|NSW DISPUTE RESOLUTION SERVICE (NSWDRS)|
|Catchwords||Statutory benefits – calculation of weekly payments – significant and ongoing injuries – full-time cleaner – earning capacity assessment – pre-accident earning capacity – post-accident earning capacity – net earnings – gross earnings – capital asset – loss of earning capacity – entitlement period – objects of the Act – beneficial legislation|
|Legislation cited||Motor Accidents Injury Act (NSW) ss 1.3(2)(f), 1.3(4), 3.6, 3.7, 3.8, 3.8(2)(a), 7.13(4), 7.21, Schedule 1 clause 3, 4 and 7, Schedule 2 clause (1)(a)|
Motor Accident Guidelines effective 13 July 2018 cl 4.101
Motor Accident Injuries Regulation 2017
Interpretation Act 1987 s36(1)
FCT v Slaven 84 ATC 4077
|Parties||AFE - Claimant|
CIC Allianz Insurance Ltd - Insurer
|Disclaimer||This decision has been edited to remove all Unique Personal Identification including the name of the Claimant.|
Merit Review Certificate
Merit Reviewer's Reasons for Determination
1. here is a dispute between the Claimant and the Insurer about the amount of statutory benefits that is payable to the Claimant under Division 3.3 (weekly payments of statutory benefits to injured person’s) of the Motor Accidents Injuries Act (“the Act”).
2. The Claimant is currently 60 years of age.
3. On 8 January 2018, the Claimant was involved in a motor accident sustaining significant and ongoing injuries.
4. At the time of the motor accident the Claimant was employed as a full time cleaner with XXX Nursing home, where she earned $893.00 per week.
5. On 27 May 2019, the Insurer wrote to the Claimant advising that they had undertaken an earning capacity assessment in order to determine her entitlement to weekly payments of statutory benefits after the end of the second entitlement period (after week 78). Most relevantly, the Insurer determined that:
(ii) After week 78, the entitlement to weekly payments is calculated as a percentage of the difference between the claimant’s pre-accident earning capacity and post-accident earning capacity.
(iii) The Claimant was assessed as having no post-accident earning capacity, i.e. a total loss of earning capacity as a result of the accident.
(iv) The Claimant’s pre-accident weekly earnings were $918.00 gross per week (after indexation).
(v) The Claimant’s pre-accident earning capacity was assessed at $764.00 per week. This amount was calculated by withholding tax of $154.00 from the Claimant’s pre-accident gross weekly earnings of $918.00.
(vi) The Claimant’s ongoing entitlement to weekly payments after the second entitlement period (after week 78) was calculated at 80% of $764.00 (pre-accident earning capacity), resulting in an ongoing weekly payment rate of $611.20.
6. The Claimant’s legal representative requested an internal review of the Insurer’s decision on 19 June 2019.
7. The Insurer affirmed its original decision on 2 July 2019.
8. The Claimant made an application to the Dispute Resolution Service (DRS) for a determination of the merit review matter. The DRS Application submits that the Insurer has incorrectly calculated the Claimant’s entitlement to weekly payments pursuant to Section 3.8 of the Act.
9. Both parties were afforded the opportunity to include additional materials and submissions. I have dealt with the issues raised by those submissions in the reasons below.
Documents and Information
10. I have considered the documents provided in the DRS Application and the Reply and any further information provided by the parties.
11. Initially, as part of this dispute, the Claimant raised a concern that weekly payments during the third entitlement period would be treated by the Australian Taxation Office (ATO) as taxable payments, meaning that the Claimant would be required to pay tax on the sum of $611.20, leaving her with $550.20 per week.
12. The Insurer refuted this assertion, stating that they had received advice from the State Insurance Regulatory Authority and the ATO concerning the assessability of payments made under Section 3.8 of the Act. The Insurer however did not initially provide a copy of those advices to the Claimant when requested.
13. The Insurer subsequently served a copy of a letter from the Deputy Commissioner of Taxation dated 30 November 2017 (R9) which confirmed that payments pursuant to Section 3.8 of the Act are capital in nature and not income.
14. The Claimant’s submissions dated 13 August 2019 do not specifically accept the genuine nature of this document, noting that it is not on the ATO letterhead and unsigned.
15. The Claimant does however concede that if the Deputy Commissioner of Taxation’ letter of advice dated 30 November 2017 is accepted, the question of taxation of payments under Section 3.8 does not arise.
16. I do not share the Claimant’s concern regarding the validity of this document. The Insurer has an obligation pursuant to Section 1.3(2)(f) of the Act to ‘deter fraud in connection with compulsory third-party insurance’. Knowingly submitting a document purporting to be from the ATO which was not genuine in nature, would in my view, raise serious questions about the Insurer’s compliance with its obligations under the Act.
17. I therefore accept that the letter of 30 November 2019 from the ATO (R9) is genuine, albeit not signed or on the ATO letterhead.
18. In accepting the genuine nature of that letter, I am also accepting that the ATO will act in a manner consistent with the content of that letter. In other words, that the ATO will treat weekly payments after the second entitlement period as capital, not income.
19. As such, the Claimant’s concerns regarding taxation noted in paragraph  of this merit review determination is not of relevance to this dispute.
20. Both the Insurer and the Claimant have addressed me on the issue of interpretation of Section 3.8 of the Act.
21. The Claimant submits as follows:
(ii) Had Parliament intended to for weekly payments to be made net, then it would have specifically said so. The Claimant highlights the absence of reference to net payments in the Motor Accident Injuries Bill and the Second Reading Speeches in the Lower and Upper Houses of Parliament.
(iii) That references to the Victorian CTP scheme made by the Insurer are wholly irrelevant.
(iv) That there is no dispute regarding the Claimant’s pre-accident earnings figure of $918.00 gross per week.
(v) That the Claimant’s entitlements pursuant to Section 3.8 of the Act should be calculated at a rate of $734.30 per week – being 80% of $918.00.
22. The Insurer submits as follows:
(ii) Section 3.8 ought not to be construed beneficially as submitted by the Claimant. Section 3.8 ought to be interpreted consistent with Section 1.3(4) of the Act and Clause 7.21 of the Motor Accident Guidelines.
(iii) The Claimant’s gross pre-accident weekly earnings are $918.00.
(iv) The Claimant’s assessed pre-accident earning capacity is $764.00 – being $918.00 less $154.00 tax.
(v) The Claimant’s entitlement pursuant to Section 3.8 of the Act should be calculated as 80% of $764.00 pre-accident earning capacity = $611.20
(vi) The Insurer draws reference to the similarities between the NSW CTP Scheme and the Victorian CTP Scheme, noting that in the latter, payments for loss of earning capacity are not subject to regular income tax deduction.
23. In conducting my review, I have considered the following legislation and guidelines:
b. Motor Accident Guidelines effective 13 July 2018 (“the Guidelines”)
c. Motor Accident Injuries Regulation 2017 (NSW) (“the Regulation”)
24. The Claimant’s entitlement to weekly payments after the second entitlement period are calculated in accordance with Section 3.8 of the Act. The relevant provisions of Section 3.8 state as follows:
(b) is under 18 years of age and is an earner.
(b) in the case of partial loss of earning capacity--85%,
25. I acknowledge that the nature and character of weekly payments made under Sections 3.6 and 3.7 of the Act are different to that contained within Section 3.8 of the Act.
26. The Insurer highlights that the payments made in the first two entitlement periods represent payments for the loss of earnings or loss of income, and that payments made under Section 3.8 represent payments for the loss of a capital asset. In this case, the capital asset referred to is the injured person’s loss or impairment of earning capacity as a result of the injury.
27. The letter from the Deputy Commissioner of Taxation dated 30 November 2017 (R9) provides additional support for the characterisation of payments made under Section 3.8 as being capital in nature. Payments for loss of earning capacity are not considered as income of the recipient but imply compensation for deprivation or impairment of earning capacity (see FCT v Slaven 84 ATC 4077).
28. To the extent relevant, the Insurer’s submissions are reproduced as follows:
29. To calculate the Claimant’s weekly payments pursuant to Section 3.8 of the Act, consideration must be given to the difference between the Claimant’s pre-accident earning capacity and post- accident earning capacity after the second entitlement period. This exercise requires valuation of subjective factors and criteria outlined in Schedule 1 of the Act.
30. The Claimant’s fitness for work after 78 weeks is to be determined with regard to the medical certificates, the injury sustained and the likely process of recovery, rehabilitation and treatment needs, age, training, skills and experience.
31. In contrast, payments made during the first and second entitlement periods pursuant to Sections 3.6 and 3.7 are relatively more straightforward and are calculated by reference to the person’s pre-accident weekly earnings and post-accident earning capacity.
32. There is no dispute that the Claimant has a total loss of earning capacity as a result of the injuries sustained in the motor accident. As a consequence, there is no assessable difference between her pre-accident earning capacity and her post-accident earning capacity. The Claimant therefore is entitled to be paid in accordance with her pre-accident earning capacity.
33. Schedule 1 of the Act defines ‘pre-accident earning capacity’ as follows:
(2) If the amount of an injured person's pre-accident earning capacity cannot be determined, the amount is deemed to be the amount that is equal to 80% of the average weekly total earnings of adults in full-time employment in New South Wales last published by the Australian Statistician.
34. To determine the Claimant’s pre-accident earning capacity, I am required to determine the weekly amount the Claimant had the capacity to earn, before the motor accident concerned, in employment reasonably available to her based on her training, skills and experience.
35. The Insurer submits that I ought to assess the Claimant’s pre-accident earning capacity at $764.00 per week. That amount represents the Claimant’s gross pre-accident weekly earnings of $918.00 less the payment of the income tax of $154.00 payable on that income or salary.
36. The Insurer’s reasoning is reproduced as follows:
37. It is useful at this point to analyse the nature and character of weekly payments made pursuant to Sections 3.6 and 3.7 of the Act compared to Section 3.8 when considering the Claimant’s pre- accident earning capacity.
38. Weekly payments in the first and second entitlement period relate to ‘loss of earnings’ of income or provide substitution for loss of income during the periods and are calculated by reference to the injured person’s pre-accident weekly earning and post-accident earning capacity.
39. Schedule 1, Clause 3 of the Act defines ‘loss of earnings’ as follows:
(2) A person's "income from personal exertion" is:
(b) the proceeds of any business carried on by the person either alone or in partnership with any other person, and
(c) any amount received as bounty or subsidy in carrying on a business.
(b) rents or dividends, or
(c) any employer superannuation contributions, or
(d) the monetary amount of any annual, sick or other leave entitlement.
40. Schedule 1, Clause 4 of the Act defines the meaning of ‘pre-accident weekly earnings’ as follows:
41. The Claimant’s pre-accident weekly earnings were calculated on 12 February 2018 to be $893.00. From 1 April 2019 (after indexation was applied to this amount), the Claimant’s pre- accident weekly earnings were adjusted to $912.00 gross per week.
42. The weekly payments for the first and second entitlement periods subsidise the injured person’s loss of earnings or loss of income. As such, it is accepted that these payments are considered to be assessable income of the recipient and are appropriately taxed. Ordinarily, the obligation to make a withholding tax payment to the ATO rests with the “payer” of the funds. In this case, the obligation to withhold tax rests with the Insurer.
43. Weekly payments under Section 3.8 are not payments for loss of income, or substitution of income. The Deputy Commissioner of Taxation’s letter of advice dated 30 November 2017 (R9) states that payments pursuant to Section 3.8 of the Act are capital in nature and not income. The general exceptions in Sections 12-1 of the Taxation Administration act (1953) are said to apply to provide relief from withholding tax on these payments.
44. The Insurer submits that weekly payments payable under Section 3.8 relate to the Claimant’s total or partial loss of earning capacity, not the loss of income.
45. The Insurer has conceded that ”no tax instalments are payable for loss of capacity, following the conclusion of the second entitlement period”. With that in mind, it is difficult to reconcile the Insurer’s premise that the calculation of weekly payments under Section 3.8 (i.e. after the conclusion of the second entitlement period) is to include the Claimant’s pre-accident weekly earnings after income tax has been deducted (i.e. net earnings).
46. The Claimant submits that the Act is beneficial legislation and as a consequence should not be interpreted narrowly. Further, any anomalies or ambiguities should generally be resolved in favour of the intended beneficiary, in this case the Claimant.
47. I acknowledge the Claimant’s submission but find that it is not necessary to apply a beneficial legislation interpretation approach, as I do not consider that there are any ambiguities or anomalies in the Act which cannot be resolved.
48. When trying to determine the context of legislation, the Act’s stated purpose or objects must be considered. Section 33 of the Interpretation Act 1987 states
49. Section 33 of the Interpretation Act 1987 is consistent with Section 1.3(4) of the Motor Accident Injuries Act 2017 which states:
50. The stated objects of the Motor Accident Injuries Act 2017 are:
(b) to provide early and ongoing financial support for persons injured in motor accidents,
(c) to continue to make third-party bodily insurance compulsory for all owners of motor vehicles registered in New South Wales,
(d) to keep premiums for third-party policies affordable by ensuring that profits achieved by insurers do not exceed the amount that is sufficient to underwrite the relevant risk and by limiting benefits payable for minor injuries,
(e) to promote competition and innovation in the setting of premiums for third-party policies, and to provide the Authority with a role to ensure the sustainability and affordability of the compulsory third-party insurance scheme and fair market practices,
(f) to deter fraud in connection with compulsory third-party insurance,
(g) to encourage the early resolution of motor accident claims and the quick, cost effective and just resolution of disputes,
(h) to ensure the collection and use of data to facilitate the effective management of the compulsory third-party insurance scheme.
51. To determine the Claimant’s pre-accident earning capacity, it is critical to determine the weekly amount the injured person had the capacity to earn before the motor accident concerned in employment reasonably available to the person in view of the person's training, skills and experience.
52. The task of assessing the weekly amount that the Claimant had capacity to earn should be based on facts and reality rather than speculation.
53. There is nothing in Section 3.8 of the Act, Schedule 1 of the Act, the Act generally, the Explanatory Note to the Motor Accidents Bill or the Second Reading Speeches in the Lower and Upper Houses of Parliament that prescribe that the Claimant’s pre accident earning capacity should be calculated based on the net weekly earnings.
54. Most importantly, Schedule 1, Clause 7 of the Act is absent of any reference to net earnings or taxed income from personal exertion that the injured person had the capacity to earn before the accident.
55. As such I find that that the Claimant’s pre-accident earning capacity is to be calculated with regard to the Claimant’s gross income.
56. On the evidence presently available to me, I conclude that this weekly amount ought to be consistent with the Claimant’s pre-accident weekly earnings, which I am told are agreed at $918.00.
57. In coming to this conclusion, I agree with the Claimant’s submission that had Parliament intended for pre-accident earning capacity to be calculated on a net basis, it would have explicitly said so. In the absence of such direction from Parliament, I consider that this determination accurately interprets the provisions of the Act and promotes the objects of the Act contained at Section 1.3 of the Act.
58. Lastly, I acknowledge the Insurer’s reference to the similarities between the NSW CTP scheme (post 1 December 2017) and the Victorian CTP Scheme. In doing so, I highlight that the Insurer has only made reference to the Victorian CTP scheme in the context of offering submissions regarding the non-taxable character of ‘loss of earning capacity’. I also acknowledge the Claimant’s submission stating that the Insurer’s reference to the similarities between the two CTP schemes is wholly irrelevant. Considering my preliminary finding on this issue (paragraphs  to  of these reasons), I do not find it necessary to delve further into the similarities and differences of the two schemes.
The Amount of Statutory Benefits Payable Under Division 3.3 (Weekly payments of statutory benefits to injured persons)
59. The Claimant’s total loss of earning capacity is therefore 80% of the claimant’s pre-accident earning capacity, which is determined at the weekly rate of $918.00.
60. The Claimant’s entitlement to weekly payments after the second entitlement period, pursuant to Section 3.8 of the Act, is calculated as follows:
$918.00 ($893.00 indexed) x 0.80 = $734.40
My determination of the Merit Review is as follows:
- The reviewable decision is set aside and the following decision is made in substitution for the reviewable decision:
$918.00 ($893.00 indexed) x 0.80 = $734.40
- Effective Date: It is the function of the Dispute Resolution Service on merit review to arrive at the correct and preferable outcome in respect of the weeks covered by the reviewable decision that is referred for review. Accordingly, this determination takes effect from 23 July 2019.
Merit Reviewer, Dispute Resolution Service