeal.
III. ANALYSIS
Section 62 of the SABS deals with income from self-employment, including how the CCA should be treated in calculating income. As stated in Aramakis, an appeal decision that considered the equivalent provision in an earlier SABS,2 the CCA is “a valid and recognized accounting item, often viewed as a ‘non-cash’ expense. It reflects an outlay of cash that occurred in the past to acquire an asset that is used, over a period of time, in generating income for a business. By using the CCA, the cost of the asset can be matched, over time, against the revenues which accrue from the use of the asset.”
Subsection 62(1) provides that the normal tax rules apply for calculating income from self-employment, but s. 62(1)(a) creates an exemption for expenses that are eligible for the CCA. Specifically, it states that, for the purpose of the SABS, “a person’s income from self-employment shall be determined in the same manner as the person’s profit from the business in which the person was self-employed would be determined under the Income Tax Act (Canada) and the Income Tax Act (Ontario), but without taking into account, (a) expenses that are eligible for capital cost allowance ….” [Emphasis added.]
However, the arbitrator stated that s. 62(1)(a) “provides that for purposes of calculating an income replacement benefit, the income of a self-employed person is calculated as the person’s profit, under the federal and provincial income tax acts, but without taking into account expenses such as capital cost allowance.” [Emphasis added.] That is, she stated that expenses such as CCA are exempted from the normal tax rules, whereas s. 62(1)(a) provides instead that it is expenses that are eligible for the CCA that are exempted.
The Director’s Delegate in Aramakis set out a convincing grammatical and purposive interpretation for why the phrase “expenses that are eligible for capital cost allowance” does not mean the same thing as “capital cost allowance.” She held that only expenses eligible for the CCA (such as capital expenditures for the purchase of a taxi) should be excluded from the calculation of pre- and post-accident income or loss, not the CCA itself. Accordingly, she held that, pursuant to normal income tax practices, the CCA must be taken into account and not be excluded from the calculation of income or loss from self-employment.
I agree that there is a distinction between something that is eligible for a CCA and the CCA itself. Mr. Butt had an expense – the taxi – for which he could claim a CCA. The taxi was an expense eligible for the CCA and so falls under s. 62(1)(a). The CCA cannot itself be an expense that is eligible for the CCA, so it does not fall under s. 62(1)(a).
The arbitrator erred in law in finding that the insurer should not have taken account of the CCA in its IRB calculation. It follows that she also erred in granting a special award based upon that calculation. (The separate granting of a special award based on the overall delay in payment was not appealed.)
The appeal is allowed. There shall be no order as to expenses.
July 16, 2009
David Evans
Director’s Delegate
Date
Footnotes
- The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
- Section 83 of the Statutory Accident Benefits Schedule – Accidents after December 31, 1993 and Before November 1, 1996, O. Reg. 776/93, as amended.