Nasr v Allianz
[2022] NSWPICMR 16
•21 March 2022
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| CITATION: | Nasr v Allianz [2022] NSWPICMR 16 |
| CLAIMANT: | James Issa Nasr |
| INSURER: | Allianz |
| MERIT REVIEWER: | Katherine Ruschen |
| DATE OF DECISION: | 21 March 2022 |
| CATCHWORDS: | MOTOR ACCIDENTS- Merit review; dispute about payment of weekly benefits under Division 3.3 of the Motor Accident Injuries Act 2017; pre-accident weekly earnings; clause 4(1) of schedule 1 of the Motor Accident Injuries Act 2017; self-employed earner; sole trader; business expenses; depreciation expenses; payments to family members for income splitting and tax planning purposes; Held – the reviewable decision is affirmed. |
| DETERMINATIONS MADE: | The reviewable decision is about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the Motor Accident Injuries Act 2017 (the MAI Act), and is therefore a merit review matter under Schedule 2(1)(a) of the MAI Act. 1. The reviewable decision is: (a) affirmed. |
BACKGROUND
There is a dispute between James Issa Nasr (the claimant) and the insurer about the amount of weekly payments of statutory benefits that are payable under Division 3.3 of the MAI Act.
The claimant was involved in a motor accident on 21 November 2021.
Prior to the accident the claimant worked in building maintenance on a self-employed basis.
The claimant made an application for statutory benefits including weekly payments under Division 3.3 of the MAI Act.
On 14 December 2021, the insurer calculated the claimant’s pre-accident weekly earnings (PAWE) in the sum of $933.02.
The claimant requested an internal review of the 14 December 2021 PAWE decision.
On 31 December 2021, the insurer issued their internal review decision which affirmed the initial decision that the claimant’s PAWE is $933.02.
The claimant has applied for a merit review of the insurer’s internal review decision dated 26 May 2021.
SUBMISSIONS
The claimant submits net pre-accident annual earnings of his sole trader business are $98,517 on the basis he contends certain expenses (namely, depreciation and payments to family members “for the purpose of income splitting and tax planning purposes”) should not be deducted from gross earnings, as it distorts his actual net earnings.
The insurer submits that as a sole trader, all expenses of the business must be deducted to produce the net earnings of the business which are, in turn, the claimant’s gross individual earnings.
The claimant has provided insufficient evidence, including in response to my direction that his accountant provide further documents, of his earnings in the specific pre-accident period, being 21 November 2020 to 20 November 2021. The insurer, however, accepts the nearest tax return, being for the period 1 July 2020 to 30 June 2021 as a reasonable representation of the claimant’s average weekly earnings. Absent further information I agree this is appropriate in this matter and will proceed to conduct this merit review on this basis.
REASONS
There is no dispute that the claimant is an earner pursuant to schedule 1, clause 2 of the MAI Act.
The dispute is over the amount of the claimant’s PAWE under clause 4 of schedule 1.
Legislation
Pursuant to clause 4 of schedule 1 of the MAI Act PAWE means:
“Meaning of "pre-accident weekly earnings"--general
(1) "Pre-accident weekly earnings" , in relation to an earner who is injured as a result of a motor accident, means the weekly average of the gross earnings received by the earner as an earner during the 12 months immediately before the day on which the motor accident occurred, unless subclause (2) applies.
(2) In the following cases, "pre-accident weekly earnings" , in relation to an earner who is injured as a result of a motor accident, means--
(a) if, on the day of the motor accident, the earner was earning continuously, but had not been earning continuously for at least 12 months--the weekly average of the gross earnings received by the earner as an earner during the period from when the earner started to earn continuously to immediately before the day of the motor accident,
(a1) if the earner was employed or self-employed during a period or periods equal to at least 26 weeks during the first year of the pre-accident period, but was not obtaining earnings from any source at any other time during the pre-accident period--the average weekly gross earnings received by the earner as an earner during the first year of the pre-accident period,
(b) if subclause (3) applies--the weekly average of the gross earnings received by the earner as an earner during the period from when the change of circumstance referred to in that subclause occurred to immediately before the day of the motor accident,
(c)if the earner is an earner by reason of having entered into an arrangement with an employer or other person to undertake employment or to commence business as a self-employed person--the average weekly gross earnings that the earner could reasonably have been expected to earn, but for the injury, in employment under that arrangement.
(2A) The "pre-accident period" , in relation to a motor accident, is the period of 2 years immediately preceding the motor accident.
(3) This subclause applies if, during the 12 months immediately before the day of the motor accident, there was, as a result of any action taken by the earner, a significant change in his or her earnings circumstances that resulted in the earner regularly earning, or becoming entitled to earn, more on a weekly basis than he or she was earning before the change occurred.
Note : Examples of a change of circumstances to which this subclause would apply include a change of job, a promotion, a move from part-time to full-time employment, or a pay increase arising from the achievement of performance standards.
(4) For the purposes of this clause, an earner earns continuously if he or she obtains earnings from permanent employment or from a source that, on the day of the motor accident, was likely to continue for a period of at least 6 months to provide earnings to the earner on the same, or a similar, basis to the basis on which the earnings were being provided as at that day.”
There is no evidence to suggest any of the exceptions in clause 4(2) apply to the claimant’s circumstances. There is also no evidence that might trigger clause 4(3). Accordingly, the claimant’s PAWE falls for assessment under clause 4(1). Clause 4(1) requires the claimant’s PAWE to be calculated on the basis of the weekly average of the gross earnings received by him as an earner during the 12 months immediately before the day on which the motor accident occurred. The motor accident occurred on 21 November 2021. Accordingly, the pre-accident period for the purpose of clause 4(1) is 21 November 2020 to 20 November 2021. However, as noted above the claimant has not provided evidence of earnings in this specific period and accordingly, the matter will be assessed based on earnings in the nearest complete period, being 1 July 2020 to 30 June 2021 on the basis this is agreed by the insurer.
Consideration
In the circumstances of a sole trader the earnings of the claimant as an individual, distinct from the business, are the profits of the business after paying the expenses of the business. In other words, the “proceeds” of the business the claimant receives as an earner is the net profit of the business after accounting for all business expenses incurred to run the business, but before tax. Business expenses are not “proceeds” of the business that make it into the claimant’s hands as his individual gross earnings.
The claimant’s PAWE must be based on the claimant’s gross earnings and not gross earnings of the business because it is his personal status as an “earner” that provides him with benefits under the MAI Act. The claimant’s gross earnings as an “earner” cannot be anything other than the net income of the business, after deducting business expenses. Business expenses are outgoings and do not form part of the gross earnings of the “earner” who ultimately receives the net income of their business as their individual gross earnings.
The claimant does not appear to dispute the above but disputes the deduction of two categories of business expenses. In this regard, the specific dispute in this matter is whether the following expenses should be deducted as operating costs from the gross profits of the business:
(a) depreciation expenses in the sum of $20,000, and
(b) “payments [in the sum of $30,000] to associated persons, i.e. family members for the purpose of income splitting and tax planning purposes”.
The onus is on the claimant to prove, on the balance of probabilities, the amount of his pre-accident income. It is therefore a matter for the claimant, who is assisted by an accountant, to provide sufficient documentary evidence. Despite a direction for all source documents upon which the claimant’s 2021 tax return was prepared no documents regarding expenses of the business were provided. The only source documents provided are bank statements said to evidence sales of the business.
The evidence of business expenses is limited to the 2021 tax return which declares gross income of the business in the sum of $160,396, business expenses in the sum of $111,879 and net business income in the sum of $48,517. The following breakdown of business expenses is provided in the business worksheet in the tax return:
Expense
Amount
Depreciation
$20,000
Hire or rent of plant, equip
$1,629
Motor
$8,242
Materials and supplies
$43,550
Office expenses
$929
Subcontractors
$5,575
Cleaning and rubbish removal
$845
Rent on land and buildings
$21,610
Telephone and internet
$3,815
Electricity
$1,434
Travel and accommodation
$3,577
Bank fees and charges
$218
Accounting
$455
Total
$111,879
Depreciation expenses
Depreciation reported in the income statement of the business to the ATO represent depreciation of assets used for business production and is therefore an operating expense of the business. It represents a portion of the acquisition cost of the asset used in the business to generate income.
As the asset is part of normal business operations, depreciation is considered an operating expense and recognises that the asset will wear down and eventually require replacement.
Accordingly, depreciation expenses of $20,000 in the tax return form part of the expenses of the business to be deducted from gross profits to produce net business income (before tax), which in turn is the claimant’s gross earnings as an individual.
Payments to associated persons
The claimant contends that of the expenses listed in the table above, approximately $30,000 represents payments to family members. However, neither the amount contended ($30,000) nor the statement of the claimant and his accountant that these payments represent payments made for “income splitting and tax planning purposes” is reconcilable with the description of each expense provided to the ATO and the amount claimed for each. None of the expense descriptions in the table above expressly state, nor imply that they are payments to family members or any other “associated person”.
Further, the claimant operates his business as a sole trader, not a company. It is unclear what lawful basis there would be for the claimant, as a sole trader, to make payments to family members for “income splitting and tax planning purposes” and disguise these payments as expenses such as “materials”, “rent”, “subcontractors”, “office expenses” or any of the other categories of expenses listed in the business worksheet in the tax return.
If the claimant’s contention that $30,000 of the expenses declared to the ATO are payments to family members for income splitting and tax planning purposes is true, the only inference to be drawn from the available material is that the claimant disguised income as expenses in his tax return for the sole purpose of unlawfully obtaining a tax benefit. It would raise serious questions about the veracity of his declaration to the ATO in the tax return.
The claimant cannot have it both ways. He cannot assert by declaration to the ATO that certain monies earned by the business are expenses in order to gain a tax benefit and then turn around for the purpose of this claim and assert the opposite in order to obtain a different benefit under the MAI Act. Of course, there is nothing to stop the claimant from sharing income of the business with family members, but it must first be declared as his own taxable income in his tax return (where he operates as a sole trader and not as a partnership or through a company) and cannot be lawfully disguised as one of the types of expenses listed in the business worksheet in the tax return. To suggest in the tax return that payments to family members are, for example, “subcontractor” or any of the other expenses listed in the tax return would be nothing short of misleading.
Given the following, I am not comfortably satisfied that $30,000 of the amount declared as business expenses in the tax return represents net income of the business:
(a) the claimant’s failure to declare the $30,000 as his individual income to the ATO,
(b) the itemisation of business expenses in the tax return, none of which expressly state, or imply, payments to family members; and
(c) the inability of the claimant and his accountant to provide records of payments to “associated persons” such as family members.
Accordingly, the $30,000 contended by the claimant as payments to family members is included in the deduction of business expenses to produce the claimant’s gross earnings as an individual.
CONCLUSION
For the reasons set out above, depreciation expenses and the $30,000 claimed as payments to family members for income splitting and tax planning purposes do not form part of the claimant’s gross individual earnings. They are expenses to be deducted from the gross profits of the business to produce the claimant’s gross earnings as an individual, consistent with the position declared by the claimant to the ATO in his tax return.
The claimant’s PAWE is therefore the weekly average of the net earnings of his business, after deducting all business expenses, as follows:
(a) gross profits in 2021 of $160,396 less business expenses of $111. 879 = net business earnings of $48,517, and
(b) $48,517 divided by 52 weeks = $933.02.
Accordingly, the reviewable decision is:
(a) affirmed.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· The application, reply and supporting documentation;
· the MAI Act;
· Motor Accident Guidelines, and
· Motor Accident Injuries Regulation 2017.
Katherine Ruschen
Merit Reviewer
Personal Injury Commission
0
0
0