After an accident, persons making a claim for accident benefits to an insurance company must fill out many forms and applications. This can be confusing for all parties involved.

For the self-employed claimant, who claims for income replacement benefits, the questions being asked can be ambiguous.

As a forensic and investigative accounting firm, Williams & Partners Forensic Accountants Inc. works with major insurance companies, independent adjusters, law firms, corporations, business owners and individuals. Through this experience, the company has developed a perspective that in order to eliminate the confusing nature of post-accident income replacement requests, changes must be made to the Application for Accident Benefits, OCF-1.

For example, the OCF-1 form currently asks a claimant to provide their gross income, which is defined as: “Before income taxes and deductions.” This prompts confusion amongst self-employed individuals as gross income is interpreted, often incorrectly, to mean gross revenue—a sum that is much higher than gross income. Yet, for most self-employed persons, gross income really means gross revenues less business expenses, before income taxes and Canada Pension Plan contributions. The insurer is trying to compensate the claimant for their before tax income. However, the self-employed have to take into account business expenses—business revenues less business expenses is what is taxed by the government.

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Having this defined or stated on the OCF-1 form will go a long way to clearing the confusion, and streamlining the flow of information.

Another change to the OCF-1 form that would speed up the determination of a self-employed claimant’s income is an explanation or statement that only income that has been reported for income tax purposes will qualify in determining the amount of the income replacement benefit. The claimant will, then, understand why they are being asked to produce their income tax returns.

Often self-employed claimants do not understand what they need to provide by way of financial information to support the amounts reported on the OCF-1. We recommend therefore that the OCF-1 lists the possible documents that may be used in the determination of an income replacement benefit. For example:

• Personal and corporate income tax returns
• Notices of Assessment
• Accounting books and records
• Bank statements
• Other source documents, invoices, receipts, etc.

By providing this information upfront, self-employed claimants can gather their documentation faster and hopefully avoid delays in processing their claim.

Similarly, when a self-employed claimant uses the Employer’s Confirmation Form, OCF-2, the intended definition of gross income should be stated, i.e. Gross income for self-employed persons is your gross revenues less business expenses and before income taxes and CPP contributions.

Another area of confusion arises with respect to persons who receive a regular wage, with proper source deductions, from a company that they own. The confusion arose partly as a result of FSCO’s Guideline for Identifying Self-Employed Individuals, which is part of Section B of the Dispute Resolution Practice Code, Fourth Edition. The Guideline states: “If the individual derives his or her remuneration from an incorporated business, then he or she is considered to be an employee of the corporation.” This statement is not wrong, as wages paid by the corporation would be considered employment income; however, as FSCO arbitrators have long held, where the company is an extension of the person, both the personal and the corporate affairs must be examined to ensure the claimant is not unjustly over or under compensated by way of income replacement benefits.

Thus we suggest that to allow for a fair review of the self-employed claimant’s overall financial state, that a question be added to forms OCF-1 and OCF-2: “Are you an owner of the corporation from which you received remuneration?” If answered yes, then claimants would be asked to provide financial statements and income tax returns of the corporation.

Further, to eliminate some uncertainty in calculating the net weekly benefit payable to the claimant, we would like FSCO to amend the following sections:

Section 60 - Other Collateral Benefits: To indicate clearly whether or not CPP disability benefits being received by a claimant as a result of a previous impairment would be deductible pursuant to Section 60. This is not clear under the present wording in the Statutory Accident Benefits Schedule (SABS).

Section 63 - Income Tax Calculations: We suggest this section be updated to reflect the changes made under the Income Tax Act to non-refundable tax credits, which are used to determine the proper income taxes to be applied when calculating income replacement benefits. This way, there will be uniformity among the industry, as presently some calculations do not conform with the current section.

These changes but will go a long way in making the claims process more efficient and ensure the claimant gets what is rightly owing to them under their policy. We look forward to the government implementing some or all of these suggestions.

Rob Pellegrini, C.G.A., C.F.E., of Williams & Partners Forensic Accountants Inc.