The Appeal CommissionThe Workers Compensation Act of Manitoba

Applicable legislation:

The Appeal Commission and its panels are bound by The Workers Compensation Act (the “Act”), regulations and policies of the Board of Directors.

When a worker receives wage loss benefits for a loss of earning capacity resulting from a workplace accident, the worker’s average earnings are used to calculate the benefit rate. Subsection 45(1) of the Act addresses the calculation of average earnings. Subsection 40(3) sets out the calculation of net average earnings.

WCB Policy 44.80.10.10, Average Earnings (the “Average Earnings Policy”) outlines the processes used by the WCB to determine a worker’s average earnings. WCB Policy 44.80.10.40, Net Average Earnings (the “Net Policy”) outlines how a worker’s net average earnings are calculated.

The relevant portions of the Act and WCB policies will be set out in more detail below.

Worker’s submission:

The worker was self-represented at the hearing. She described her appeal as being a fairness issue between herself and the WCB. She submitted that her argument would not be based on WCB policy because there was not policy to speak to her specific situation. Rather, her appeal was based on the circumstances of her case and what she felt was an unfair practice.

The worker’s appeal was of the WCB’s decision to refuse to recalculate her net average earnings from July 23, 2007 to April 2009 to take into account her claim for an infirm dependant. She submitted that the WCB payment assessor spoke with both the worker and her accountant and informed them that by claiming an infirm dependant on her previously filed income tax return, she would receive a retroactive upward wage loss adjustment. The wage loss benefits would be recalculated from July 23, 2007 to May 2009. Based on this advice, the worker made the amendment with Canada Revenue Agency (“CRA”). The worker noted that her husband’s income tax return also had to be amended, resulting in him having to pay an additional $906 in income taxes. The WCB payment assessor advised the worker, however, that the amount she would receive in increased wage loss benefits would be greater than the cost of the payback to CRA and her accountant’s fees.

Shortly afterwards, the worker’s file was transferred to a new payment assessor. The new WCB payment assessor advised the worker on July 23, 2009 that the adjustment of her wage loss benefits from July 2007 to April 2009 had been calculated and they were just awaiting receipt of her 2007 amended income tax return to confirm the change to the dependency status was made. Claim notes on the WCB file show that the recalculations were internally confirmed to be correct by a WCB payment specialist.

A few days later, the worker received a letter from her case manager informing her that WCB policy does not accept amended income tax documentation, unless the adjustment was made by CRA based on an audit. The worker called the case manager and explained that she was advised by the payment assessors to make the changes. The case manager told the worker that if that was the case, he agreed that an exception should be made in her situation. After discussing the issue with his superiors, however, unfortunately this did not happen.

The worker submitted that she would not have incurred the cost of amending her tax return if the WCB had not instructed her to do so. She noted that the wording of the Net Policy was permissive rather than prescriptive with respect to the tax credits and deductions claimed and that this provided the WCB with discretion to take into account tax credits and deductions a worker is entitled to use, as opposed to the ones actually used. She also submitted that the Appeal Commission is bound by legislation and policy, but is not bound by practice. There was no specific WCB policy which dealt with the issue in this case.

Overall, given that the worker initiated her income tax reassessment based on advice from WCB staff and the fact that it was practice, and not policy, the worker submitted that an exception should be made in her case and her wage loss benefits retroactively adjusted.

Analysis:

In order to determine the worker’s appeal, the panel must interpret the Act and the WCB policies and decide whether the retroactive adjustments requested by the worker can and should be made. After reviewing the relevant legislation and policy, the panel finds that there is no legislation or policy which would prevent the requested adjustments from being made and that given the particular circumstances of this case, we are of the opinion that the worker’s net average earnings for July 23, 2007 to April 30, 2009 should be recalculated to retroactively reflect the infirm dependant tax credit.

As noted above, when an injured worker receives wage loss benefits from the WCB, the amount of the benefits received by the worker is based on a percentage of the worker’s net average earnings. Net average earnings are calculated in a two step process.

The first step is to determine the worker’s average earnings before the accident. Typically, this means the amount of income from employment and employment insurance benefits which the worker receives. The Average Earnings Policy outlines the processes used by the WCB to determine a worker’s average earnings. In the present case, there is no dispute regarding the amount of income which the worker received from the accident employer, and therefore the Average Earnings Policy is not directly relevant to this decision.

The second step in calculating net average earnings is to determine the amount of deductions which will be taken from the average earnings. Section 40(3) of the Act addresses the calculation of net average earnings and reads as follows:

Calculation of net average earnings

40(3) For the purpose of this Act, the net average earnings of a worker are his or her average earnings calculated in accordance with section 45, less the probable deductions for the following:

(a) income tax payable by the worker, calculated by using the worker’s income from employment and Employment Insurance benefits as income, and the worker’s basic personal tax credits or exemptions, and tax credits or exemptions for a person who is a dependant of the worker, under the Income Tax Act (Canada), as at the date of the accident or an annual review under subsection (2), as deductions;

(b) Canada Pension Plan premiums or Quebec Pension Plan premiums payable by the worker;

(c) Employment Insurance premiums payable by the worker; and

(d) Such other deductions as the board may establish by regulation.

The Net Policy outlines how a worker’s net average earnings are calculated and describes the probable deductions that may be deducted from the worker’s average earnings. Relevant portions from section A.(ii) of the Net Policy, entitled “Probable Deductions from Average Earnings” provide as follows:

4. The worker may claim the following tax credits: basic personal amount, spouse or common-law partner amount, amount for an eligible dependant, amounts for dependent children who are under 18 at any time in the year, and infirm dependants age 18 or older. For the purpose of determining the probable deduction for income tax, the WCB will reduce the worker’s average earnings by the following tax deductions: child care expenses and support payments. Probable income tax will then be applied to the reduced average earnings.

…

6. Tax credits and deductions that a worker may claim are initially established at the date of accident. These credits and deductions will be adjusted on the first day of the month following the second anniversary of the accident and annually thereafter.

It is clear that a tax credit for an infirm dependant is a type of tax credit which may be deducted from average earnings, and we understand that there is no issue with regard to the worker’s eligibility for this tax credit. Although she did not opt to claim this credit when her income tax returns for 2007 and 2008 were originally filed, she has taken steps to have her income tax reassessed for those years, and the tax credits have been allowed by CRA.

The issue surrounds whether or not the WCB should allow the worker’s net average earnings to be recalculated, using the amended income tax information. In the panel’s opinion, there is nothing in the Net Policy which prevents this from occurring. Although paragraph A.(ii) 6 of the Net Policy indicates that tax credits and deductions are initially established at the date of accident, the panel interprets this to mean that eligibility for a credit is determined with reference to the worker’s status as at the date of the accident. We do not read paragraph A.(ii) 6 to mean that the calculation can only occur at the date of the accident, and then again on the first day of the month following the second anniversary date of the accident. Paragraph A.(ii) 6 does not prevent a recalculation based on new information from occurring. Indeed, at a previous point on this file, the worker’s net average earnings had been adjusted retroactively by the WCB to account for a dependant child credit.

The Review Office decisions dated August 19, 2009 and November 12, 2009 refer to the historic application or practice whereby the WCB will consider those tax credits and deductions made by a worker when initially filing an income tax return and to only adjust those credits and deductions on the prescribed schedule of anniversary dates. Retroactive adjustments of benefits are limited to circumstances where the reassessment is initiated by CRA.

Given the particular circumstances in this case where the worker initiated the reassessment process with CRA based on advice she received from WCB staff, the panel is of the view that an exception to the historic practice is warranted. As there is nothing in either the Act or the WCB policies which prevent a recalculation of the worker’s probable deductions and net average income from being performed, the panel is of the view that the real merits and justice of the case require this to be done. We therefore find that the worker’s net average earnings for the period July 23, 2007 to April 30, 2009 have not been correctly calculated, as the net average earnings should have reflected the infirm dependant tax credit which the worker claimed on her reassessed tax returns for 2007 and 2008. The worker’s appeal is therefore allowed.