Dealing with Income Tax can be a confusing on its own. Coupled with the intricacies of a personal injury claim, it is hard to know how it all works. The two basic rules we encourage are to always report your income to Revenue Canada unless an item is listed as amounts that are not taxed and always tell your lawyer if you have earned income that does not appear on your income tax returns as soon as possible.
People are often nervous to disclose that they have earned income and not declared it to Revenue Canada. It is important to tell your lawyer so that they can advise you on how that will affect the two main claims following a motor vehicle accident and how to handle undeclared income in that context.
The two main claims are against the at-fault driver (Section A) and against your own insurance company for medical and income loss benefits (Section B).
New Brunswick lagged behind most other Canadian provinces with respect to the treatment of undeclared income in the context of a Section A action until 2017 when Fidelis Law lawyers fought to have the law changed. A decision from the Court of Queen’s Bench concluded that the fact of not declaring income to Revenue Canada did not automatically prevent a person from claiming loss of income in a personal injury action.
That doesn’t mean there are no hurdles, however. Income tax returns are still very good evidence of a person’s past income. In many cases it is the best evidence. Without income tax returns, we are left trying to piece together your pre-accident income from various other sources.
Why is this important?
You probably wonder why anyone needs to know how much income you earned before an accident. Let us explain.
Section A – If you are unable to work after an accident and have lost income, your lawyer needs to first show that you were making money before the accident. If you weren’t making any money before and can’t work after the accident, there is usually no loss. Income tax returns are one of the best ways to prove an earning history, so when they are available, we look at several years of tax returns from before the accident. Your earning history is a strong predictor of your future loss of income.
Section B – Pre-accident income is part of the calculation to determine the amount of weekly indemnity benefits you are entitled to under your own insurance policy. Specifically, if you are eligible for these benefits, you should receive 80% of your pre-accident gross weekly earnings, up to $250.00 per week.
The most common way to prove your gross weekly earnings is by having your employer complete a form provided by the insurance company that includes your hourly wages, average hours worked per week, and other information. Not everyone falls into the same tidy wages-for-hours-worked box, however. Professionals like realtors who work on commission, students whose work history may be sporadic, and seasonal workers have vastly different pay structures.
For both a Section A and a Section B claim, there are other types of evidence we can gather up in an attempt to prove your earning history. For example, those include:
- Receipts issued to customers;
- Receipts received for supplies;
- Appointment books;
- Bank statements;
- Affidavits from clients describing the work you did for them;
- Personal ledgers.
Not declaring income can invite a negative conclusion on your credibility. Insurance defence lawyers will argue that if you are not honest with Revenue Canada, you are inherently a dishonest person. We know this is not true, but it does damage your credibility. The question is which is the lesser of two evils: taking a hit to your credibility by admitting you earned income and didn’t declare it, or foregoing your loss of income claim.
No matter the situation, it is always best to be completely honest and forthcoming with your lawyer. They will work with you to determine how best to handle any unfavourable information. Fidelis Accident Lawyers are in your corner.
*Specific questions related to income tax should be directed to an accountant. General information is available from Revenue Canada Agency.