2008 BCSC 1396 MacLaren v. Kucharek

Before: The Honourable Madam Justice Boyd

Reasons for Judgment

Counsel for the Plaintiff:	D.G. Crane
Counsel for the Defendant:	A.J. DuPlessis
Written Submissions:	July 21 and 31, 2008
	Vancouver, B.C.

Introduction:

[1] On May 20, 2008 I handed down Reasons for Judgment in this matter (2008 BCSC 673) awarding damages to the plaintiff arising from injuries suffered in a motor vehicle accident. The parties agreed the plaintiff’s past wage loss claim amounted to $8,750.36. I awarded that amount under that head of damages leaving it to counsel to calculate the necessary tax deductions. Since they were unable to reach any agreement counsel filed written submissions on the matter.

Parties’ positions:

[2] Relying on the decision of Pitfield J. in Hudniuk v. Warkentin 2003 BCSC 62, the plaintiff submits that in accordance with the formula set out there, the past income loss award ought to be treated as gross income earned between the date of the accident and the date of the commencement of the trial. The award is then taxable on a lump sum basis, as if the entire loss occurred in one year, rather than over a period of years. The plaintiff submits that the income tax otherwise payable by him in any one year is not relevant to the assessment, since for the purposes of this tax calculation, the award is assumed to be the only income earned by the plaintiff in the year of the commencement of the trial. Thus, as mandated by s. 95 of the Insurance (Motor Vehicle) Act, the necessary tax deductions for the past income loss award are then assessed in accordance with the tax rules as of December 31st of the year prior to the year of assessment.

[3] The defence submits that Pitfield J.’s comments in Hudniuk are obiter dicta and thus not applicable to the case at bar. As a result, the defence submits the plaintiff ought to recover the amount he would have received after deduction of income tax, had he been able to earn that money rather than receive it by way of damages, in accordance with s. 98 of the Insurance (Motor Vehicle) Act.

Analysis:

[4] The calculation of the tax consequences of an award for past income loss is governed by two provisions of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231. Pursuant to s. 92 of the Act, a person who suffers a loss of income as a result of an accident is entitled to recover from the defendant as damages, not more than the net income loss for the period between the date of the accident and the commencement of a trial. Section 95 (formerly s. 52), defines “net income loss” as the gross income the person lost during the period, less the amount of income tax which would have been payable on the income. Further, s. 95 directs that tax deductions are to be calculated based upon the provincial and federal Income Tax Acts in effect as of December 31st in the calendar year prior to the calendar year for which the net income loss is to be assessed.

[5] Both parties acknowledge that the principles set forth in Hudniuk have been followed in numerous subsequent case authorities in this Court (see Tong v. Ip 2004 BCSC 861; Lomax v. Weins 2004 BCSC 1051; Ashcroft v. Dhaliwal 2007 BCSC 533; and Prasad v. Sedivy 2008 BCSC 443). I note that the defendant has not referred to a single case authority which has declined to follow the precedent established in Hudniuk.

[6] Applying the Hudniuk principles to the case at bar, the plaintiff’s net income loss should be calculated by deducting the necessary income tax from the agreed gross income loss amount of $8,750.36. Further, as Hudniuk requires, for the purposes of tax calculations, this formula assumes that this amount is the only income earned by the plaintiff in 2008. Since the first day of trial was May 12, 2008, the tax rates in effect the previous calendar year, as of December 31, 2007, are applicable.

[7] Under the British Columbia tax rules for 2007, personal income under the amount of $9,027 is exempt from taxation. Likewise, according to the federal income tax rates for 2007, personal income under the sum of $8,929 is also exempt from taxation.

Conclusion:

[8] As a result, if the plaintiff had earned $8,750.36 in the normal course of employment in 2008, the tax laws in effect in 2007 would apply to exempt him from paying any income tax. In the end result, there are no tax deductions which apply to the plaintiff’s past income loss award in this case.

[9] The plaintiff is entitled to costs in relation to this further hearing. There are no circumstances which justify an order for special costs.

“The Honourable Madam Justice Boyd”

Citation:	*MacLaren v. Kucharek,*
	2008 BCSC 1396