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Merit review MA01/18

Nature of the decision: The amount of pre-accident weekly earnings

Our reference: MA01/18

Determination

The reviewable decision is affirmed. The claimant’s pre-accident weekly earnings remain at $971.04.

Reasons

Background

  • The claimant is a self-employed cleaner in a franchise arrangement with their pre-injury employer. They were injured in a motor vehicle accident in December 2018. The insurer accepted their claim for weekly payments of statutory benefits under the Motor Accident Injuries Act 2017 (‘the Act’).
  • This dispute is about the calculation of the claimant’s pre-accident weekly earnings (‘PAWE’). The amount of PAWE affects the amount of weekly payments of statutory benefits.
  • In March 2018, the insurer decided that the amount of the claimant’s PAWE was $971.04. The claimant disagreed. They applied for an internal review and submitted that the amount should have been $1,189. The insurer affirmed its decision in March 2018.
  • The claimant applied for a merit review by the Dispute Resolution Service in April 2018.

Submissions

  • I have read and considered the submissions made by the claimant and the insurer. I have dealt with the issues raised by those submissions in the reasons below.

Pre-accident weekly earning

  • ‘PAWE’ is defined by clause 4 of Schedule 1 of the Act. Sub-clause (1) states:
      • 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.
  • 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.
  • None of the exceptions in subclause (2) apply here. There is also no dispute that the claimant is ‘an earner who is injured as a result of a motor accident’. The critical issue here is the weekly average of the gross earnings received by the claimant as an earner during the 12 months immediately before the day on which the motor accident occurred.
  • The claimant completed an application for personal injury benefits form dated December 2017. They declared weekly earnings of $1,731 gross and $1,274 net. They later prepared a ‘summary of income details’ document signed by their solicitor in February 2018. It tabulates 44 weeks of business income from November 2016 to December 2017. The ‘weekly pay’ recorded in the table is generally supported by other evidence before me: weekly payment summaries emailed to the claimant by the pre-injury employer and bank statements that show deposits from the pre-injury employer into the claimant’s bank account. The sum of ‘weekly pay’ is $100,416 which the claimant then averaged over 44 weeks to get $2,282. However, the table does not address business expenses beyond franchisee fees. The information in the claimant’s tax returns (discussed below) shows that they had other business expenses.
  • In their application for internal review dated March 2018, the claimant said they wanted ‘Reassessment of the Pre Accident Weekly Earnings from $971.04 to Gross weekly preinjury earnings of $1189’. The basis for this reassessment was outlined in an email from the claimant’s solicitor to the insurer in February 2018. The email reads (emphasis in original):
      • Wage calculation
        The tax return attached is for a part year ie 28 weeks of operation (December 2016 – June 2017)
        Gross revenue $64,303, (ie an average of $2296 per week),
        Declared expenses of $1187,
        Gross weekly preinjury earnings of $1189.
        ...

        Expenses in the tax return ($33,248, divided by 28 weeks (of operation)) equals on average $1187 per week.
  • The claimant’s tax return for the year ended 30 June 2017 is before me. The claimant declares taxable income of $21,916. Their total income was $55,164 made up of $55,079 in business income and $85 in gross interest. The claimant claimed deductions for work expenses totalling $33,248 as follows:
    • contractor, sub-contractor and commission expenses $16,524
    • depreciation expenses $3,000
    • motor vehicle expenses $4,600
    • all other expenses $9,124
  • The only other amounts referred to in the tax return are the claimant’s spouse’s income of $14,000. This spousal income cannot be included in the claimant’s PAWE because the definition of PAWE only includes gross earnings ‘received by the earner as an earner’.
  • Consistent with the tax return, the claimant’s notice of assessment for the year ended 30 June 2017 confirms that their taxable income was $21,916.
  • It is clear to me on the available evidence that the claimant’s solicitor miscalculated ‘gross revenue’ at $64,303. The claimant’s ‘gross revenue’ from their business was $55,079 for the year ending 30 June 2017. After accounting for business expenses, their ‘gross earnings’ from the business were actually $21,831. When averaged over 28 weeks it gives $779.68, a figure significantly less than what was claimed in the email of February 2018.
  • In my view, the claimant’s claim that their PAWE should be $1,189 was flawed in two ways. First, there was a mistaken understanding of the information in the tax return which was the key piece of evidence underpinning that claim. Second, they did not address the ‘12 months immediately before the day on which the motor accident occurred’ as required by the legislation.
  • On the other hand, the insurer relies on a report by the claimant’s chartered accountant dated March 2018. He says his ‘calculations represent my best estimate of the claimant’s PAWE having regard to the relevant provisions of the Act and the information provided by the claimant’.
  • An important assumption that underpins the chartered accountant’s report relates to the phrase ‘gross earnings’ referred to in the definition of PAWE. The chartered accountant says ‘In relation to self-employed workers, I have interpreted the phrase “gross earnings” to mean the Net Profit earned by a self-employed claimant after accounting for business expenses but before income tax’. I agree that this is the correct approach to ‘gross earnings’ for the self-employed.
  • The chartered accountant examined the financial information that I have referred to earlier and came to the view that the claimant had gross income of $99,615 in the 12 months immediately before the day of the motor accident. That is very close to the claimant’s calculation of $100,416 in the ‘summary of income details’ document dated February 2018. The small difference appears to be because the claimant calculated from November 2016, a period just outside the 12-month period that the Act mandates. I prefer the chartered accountant’s calculation because he addresses the correct period.
  • The chartered accountant then estimated the claimant’s total business expenses in the 12-month period by extrapolating on the business expenses that the claimant declared in the tax return for the year ending 30 June 2017. The chartered accountant estimated total expenses of $49,121 over the 12-months. I have read the chartered accountant’s report closely and I consider that the reasons he gave for that estimation are logical, reasonable and persuasive.
  • The chartered accountant then estimated the claimant’s PAWE to be:
    • $99,615 - $49,121 = $50,494
    • $50,494 ÷ 52 weeks = $971.04
  • I consider that the chartered accountant’s estimate is, on the information available, the best indication of the amount of the claimant’s PAWE. I affirm the insurer’s decision. The amount of the claimant’s PAWE remains at $971.04.

[NAME]
Dispute Resolution Service Merit Reviewer