Stojanovski v Allianz Australia Insurance Limited
[2023] NSWPICMR 30
•24 May 2023
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| Citation: | Stojanovski v Allianz Australia Insurance Limited [2023] NSWPICMR 30 |
| ClaimanT: | Tome Stojanovski |
| Insurer: | Allianz Australia Insurance Limited |
| Merit Reviewer: | Katherine Ruschen |
| DATE OF DECISION: | 24 May 2023 |
CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017; merit review; dispute about payment of weekly benefits under Division 3.3; meaning of pre-accident weekly earnings (PAWE); meaning of earnings; Schedule 1, clause 4; self-employment; types of business expenses; whether only costs of sales are deducted from gross business profit for PAWE; whether other expenses are proceeds of the business; whether earnings as an earner are the gross profit or net income of the business; Held – the reviewable decision is set aside. |
| Determinations made: | CERTIFICATE OF DETERMINATION Issued under s 7.13(4) of the DETERMINATION The reviewable decision is about the amount of weekly benefits 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 set aside and in its place: (a) the claimant’s pre-accident weekly earnings amount is $668.22. 2. The claimant’s entitlement to costs of this merit review is nil. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Tome Stojanovski (the claimant) and the insurer about the amount of weekly benefits payable under Division 3.3 of the MAI Act.
The claimant was involved in a motor accident on 1 December 2022.
On 12 January 2023 the insurer calculated the claimant’s pre-accident weekly earnings (PAWE) in the sum of $516.81.
On 27 January 2023 the claimant requested an internal review of the insurer’s PAWE decision.
On 10 February 2023 the insurer issued their internal review decision in which the insurer affirmed their original decision that PAWE is $516.81.
The claimant has requested a merit review of the internal review decision dated
10 February 2023.
SUBMISSIONS
The claimant is a self-employed tiler operating as a sole trader business. In relation to expenses of the business, the claimant submits only the costs of goods sold should be deducted from gross business profit to produce his gross earnings from the business. The claimant submits other expenses should not be deducted as they are part of the “proceeds of the business” and therefore his gross earnings for the purpose of PAWE. The claimant submits that other expenses are “allowable general deductions incurred in gaining producing the claimant’s assessable income for the purposes of the [MAI] Act and in accordance with section 8.1 of the Income Tax Assessment Act 1997”.
The claimant acknowledges previous merit review decisions in which all business expenses have been deducted from gross profit of the business and not just the cost of goods sold but submits those decisions are not binding.
The claimant submits his gross earnings over the 12 month pre-accident period under Schedule 1, cl 4(1) of the MAI Act are $73,752 and therefore his PAWE is $1,418.33.
The insurer submits the claimant’s gross earnings for the purpose of PAWE are the net profit of the business after deducting all business expenses. The insurer further submits there is insufficient information upon which to calculate PAWE over the precise pre-accident period under cl 4(1). The insurer has instead calculated PAWE over an adjusted 12 month period from 1 October 2021 to 30 September 2022 by:
(a) taking a monthly average based on net profit of the business declared in the claimant’s 2021/2022 tax return and multiplying it by nine months, representing the period 1 October 2021 to 30 June 2022, and
(b) adding to this the gross profit (including GST) of the business declared in the claimant’s business activity statement (BAS) for the quarterly period from 1 July 2022 to 30 September 2022.
The insurer’s methodology produces gross earnings of $26,873.97 which equates to PAWE in the sum of $516.81.
PROCEDURAL BACKGROUND
On 2 April 2023 I issued directions which required the claimant to provide the following by 19 April 2023:
(a)
a copy of all source documents (for example, tax invoices/receipts/sales records/bank statements) upon which the BAS for the quarter ending
31 December 2022 declaring gross sales of $61,694 was prepared/calculated, and
(b)
a complete copy of the bank statements for the bank account into which payments to the claimant’s business were made for the period from
1 December 2021 to 31 December 2022.
The claimant failed to comply with the above direction. No explanation for the non-compliance was received from the claimant.
On 26 April 2023 the claimant’s solicitor belatedly requested an extension of time to comply with the directions, until 17 May 2023.
On 26 April 2023 I extended time for compliance by the claimant with the relevant direction until 10 May 2023.
On 16 May 2023 the claimant belatedly provided copies of bank statements for the period 1 December 2021 to 30 December 2022 (excluding February 2022). No explanation has been provided by the claimant for the late provision of documents or the absence of other source documents required by the directions such as tax invoices and receipts evidencing sales and business expenses.
REASONS
The issue
There is no dispute that the claimant is an earner for the purpose of the MAI Act.
There also does not appear to be any dispute that the claimant’s PAWE falls under Schedule 1, cl 4(1) of the MAI Act.
Under cl 4(1) the claimant’s PAWE is calculated over the 52 week period immediately before the day of the motor accident. That period is 1 December 2021 to
30 November 2022.
The issue in dispute is whether, for the purpose of PAWE, all expenses of the business are to be deducted from gross earnings of the business or just those expenses which represent costs of sales.
The legislation
Pursuant to cl 4(1) PAWE relevantly means “the weekly average of the gross earnings received by the earner as an earner…” in the relevant 12 month pre-accident period.
“Gross earnings” is not defined in the MAI Act. “Earnings” is also not defined. However, “loss of earnings” is defined in Schedule 1, cl 3 of the MAI Act to mean “a loss incurred or likely to be incurred in a person's income from personal exertion”. It is clear from this definition that the word “earnings” in the phrase “loss of earnings” means “income from personal exertion”.
Relevantly, pursuant to cl 3(2)(b) “income from personal exertion” is “the proceeds of any business carried on by the person either alone or in partnership with any other person”.
The principles of statutory interpretation are set out by the High Court in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355; 72 ALJR 841; 153 ALR 490 and relevantly require that:
(a) the words in the statute must be interpreted in a way that is consistent with the language used in that statute;
(b) words of a statutory provision are given the meaning that the legislature is taken to have intended them to have, and
(c) the same wording used throughout the statute carries the same meaning.
Whilst the word “earnings” on its own is not defined in the MAI Act it is a word used throughout the MAI Act. Pursuant to principles of statutory interpretation it must be taken to have the same meaning throughout the MAI Act. Accordingly, “earnings” should be given the same meaning when used in phrases such as “gross earnings” and “earnings as an earner” as it is given in the definition of “loss of earnings” in Schedule 1, cl 3 of the MAI Act.
Under cl 3 “loss of earnings” means a loss of “income from personal exertion”. It follows that the word “earnings” is intended to mean “income from personal exertion” wherever the word appears in the MAI Act. Relevant to the facts of this case is that “income from personal exertion” means “the proceeds” of the claimant’s tiling business pursuant to cl 3(b). Accordingly, the claimant’s “gross earnings” for the purpose of PAWE are the proceeds he receives from his tiling business.
What are the proceeds of the claimant’s business?
Schedule 1, cl 4(1) requires a determination of the claimant’s gross earnings received as an individual “earner” and not the gross earnings of the business itself. In so far as the claimant earns from “the proceeds of [his] business”, the “proceeds” he enjoys as an “earner” are the net income of the business after accounting for 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 “gross earnings”. They are outgoings of the business paid before the business proceeds ultimately become available to the claimant in the form of his individual gross earnings. PAWE must be based on the claimant’s individual gross earnings after accounting for all business expenses, as it is his personal status as an “earner” that provides him with benefits under the Act.
There is no dispute that some expenses of the business must be deducted from the gross income of the business to determine the earnings the claimant receives from the proceeds of his business. The claimant contends only “costs of goods sold” are to be deducted. The question is therefore whether all business expenses are to be deducted or only the costs of goods sold.
I do not agree with the claimant’s contention only “costs of goods sold” should be deducted, being only those expenses that would be incurred as part of the immediate supply of services. Regardless of the nature of the business expense, the claimant’s gross earnings as an “earner” can only be the net income of the business, after deducting all business expenses.
The net income of the business, after deducting all expenses is synonymous with profit as it represents the final measure of profitability of a business. The net income represents the net amount of profit remaining after all expenses and costs are subtracted from revenue and it is the net income (proceeds of the business) that then becomes available to the owner of the business, as their individual gross earnings from the business.
As noted above, the MAI Act is concerned with earnings the claimant ultimately receives into his own hands as an individual. Ultimately, the earnings the claimant receives from the business is what is left over after accounting for all expenses of the business, not just the costs of goods sold. This is consistent with how the claimant ultimately presents his individual gross earnings to the Australian Taxation Office (ATO) that is, his earnings are the net income of the business and is therefore consistent with accounting conventions. The fact the expenses are permitted to be deducted by the ATO to determine the net profit of the business for tax purposes does not mean the monies retain the status of “proceeds of the business”, as contended by the claimant. They are outgoings incurred by the business before the claimant receives the proceeds.
For the reasons set out above, I am of the view the insurer has taken the correct approach by deducting all business expenses to produce the net profit or loss of the business although I note no expenses were deducted from the gross profit of the business for the period 1 July 2022 to 30 September 2022 included in the insurer’s PAWE calculation.[1]
[1] The insurer also incorrectly included GST as earnings for this period.
This method is consistent with the method of calculation in previous merit review decisions including ABQ v NRMA (Merit Review) [2018] NSWSIRADRS 43 (17 October 2018), AJQ v NRMA (Merit Review) [2020] NSWSIRADRS 44 (8 April 2020), APD v AAI Limited trading as GIO (Merit Review) [2020] NSWSIRADRS 198 (24 August 2020), APL v GIO (Merit Review) [2020] NSWSIRADRS 207 (16 September 2020), Mula v NRMA [2022] NSWPICMR 9, Hayes v GIO [2022] NSWPICMR 17, Le v Insurance Australia Ltd t/as NRMA Insurance [2022] NSWPICMR 47 and Shqau v AAMI [2022] NSWPICMR 6.
Whilst the claimant is correct in stating decisions such as the above are not binding on this merit review my role as Merit Reviewer is to determine the correct and preferable decision on the information before me. I am of the view that the correct and preferable decision is one where all business expenses are deducted, consistent with previous merit review decisions on the issue.
Further, s 1.3 sets out the objects of the MAI Act, which relevantly include:
(a) benefiting all members of the motoring public by keeping the overall costs of the scheme within reasonable bounds so as to keep premiums affordable, and
(b) promoting the recovery and return to work or other activities of those injured in motor accidents.
Section 1.3(4) requires a construction of the MAI Act that would promote the objects of the MAI Act to be preferred to a construction that would not promote those objects. The second reading speech for the Motor Accident Injury Bill noted the reasons for insurers being able to regularly assess a person’s earning capacity under the MAI Act as being “to ensure that injured people who have the capacity to return to employment stay off work only as long as is necessary to support their recovery”. The quarantining of certain business expenses such as fixed costs from other business expenses for the purpose of calculating PAWE in relation to self-employment is likely to give rise to enrichment and is therefore inconsistent with the objects of the MAI Act.
Calculation of the claimant’s PAWE
The pre-accident period for the purpose of PAWE under cl 4(1) is 1 December 2021 to 30 November 2022.
Neither the claimant nor the insurer has adopted the correct pre-accident period.
The insurer has adjusted the pre-accident period for the purpose of PAWE to
1 October 2021 to 30 September 2022, which is inconsistent with cl 4(1).
The claimant calculates PAWE over the period 1 January 2022 to 31 December 2022, which is also inconsistent with cl 4(1). The period relied on by the claimant also extends beyond the date of the accident on 1 December 2022 and therefore incudes post-accident earnings. PAWE is only concerned with earnings “received” before the day of the motor accident. Accordingly, any earnings received on or after
1 December 2022 are excluded from PAWE regardless of when the work was done.
I have reconciled the claimant’s bank statements with the BAS for the quarter ending 31 December 2022 to determine what income was received on or before
30 November 2022 (the last day of the pre-accident period under cl4(1)) and what income was received on or after the date of the accident.
The bank statements show a total of $61,694.50[2] received over the entire quarter from 1 October 2022 to 31 December 2022 from a payer identified as “Fitness & Lifest” in the bank statements. Fitness & Lifest is presumably the claimant’s sole or major client in the relevant period. The total sum of $61,694.50 in the bank statements corresponds with the sum of $61,694 in the BAS. Accordingly, I am satisfied I have included all deposit transactions that are income of the business.
[2] This includes a $5,000 deposit recorded as a transfer paid into the wrong account, which appears to be income given the amount in the BAS.
The bank statements show that of the total sum received as income from
1 October 2022 to 31 December 2022, the sum of $27,352.50 was received on or before 30 November 2022 with the balance of $34,342 received after the date of the motor accident.
As noted, cl 4(1) is only concerned with earnings “received” by the claimant before the accident. Any earnings received after the accident are excluded from PAWE, regardless of whether the work in respect of which the payment relates was carried out before the accident.
The income of $34,342 received after the accident from 1 December 2022 to
30 December 2022 of $34, 342 would need to be taken into account by the insurer when determining whether, for the purpose of s 3.6 of the MAI Act, the claimant suffered a loss of earnings in the period 1 December 2022 to 30 December 2022. On the face of it, there appears to be no loss of earnings in this period because:
(a) the bank statements show income including GST received in this period of $34,342 which equates to gross business income of $31,220 exclusive of GST;
(b) as determined below, business expenses are approximately 54% of gross business income and therefore business expenses in this period are likely around $16,858.80 (54% of $31,220);
(c) this provides gross earnings to the claimant (the proceeds of the business after deducting all business expenses) of $14,361.20 ($31,220 less $16,858.80);
(d) the period 1 December 2022 to 30 December 2022 is 30 days, which is approximately 4,29 weeks, and
(e) therefore, the claimant received average weekly earnings in the first 4.29 weeks after the motor accident of $3,347.60 ($14,361.20 divided by 4.29 weeks) which exceeds the PAWE amount calculated below.
Returning to PAWE, I am comfortably satisfied on balance based on the BAS and the bank statements that the gross income received by the business in the correct pre-accident period from 1 December 2021 to 30 November 2022 is as follows:
Gross income
Inclusive of GST
GST
Exclusive of GST
1 December 2021 to 31 December 2021
$0
$0
$0
1 January 2022 to 31 March 2022
$0
$0
$0
1 April 2022 to 30 June 2022
$38,940
$3,540
$35,400
1 July 2022 to 30 September 2022
$16,800
$1,527
$15,273
1 October 2022 to 30 November 2022[3]
$27,352,50
$2,486.59
$24,865.91
Total
$83,092.50
$7,553.59
$75,538.91
[3] As reconciled with the bank statements.
GST is not income of the business. It is a tax collected by the claimant’s business on behalf of the government and remitted to the ATO as per the BAS. Accordingly, the starting point to determine the claimant’s PAWE is the gross profit of the business excluding GST. As per the table above this figure for the 12 month pre-accident period is $75,538.91.
The next step is to deduct all business expenses incurred by the business in the period 1 December 2021 to 30 November 2022.
The claimant has provided a profit and loss statement for the period 1 January 2022 to 31 December 2022 which shows total business expenses (costs of sales $33,006 and other expenses $24,887) in the sum of $57,893. Gross profit (exclusive of GST) in the same period is $106,759. Accordingly, expenses represent approximately 54% of gross profit.
The claimant has not provided sufficient information upon which to precisely calculate business expenses over the correct pre-accident period. The onus is on the claimant to provide sufficient evidence of business expenses. Having regard to the directions issued on 2 April 2023 and the claimant’s mandatory obligation to comply, I can only infer the claimant does not have invoices or receipts for business expenses.
The bank statements provided are not sufficient for the purpose of calculating business expenses over the correct pre-accident period, as the account appears to be linked to one or more other accounts with multiple transfers between accounts occurring. It is unclear the extent to which withdrawals and/or transfers from the subject account are business expenses or the extent to which expenses were paid from other accounts.
The BAS provides some evidence of expenses in that they record a GST amount payable by the ATO to the claimant. Presumably this is the input tax credit the claimant claimed on business expenses. However, the expenses figure the GST amount suggests does not reconcile with the amount recorded as business expenses in the profit and loss statement for the same period. The BAS suggests expenses were greater than the amount recorded in the profit and loss statement.
The most reliable record of business expenses appears to be the profit and loss statement for the period 1 January 2022 to 31 December 2023. As this 12 month period aligns reasonably closely with the pre-accident period under cl 4(1) I am comfortably satisfied that the percentage of business income that expenses in the profit and loss statement represent is reasonably likely to also represent the expenses percentage of income in the pre-accident period from 1 December 2021 to
30 November 2022. As set out above, that percentage is 54%.
Accordingly, I conclude on balance that business expenses for the period
1 December 2021 to 30 November 2022 are $40,791.01 (gross profit of $75,538.91 x 54%).
Accordingly, the claimant’s gross earnings in the period 1 December 2021 to
30 November 2022 are $34,747.90 (gross profit of $75,538.91 less business expenses of $40,791.01).
PAWE is therefore $668,23 ($34,747.90 divided by 52 weeks).
COSTS
Section 8.10 of the MAI Act provides for an entitlement to legal and other costs and expenses in certain circumstances. The entitlement to legal costs is qualified by
s 8.10(3) which provides in respect of a claim for statutory benefits that the claimant “is only entitled to recover … reasonable and necessary legal costs … if payment of those costs is permitted by the regulations or the Commission”.
Clause 22 and Schedule 1 of the Motor Accident Injuries Regulation 2017 (the Regulation) sets out the legal costs permitted by the Regulation in respect of merit reviews. A merit review under Schedule 2, cl 1(a) is not included in Schedule 1 of the Regulation. Accordingly, costs of this merit review are not permitted by the Regulation and have not been permitted by the Commission. The claimant’s entitlement to costs of this merit review is therefore nil.
CONCLUSION
For the reasons set out above, under Schedule 1, cl 4(1) the claimant’s earnings are to be calculated based on the individual earnings he received from the business, after deducting all business expenses (not just costs of sales) in the period
1 December 2021 to 30 November 2022 being the correct pre-accident period specified by cl 4(1).
I am satisfied the claimant’s gross earnings in this period are $34,747.90 and therefore his PAWE is $668.23.
Accordingly, the reviewable decision is set aside and in its place:
(a) the claimant’s PAWE amount is $668.23.
The claimant’s entitlement to costs is nil for the reasons set out above.
LEGISLATION AND GUIDLINES
In making this decision, I have considered the following:
· the Application, Reply and supporting documentation;
· MAI Act;
· Motor Accident Guidelines 2017, and
· the Regulation.
0
5
0