Tian v QBE Insurance (Australia) Ltd
[2023] NSWPICMR 34
•7 July 2023
| CERTIFICATE OF DETERMINATION OF MERIT REVIEWER | |
| Citation: | Tian v QBE Insurance (Australia) Ltd [2023] NSWPICMR 34 |
| ClaimanT: | Ying Tian |
| Insurer: | QBE Insurance (Australia) Ltd |
| Merit Reviewer: | Katherine Ruschen |
| DATE OF DECISION: | 7 July 2023 |
| CATCHWORDS: | MOTOR ACCIDENTS - Motor Accident Injuries Act 2017; dispute about payment of weekly benefits under Division 3.3; pre-accident earning capacity; section 3.8; whether weekly benefits payable after the second entitlement period are calculated on net or gross pre-accident earning capacity; Allianz Australia Insurance Ltd v Jenkins applied; Held – the reviewable decision is affirmed. |
| Determinations made: | CERTIFICATE Issued under s 7.13(4) of the Motor Accident Injuries Act2017 DETERMINATION The reviewable decision is about the amount of weekly 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 affirmed. |
STATEMENT OF REASONS
INTRODUCTION
There is a dispute between Ying Tian (the claimant) and the insurer about the amount of weekly payments of statutory benefits payable under Division 3.3 of the Motor Accident Injuries Act 2017 (MAI Act).
The claimant was involved in a motor accident on 15 November 2021.
On 3 May 2023 the insurer issued an earning capacity decision pursuant to which it was determined that:
(a) the claimant’s pre-accident earning capacity equated to an ability to earn $1,447 gross per week, which equates to $1,130 net per week;
(b) the claimant had no post-accident earning capacity, and
(c) the claimant was therefore entitled to payment of weekly benefits under
s 3.8 of the MAI Act at the rate of 80% of the difference between her net pre-accident earning capacity and her post-accident earning capacity, which equates to weekly benefits in the sum of $904 ($1,130 x 80%).The claimant requested an internal review of this decision.
On 16 May 2023 the insurer issued their internal review decision in which the insurer affirmed their decision that weekly benefits are payable in the sum of $904 per week.
The claimant requested a merit review of the insurer’s internal review decision dated
16 May 2023.
SUBMISSIONS
This dispute is limited to a dispute about that part of the insurer’s internal review decision which deducts notional tax of $317 per week from the gross amount assessed as representing pre-accident earning capacity.
The claimant contends tax is not payable on weekly benefits paid for the third entitlement period under s 3.8 of the MAI Act and contends on this basis that weekly benefits are to be paid at the rate of 80% of $1,447 that is, the gross amount assessed as representing her pre-accident earning capacity.
The insurer submits weekly benefits are payable under s 3.8 of the MAI Act based on net earning capacity in accordance with the Supreme Court decision in Allianz Australia Insurance Ltd v Jenkins [2020] NSWSC 412 (Jenkins). The insurer has therefore undertaken a notional assessment of tax in order to determine the net value of the claimant’s pre-accident earning capacity.
REASONS
The issue
The issue to be determined is whether the amount payable under s 3.8 of the MAI Act is to be calculated on the basis of the gross amount the claimant had the capacity to earn pre-accident or whether it is to be calculated based on the net amount the claimant had the capacity to earn pre-accident.
The legislation
Pursuant to s 3.8 of the MAI Act weekly benefits are payable after the second entitlement period as follows:
“(1) A person who is injured as a result of a motor accident and suffers a total or partial loss of earning capacity as a result of the injury is entitled to weekly payments of statutory benefits under this section after the end of the second entitlement period, but only if the person--
(a) is at least 18 years of age (whether or not the person is an earner), or
(b) is under 18 years of age and is an earner.
Note : The person's age after the second entitlement period is relevant to determining entitlement to statutory benefits after the second entitlement period. A person's age at the date of the motor accident is not relevant. Schedule 1 defines when a person is an earner.
(2) A weekly payment of statutory benefits under this section is to be at the rate of--
(a) in the case of total loss of earning capacity--80%, or
(b) in the case of partial loss of earning capacity--85%,
of the difference between the person's pre-accident earning capacity and the person's post-accident earning capacity (if any) or post-accident earnings, whichever is the greater, after the second entitlement period.
(3) A weekly payment of statutory benefits to a person under this section is not to exceed the maximum weekly statutory benefits amount less the person's post-accident earning capacity (if any) or post-accident earnings, whichever is the greater, after the second entitlement period.
(4) A weekly payment of statutory benefits to a person under this section is not to be less than the minimum weekly statutory benefits amount or the person's pre-accident earning capacity, whichever is the lesser.”The claimant was assessed as having a total loss of earning capacity. Accordingly, pursuant to s 3.8(2)(a) weekly benefits are payable at the rate of 80% “of the difference between the person's pre-accident earning capacity and the person's post-accident earning capacity (if any) or post-accident earnings, whichever is the greater…”
Relevantly, there is a material change in the way weekly benefits are calculated under s 3.8 and the way in which they are calculated under ss 3.6 and 3.7 for the earlier periods (first and second entitlement periods). Under ss 3.6 and 3.7 weekly benefits are payable based on the difference between pre-accident weekly earnings (PAWE) and the person’s post-accident earning capacity or post-accident earnings. However, under s 3.8 weekly benefits are calculated on the basis of pre-accident earning capacity, not PAWE.
Decision in Jenkins
The issue to be determined is whether, for the purpose of s 3.8, the amount of income expected to be generated by a person’s pre-accident earning capacity is the gross amount that is, before tax or the net amount that is, after tax. This issue has helpfully been determined by the Supreme Court in Jenkins (see paragraph 17 of the decision).
Relevantly, Adamson J held at paragraph 31 in Jenkins:
“In construing the Act, it is important to recall that the purpose of the provisions referred to above is to provide compensation, albeit partial, for economic loss. The ATO distinguished between payments in the first and second period on the one hand (which were measured by reference to “loss of earnings”) and payments in the third period (which were measured by reference to “loss of earning capacity”) on the other. It reasoned that the amounts for loss of earnings bore the character of income, which was, accordingly, taxable, whereas the amount for loss of earning capacity bore the character of capital, which was not taxable. It follows that if a claimant were entitled to receive the tax component of weekly earnings (by being entitled to be paid a gross figure) but was not subject to an obligation to pay that amount in tax to the ATO, the claimant would plainly be in receipt of a windfall.”
Adamson J determined at paragraph 32 in Jenkins that “such a consequence cannot have been intended” given the compensatory purpose of the legislation. Adamson J cited the High Court in Cullen v Trappell (1980) 146 CLR 1; [1980] HCA 10 in which it was decided:
“In assessing damages for personal injuries, the court should take into account the income tax which the plaintiff would have had to pay on the earnings of which his injuries had deprived him.”
Adamson J endorsed the following passage of Gibbs CJ in Fox v Wood (1981) 148 CLR 438 at 440; [1981] HCA 41:
“To assess damages on the basis that the plaintiff has lost his gross earnings, when in fact the earnings would have been subject to tax, and the award of damages is not subject to tax, would give the plaintiff more than he had really lost, and would depart from the fundamental principle referred to in British Transport Commission v. Gourley [1956] AC 185, at p 197, ‘that the tribunal should award the injured party such a sum of money as will put him in the same position as he would have been in if he had not sustained the injuries’.”
Adamson J concluded at paragraph 33 in Jenkins that although Divisions 3 and 4 of the MAI Act “provide for a different regime than applies in the assessment of damages at common law, the principles of compensation are nonetheless relevant to the assessment of a claimant’s entitlement to weekly benefits under, relevantly, Division 3 of the [MAI] Act”.
For the reasons in Jenkins set out above I am of the view that weekly benefits are payable under s 3.8 of the MAI Act based on the net amount the claimant had the capacity to earn pre-accident and not the gross amount.
The claimant is correct on one point, that weekly benefits paid to her after the second entitlement period under s 3.8 are not treated as income by the Australian Taxation Office (ATO) and accordingly, the ATO does not require the claimant to pay income tax on the amount she receives from the insurer under s 3.8. However, Jenkins makes clear that the net amount (not gross) forms the basis of calculating how much is to be paid to the claimant under s 3.8. The gross amount is the amount the claimant would have earned before tax. The net amount is the amount the claimant would have earned after withholding tax. Accordingly, it is necessary for the insurer to notionally assess the tax that would have been withheld in order to calculate the net amount the claimant would have earned from her pre-accident earning capacity.
The claimant’s pre-accident earning capacity was assessed by the insurer as representing $1,447 gross per week. Notional tax on this amount is $317 as calculated by the tax withheld calculator provided by the ATO (see Accordingly, gross earnings of $1,447 equate to net earnings, after allowing for notional tax pursuant to Jenkins, in the sum of $1,130 ($1,447 less $317).
Accordingly, for the purpose of s 3.8 the claimant’s pre-accident earning capacity represents a capacity to earn $1,130 net per week, as determined by the insurer.
As stated above, on the basis the claimant is assessed at having a total loss of earning capacity, the claimant is entitled to weekly benefits at the rate of 80% of the difference between her pre-accident earning capacity and her post-accident earning capacity or post-accident earnings, whichever is greater (s 3.8(2)(a)).
It is understood that in addition to be assessed as having a total loss of earning capacity the claimant had nil post-accident earnings in the relevant period. On this basis, weekly benefits are payable under s 3.8 in the sum of $904 (80% of $1,130). This is the amount determined by the insurer.
CONCLUSION
For the reasons set out above I have determined that:
(a) the claimant’s net pre-accident earning capacity is $1,130 based on the insurer’s determination that gross pre-accident earning capacity is $1,447 (the gross amount is not disputed by the claimant);
(b) the amount of weekly benefits payable under s 3.8 is to be calculated based on 80% of the difference between net pre-accident earning capacity that is, $1,130 per week, and post-accident earning capacity or post-accident earnings, whichever is greater, and
(c) accordingly, if the claimant had no post-accident earning capacity and has received nil post-accident earnings in the relevant period, she is entitled to payment of weekly benefits under s 3.8 in the sum of $904 being 80% of her net pre-accident earing capacity ($1,130) less nil post-accident earning capacity/nil post-accident earnings.
The reviewable decision is therefore affirmed.
LEGISLATION AND GUIDELINES
In making this decision, I have considered the following:
· the application, reply and supporting documentation;
· the MAI Act;
· the Guidelines, and
· Motor Accident Injuries Regulation 2017.
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