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Income Loss and Family Business

If you own a business and your injuries force you to pay for labour that you would normally perform, you can claim the loss. What if you share the profits (and losses) with your spouse, and the both of you actually work for the business? What if your spouse doesn’t work for the business but is a shareholder?

In today’s decision of Odian v. Carriere (2016 BCSC 112), the plaintiff was a homebuilder and finishing carpenter. She owned a homebuilding company with her husband, for which they both performed labour – until 2015 when her husband got a different job due to the slow industry. Prior to the crash, she was able to perform the physical aspects of homebuilding and finishing work. Due to injuries sustained in a crash, she was no longer able to perform the physical aspects of her role. However, before the crash, she had already restricted her role – due to a previous miscarriage, then caring for the couple’s daughter. Immediately before the crash, she had resumed 70% of her previous role.

The plaintiff alleged that due to her injuries, the company was forced to hire extra labourers to perform work she would normally have performed (increased cost of building, loss of subcontract earnings, and cost of general labour). She claimed the entire expense as a net loss of $238,000.00 over 4 years. Mr. Justice Dley concluded that the added expenses incurred by the company averaged $40,000.00/year. He went on to order that she was entitled to 50% of the losses for the years that she shared profits and losses with her husband, and 100% of the losses for the year that her husband did not work for the business, making the following remarks:

 

[67]         Ms. Odian and her husband worked together in Klein Homes. They both made decisions as to how the business was to be administered and both drew equal salaries from the company. This was a closely held family corporation.

[68]         In assessing damages for the loss of income, the loss is that of Ms. Odian – not of Klein Homes. This is not a situation where the corporation Klein Homes has sued for income loss.

[69]         In these circumstances, Mr. Odian was active in the company. His salary was commensurate with the work he was doing. Therefore, he was entitled to 50% of the profits. This is not a case where the plaintiff was the sole driving force and therefore entitled to 100% of the profits even though there may be other shareholders.

[70]         In the case of a family business, where all corporate earnings go into the family pot, the company’s losses are a loss of the injured plaintiff. The plaintiff’s damages in such circumstances would be her loss as a result of the corporation’s loss of profits. If the plaintiff was entitled to 50% of the income from the company, then her loss would be 50% of corporate losses arising out of her inability to work: D’Amato v. Badger (1994), 95 B.C.L.R. (2d) 46 (B.C.C.A.) at paras. 23-30, rev’d in part on other grounds [1996] 2 S.C.R. 1071 (S.C.C.).

. . .

[92]         In assessing the past impairment of earning capacity, I have concluded that the annual loss is $20,000 for the years 2010-2014. That is based on 50% of the annual costs paid to Klein Homes’ sub-contractors and a nominal amount for outside contracting. The loss to Ms. Odian is 50% of the annual loss since she and Mr. Odian would have shared that amount equally. Therefore, Ms. Odian’s loss of earning capacity for that time period amounts to $50,000.

[93]         As of the beginning of 2015, Ms. Odian was on her own although she was getting some gratuitous assistance from Mr. Odian. The combination of the increased labour costs and Ms. Odian’s inability to do any finishing work increases her loss of capacity. As of 2015, Ms. Odian was the alter ego of Klein Homes and entitled to 100% of the losses. I assess Ms. Odian’s 2015 loss of earning capacity at $35,000.

[94]         As a result, Ms. Odian is entitled to a before tax award of $85,000 for past loss of earnings.

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