Licence Appeal Tribunal File Number: 21-010949/AABS
In the matter of an application pursuant to subsection 280(2) of the Insurance Act, RSO 1990, c I.8, in relation to statutory accident benefits.
Between:
Brandon Martin
Applicant
and
The Personal Insurance Company
Respondent
DECISION
ADJUDICATOR:
Lyndra Griffith
APPEARANCES:
For the Applicant:
Brandon Martin, Applicant Ashlee L Barber, Counsel
For the Respondent:
Tim Sabourin, Adjuster
Jean-Claude Rioux, Counsel Theresa Park, Counsel
HEARD: by Videoconference:
January 4, 2023
OVERVIEW
1Brandon Martin, the applicant, was involved in an automobile accident on April 30, 2018, and sought benefits pursuant to the Statutory Accident Benefits Schedule - Effective September 1, 2010 (including amendments effective June 1, 2016) (the “Schedule”). The applicant was denied benefits by the respondent, The Personal, and applied to the Licence Appeal Tribunal - Automobile Accident Benefits Service (the “Tribunal”) for resolution of the dispute.
ISSUES
2The issues in dispute are:
i. Is the applicant entitled to an income replacement benefit (“IRB”) of $325.00 (less amounts paid) per week from January 1, 2019, to date?
ii. Is the applicant entitled to interest on any overdue payment of benefits?
RESULT
3I find that the applicant is entitled to an IRB of $325.00 per week for the period in dispute less amounts paid and less any applicable deductions in relation to the Wyld Street Property. The applicant is also entitled to interest.
ANALYSIS
4The parties agree that the medical entitlement to IRB is not in dispute. They are requesting that the Tribunal determine the scope of the applicant’s self-employment.
5I find the applicant is entitled to an IRB of $325.00, less amounts paid and less any applicable deductions in relation to the Wyld Street Property for the reasons that follow.
The scope of the applicant’s self-employment
6The main issue is whether the Martin Enterprises’ losses should be considered as part of the IRB calculation. For the reasons described below, I find that the applicant was self-employed with Martin Enterprises as it relates to the Wyld Street property and the losses associated with this property should be included as part of his IRB calculation.
7The applicant submitted an Employer’s Confirmation form (OCF-2) dated June 3, 2018 indicating that he worked for Martin Enterprises as a developer tasked with building.
8At the time of the accident, and during the last fiscal year prior to the accident, the applicant was self-employed operating Martin Contracting and Martin Enterprises. Martin Contracting is described as the applicant’s excavating and snow plowing business while Martin Enterprises owned rental and development properties. Martin Contracting typically operated from mid-May until frost hit for excavations. At the time of the accident, Martin Contracting was about to start its 2018 operations.
9The applicant created Martin Enterprises in 2017 on the advice of his accountant for tax deductions. He testified that the business never received a cheque, it never opened a bank account, did not register for WSIB, hired no employees, that he did not take a salary and the business did not make a profit in 2017 or 2018.
10Instead, the applicant owned several properties which are at the heart of this dispute: Rosedale, Main Street East, Wyld Street and Duke Street.
RSM Canada Consulting Report
11At the request of the applicant, RSM Canada Consulting LP (RSM) completed an IRB calculation report dated August 19, 2019. RSM calculated that his weekly IRB beyond August 31, 2019 should be $325.82 per week.
12According to the applicant’s 2017 and 2018 tax returns, he reported rental income or losses from four rental properties. RSM opined that the applicant’s self-employment losses from Martin Enterprises incurred prior to the accident in 2017 have been excluded in calculating his pre-accident income.
13RSM relied on s. 4(2) of the Schedule to support their calculation and stated that if the applicant was self-employed during the last four weeks before the accident, his "gross annual employment income” is to be based on income in the last 52 weeks prior to the accident. However, if the applicant was self-employed for at least one year prior to the accident, he may designate the last fiscal year of the business that ended before the accident as the period to be used in determining his pre-accident "gross annual employment income".
14RSM determined that given that Martin Contracting had not commenced operating in 2018, RSM did not calculate his pre-accident weekly income during the 52-week period prior to the accident, from May 2, 2017 to April 30, 2018, as his income during the last fiscal year would be higher. As set out on Schedule 2 of the report, RSM based the calculation of the applicant’s pre-accident weekly income on his self-employment income from Martin Contracting during the last fiscal year completed prior to the accident in the amount of $24,204.00. RSM calculated 70% of his pre-accident gross weekly income to be $325.82 per week (i.e. $24,204/52 weeks x 70%).
BDO Accounting Reports
15BDO Canada LLP completed two accounting reports (May 17, 2022 and September 13, 2019) on behalf of the respondent for the purposes of calculating the applicant’s IRB. The reports noted a disclaimer with respect to the “scope of limitation” as BDO requested, but did not receive, 10 items for the purposes of calculating the applicant’s IRB. These items included: copies of the Canada Revenue Agency Notices of Assessment in respect of the applicant’s personal income from 2019 and 2020 personal income tax returns, his 2021 personal income tax return, as well as details of any fixed asset additions and/or disposals made by the applicant’s self-employment since December 31, 2020. BDO indicated that it did not know what impact theses items would have had on its calculations had it been made available.
16In the report dated May 17, 2022, BDO calculated the applicant’s weekly IRB as follows:
i. $388 per week for the period from May 8, 2018, the first day after satisfying the one-week deductible period immediately following the accident, pursuant to paragraph 6(2)(a) of the Schedule, to December 31, 2018, during which it assumed that the applicant did not work at his self-employment, or otherwise at any employment, and his self-employment did not operate, unchanged from its prior report;
ii. $178 per week for the period from January 1st to December 31, 2019, during which it assumed that the applicant did not work at his self-employment, or otherwise at any employment, but his self-employment operated, changed from $69 per week for the period from January 1st to August 22, 2019 as per its prior report;
iii. $69 per week for the period January 1st to April 27, 2020, the end of the applicant’s first 104 weeks of disability, pursuant to paragraph 6(2)(b) of the Schedule, during which it assumed that Mr. Martin did not work, and his self-employment did not operate; and
iv. $185 per week for the period from April 28th to December 31, 2020, for which 70% of his gross weekly pre-accident income from self-employment increased to $185, pursuant to subparagraph 7(2)(1)(ii) of the Schedule, and during which it assumed that Mr. Martin did not work, and his self-employment did not operate.
17BDO estimated the total IRB payable to the applicant for the post-accident period from May 8, 2018 to December 31, 2020 to be $30,191.00, excluding payments already made to him in this regard and interest.
Applicant’s position
18The applicant submits that his rental income should not be treated as investment income and argues that if his rental losses are included it deflates the IRB. He relies on para. 37 of Perth Insurance Company v. Salim Suranii, 2017 ONFSCDRS 221 (August 18, 2017), which states that the objective is to ensure that the insured person receives an IRB that fairly and realistically reflects their actual income situation, avoiding both over-and under-compensation. The applicant submits that if only Martin Contracting income is calculated, his IRB would be $325 per week, but when the losses from the rental properties are included, it reduces the weekly benefit to $69. There was no profit from the rental properties, and they were operating at a significant loss at the time. The applicant submits that income (and losses) from Martin Enterprises should only be factored into the IRB calculations if it is “self-employed” income.
19The applicant further submits that there are no cases to assist in determining what self-employment is, however, the consensus is that rental income should not be included in IRB. The applicant relies on Terry Dacosta v. State Farm Mutual Automobile Insurance Company, 2018 ONFSCDRS 46 (February 28, 2018), at paragraph 46, where the applicant's passive income, including rental income, was not included in calculating the IRBs, either before or after the accident.
20The applicant argues that no one with an income property would qualify for an IRB because this would set the bar so low, as there would likely be some maintenance that would be required. The applicant submits that the objective should be to look at what services are being provided, otherwise it unfairly cuts away from his IRB and it is an inconsistent result. The applicant submits that he did not habitually engage in the rental properties. It was not his usual principal business. He submits that he was not a property developer but rather he bought these properties as an investment for his retirement.
21Finally, the applicant submits that the respondent did not provide any case where rental income properties were not treated as income.
Respondent’s position
22The respondent submits that the applicant was not a passive investor in real estate but rather, he was working as a landlord and manager. The respondent further argues that the applicant did not incorporate and therefore there is no legal distinction between him and his companies. The respondent submits that the Tribunal must determine whether the applicant was earning investment income or self employment income. The respondent submits that the ultimate purpose of the applicant’s work is profit, regardless of whether or not he turned a profit.
23The respondent concedes the applicant’s income or loss from income falls in a gray area and is therefore dependant on the facts. The respondent argues that the applicant bought vacant land to build a duplex and he was the general contractor, and therefore his income should be treated as business income.
24Finally, the respondent submits that the Dacosta decision is no longer binding on me, is distinguishable due to changes in the statute and is arguably not persuasive.
The Rosedale property was rental income
25The applicant bought this property in 2015 and completely renovated it in his spare time. It took him three or four years to complete the renovation. Once the renovations were completed, he rented the unit to his bookkeeper and when things got to be too much, he sold the property to his wife because he was no longer able to hold a mortgage. The rent cheques were sent by mail and made out to him personally. The tenant paid the utilities, and the applicant was responsible for the maintenance which would consist of one hour per week in the summer and vary in the winter depending on how often it snowed. The tenant looked after the unit for maintenance and since it was newly renovated it required very little maintenance. The property was eventually sold prior to the tenant moving out. The applicant testified that the purpose of purchasing the Rosedale property was to have income in his retirement. The applicant also submits that neither BDO nor RSM included the Rosedale property in their calculations and therefore I must decide if it should be included.
26Based on the evidence, I find that this property should be treated as rental income. The facts in this case are similar to those in George Biliouras v. Allstate Insurance Company of Canada 1997 ONICDRG 203, which was relied upon by the applicant. Here, the applicant took three to four months to renovate the property and he would do it in his spare time. Although he appeared to work on his own schedule for renovating, he was not regularly engaged in renovation activities. There was no evidence that he received an annual income for his work or received any profit from this work. Once the renovations were completed and the unit rented, the applicant had a very small role in maintaining the property one hour a week in the summer and variably in the winter. Although he conducted significant renovations on the property over several years, I find that the limited amount of work he performed at this property once it was rented would not qualify as self-employment, and therefore it should be treated as rental income. Further, it is relevant that neither accountant included the rental income of the Rosedale property in their calculation of the applicant’s IRB calculation.
The Main Street East property was rental income
27The applicant purchased this property in 2017 with his mother. The seven-unit property already had tenants and all he did was change the locks and clean the common areas. Three or four tenants changed before the accident, and the applicant went to the North Bay Crisis Centre (NBCC) to get new tenants. The NBCC selected the tenants subject to his approval and Ontario Works deposited the rental payments directly to him. He received four months of rent from the tenants before a fire destroyed the property, and it was paid out by the insurance company. The property was eventually sold in 2020. The applicant testified that he purchased the property for the cash flow, and that he received $3,500 a month in rental income. The applicant’s plan was to try and reach $14,000 per month in rental income to live off of in future.
28Like in Biliouras the fact that the property produced little profit from rental income does not, when considered in the context of the other evidence, disprove that it was held as an investment property. In this case, I find that this property should be treated as rental income. The applicant did very little in terms of his investment of time into the daily operations at the property. Perhaps the applicant’s involvement in the property would have increased over time, however, at the time of the accident he had only received four months’ worth of rent and he had done very little work at the property.
The Wyld Street property was related to self-employment
29The applicant purchased this vacant double lot property in 2015 or 2016 for $15,000.00. At the time of the accident, he was building a new duplex on the property. He had started the work in the fall of 2017. He dug the foundation with his father, he installed the weeping tile and outsourced some of the foundational work to a masonry company. After the accident, the applicant could not find anyone to take over the project and the city filled in the foundation, following which he then sold the property. He testified that he spent 80 or 90 hours on the construction, and he had the framing materials delivered but never started the framing. He said that it was his intention to rent the property and have the tenant’s pay sewer and water and electricity bills.
30In this case, the applicant registered a business to carry out real estate development and obtained a Master Business Licence on July 21, 2017, which describes the nature of his business activity as rental housing and rental development. The applicant submits that his OCF-2 was inaccurate, and that he probably was not a property developer. He argued that he probably listed the essential tasks of the job as being a builder because he was building the Wyld Street property at the time. He said that he should have indicated that his employer was Martin Contracting not Martin Enterprises. In light of the evidence, I find that the development of the Wyld property was commercial/business in nature rather than a capital investment and the applicant was therefore self-employed with Martin Enterprises as it related to the Wyld property. The applicant was the owner of the property and acted as the general contractor with the sole purpose of building a duplex. There is nothing passive about his involvement in this venture.
The Duke Street Property was rental income
31The applicant purchased this property with his mother. He lived there with his wife and rented the basement to a couple in the fall of 2016. His mother and father were on title and he was living there at the time of the accident. The rental income would be collected by the applicant. Prior to renting it, he changed the carpet, the light fixtures and painted the walls, which took him two days (approximately 20 hours) to complete. He did the yard maintenance on the property which was approximately three hours per month. He was responsible for paying the property taxes and the rental income would cover the water and tax bills. He would deposit the funds in his mother’s account to cover the mortgage. He moved out of this property in February 2020 because his wife wanted to move into the Rosedale property. He continued to plow the driveway and collect the rent after he moved out. The applicant testified that his mother sold the property because she did not want the responsibility of maintaining it now that the applicant was no longer maintaining it due to the accident.
32Based on the above facts, I find that this property should be treated as rental income. Apart from collecting rent and paying the expenses, the applicant had a very small role in maintaining the property every month. I do not find that the limited amount of work he performed at this property would qualify as self-employment, rather, it follows the reasoning of other similar cases cited by the applicant that it should be treated as passive investment income.
Interest
33The applicant is entitled to interest in accordance with s. 51 of the Schedule for the IRB in dispute.
ORDER
34For the reasons outlined above, I find that:
i. the applicant is entitled to an IRB of $325.00 less any applicable deductions in relation to the Wyld Street Property; and
ii. is entitled to interest.
35The application is granted.
Released: April 5, 2023
Lyndra Griffith
Adjudicator