Appeals : Arbitrator Decisions : #180 - June 12, 2003

D E C I S I O N

Claim No. 259

Province of Infection – Nova Scotia

1. The Claimant has qualified as a Primarily-Infected Person under the HCV Hemophiliac Plan (“Plan”). As a Level 3 Claimant, he elected to receive Loss of Income rather than the Fixed Payment of $30,000.00. He completed all of the necessary forms and his Loss of Income claim was approved in October of 2001.

2. The issue raised by the present Request for Arbitration is whether or not the Administrator’s decision to compensate the Claimant for the use of a company car on the basis that it was a taxable benefit, rather than a tax-free benefit, is in accordance with the Plan.

3. The material facts are as follows:

(a) Initially, the Claimant’s Loss of Income claim was calculated and approved by the Administrator without taking into consideration the use of a company car which the Claimant received as a benefit from his employer in 1975, 1976 and 1977, the Claimant’s three highest consecutive years of Pre-claim Net Income. The reason the Administrator did not include the allowance is because it was not included in the Claimant’s tax returns for the years in question.

(b) Subsequently, at the request of the Claimant, the Administrator agreed to consider the use of the company car, which use was valued at $3,000.00, as part of the Claimant’s Pre-claim Net Income. There was some disagreement about whether the whole allowance or only a portion of it ought to be taken into account but the Administrator ultimately agreed to include all of it.

(c) In recalculating the Claimant’s Pre-claim Net Income, the Administrator treated the use of the company car as a taxable benefit and this had the effect of reducing the amount received by the Claimant.

(d) The Claimant filed a Request for Arbitration challenging the Administrator’s decision to treat the use of the company car as a taxable benefit.

(e) The Claimant originally requested an oral hearing but later abandoned that request.

4. The relevant provisions of the Plan are as follows:

ARTICLE FOUR

COMPENSATION TO APPROVED HCV INFECTED PERSONS

4.02 Compensation of Loss of Income

(2) Each Approved HCV Infected Person who is entitled to receive compensation for past, present or future loss of income caused by his or her infection with HCV will be paid, subject to the provisions of Section 7.03, an amount each calendar year equal to 70% of his or her Annual Loss of Net Income for such year until he or she attains the age of 65 years determined in accordance with the following provisions:

(a) “Annual Loss of Net Income” for a year means the excess of the Approved HCV Person’s Pre-claim Net Income for such year over his or her Post-claim Net Income for such year.

(b) “Pre-claim Net Income” of an Approved HCV Infected Person for a year means an amount determined as follows:

(i) an amount equal to the average of the person’s three highest consecutive years of Earned Income preceding the HCV Infected Person’s entitlement to compensation under this Section 4.02 multiplied by the ratio that the Pension Index for the year bears to the Pension Index for the middle year of the foregoing three consecutive years, or, if the Approved HCV Infected Person or the Administrator demonstrates on a balance of probabilities that his or her Earned Income for such year would have been higher or lower than such average but for the HCV Infected Person’s Infection with HCV, such higher or lower amount, (the applicable amount being hereinafter referred to as the “Pre-claim Gross Income”), provided that the amount determined under this Section 4.02(2)(b)(i) will not exceed $75,000 multiplied by the ratio that the Pension Index for the year bears to the Pension Index for 1999, minus

(ii) the Ordinary Deductions that would be payable by the Approved HCV Infected Person on the amount determined under Section 4.02(2)(b)(i) on the assumption that such amount was the Approved HCV Infected Person’s only income for such year.

(d) “Earned Income” means taxable income for the purposes of the Income Tax Act (Canada) from an office or employment or from the carrying on of an active business and any taxable income for purposes of the Income Tax Act (Canada) of a corporation from the carrying on of an active business to the extent that the person establishes to the satisfaction of the Administrator that the person has a significant shareholding in such corporation and that such income is reasonably attributable to the activities of such person. [emphasis added]

(e) “Ordinary Deductions” means income taxes, Unemployment Insurance and/or Employment Insurance and Canada Pension Plan and/or Québec Pension Plan deductions applicable in the Province or Territory where the person is resident.

5. As can be seen, Section 4.02(2) requires the Administrator to determine a Claimant’s Annual Loss of Net Income which is defined as the excess of the Claimant’s Pre-claim Net Income over his or her Post-claim Net Income. In turn, Pre-claim Net Income is defined by reference to the Claimant’s three highest consecutive years of Earned Income minus Ordinary Deductions.

6. Section 4.02(2)(d) defines “Earned Income” as taxable income for the purposes of the Income Tax Act (Canada) and Section 4.02(2)(e) defines “Ordinary Deductions” as including income tax.

7. In the case at hand, the Claimant’s three highest consecutive years of Earned Income were 1975, 1976 and 1977. The Claimant received the use of a company car which has been valued at $3,000.00 per year in each of those years; however, the amount was not included in the T4 slip issued by the Claimant’s employer and the Claimant did not report it for income tax purposes.

8. The Administrator has produced in evidence a letter from PriceWaterhouseCoopers indicating that the use of a company-owned automobile has been a taxable benefit under the Income Tax Act (Canada) since January 1 st, 1972. That being the case, it follows that the value of the Claimant’s use of the company car in 1975, 1976 and 1977 constituted taxable income within the meaning of Section 4.02(2)(d). The fact that the amount was not included on the Claimant’s T4 slip or income tax returns does not render it a non-taxable benefit.

9. Indeed, if the Claimant’s use of the company car was truly a non-taxable benefit, then it would not qualify as Earned Income and, thus, could not be included at all in the calculation of the Claimant’s Pre-claim Net Income. The Claimant cannot have it both ways. Either the benefit is taxable, in which case the after-tax value of the benefit gets included in the Claimant’s Pre-claim Net Income, or the benefit is non-taxable, and is excluded from consideration altogether. The Administrator has chosen to adopt the approach which is most beneficial to the Claimant.

10. The confusion in this case appears to have been caused by the reference in the Loss of Income/Support application form to non-taxable income. However, these references appear only in the Post-Claim Income section of the form, not in the Pre-Claim Income section. This is because the definition of Post-claim Net Income includes the receipt by claimants of certain payments which may be non-taxable. It is quite clear from the form, however, that non-taxable payments or benefits play no part in the calculation of Pre-claim Net Income which is what we are concerned with here.

11. In the result, I find no basis upon which to interfere with the Administrator’s decision to treat the Claimant’s use of a company car as a taxable benefit.

DATED at Halifax, Nova Scotia, this 12 th day of June, 2003.

[SGD.]
S. BRUCE OUTHOUSE, Q.C
Arbitrator