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The key factors which indicate if benefits are deductible from an Income Replacement Benefit

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  • The key factors which indicate if benefits are deductible from an Income Replacement Benefit

Summary: It appears the driving consideration on whether an amount is deductible is whether or not the payment is for loss of income, specifically an indemnity payment, and not how regularly payments are received by the insured, whether or not they cover the entire period of disability, or the length of the waiting period.

These decisions relate to the SABS-1996 (O. Reg. 403/96). However, other than what is explained in our Other Income Replacement Benefit post, it appears the findings in the decisions discussed below will stand.


In considering whether payments are for loss of income, Arbitrator Rogers in Bhola and Personal (FSCO A06 001473) outlined the following factors:

  • Whether benefits are linked to being actively and regularly working at the onset of disability,
  • Whether the disability test is inability to perform pre-disability employment duties,
  • Whether post-disability earnings are deductible,
  • Whether the disability insurer has subrogation rights directly tied to the insured’s income,
  • Whether the employer is involved in arranging for and paying for disability policy, and;
  • Whether the benefits cease when the insured is no longer disabled from working or at an age reflecting retirement

In this matter, the insured put forward that as he was receiving the LTD benefits on a monthly basis, they were not deductible pursuant to section 7(1)1.i which refers to “weekly payments”. Arbitrator Rogers concluded that although the LTD benefits were received by the insured on a monthly basis, this did not preclude them from being considered deductible as “weekly payments” referred to the deduction period of the benefits, and not the period of receipt. This was also consistent with State Farm and Ramalingam [2009] O.J. No. 5971.

In Marianayagam and Intact (FSCO P09-00028V), it was determined that for the following reasons the LTD benefits were received under an income continuation benefit plan:

  • Benefits were calculated as a percentage of the pre-accident income, to a maximum
  • Benefits were based on the insured being employed
  • Benefits were related to the insured’s inability to perform a portion of their employment duties
  • Adjustments would be made for post-accident earnings

These points supported the payments were indeed indemnity payments, and not simply dependent on proof of a specified event. As such they were determined to be deductible.

Both Bhola and Personal and Sharma-Singh and Co-operators (FSCO A07-000588) stated the benefits do not have to cover the entire period of disability to be deductible.

What this means for you:

  1. Establish that payments are indeed for indemnity by considering the above factors, and not simply for the occurrence of an event, regardless of whether or not there has been a pecuniary loss.
  1. Whether benefits are received on a weekly, monthly, or other period does not appear to be an influencing factor regarding deductibility pursuant to section 7(1)1.i.
  2. The length or existence of a waiting period does not preclude a benefit from being considered a payment for loss of income.

As an additional note, in Bhola, Arbitrator Rogers also stated the insurer bears the onus of proving deductibility of disability benefits. So make sure you ask the appropriate questions.

New SABS (Ontario Regulation 34/10):

While reorganized and slightly reworded, there does not appear to be any significant change in the description of what would be deductible under the New SABS. The description is now part of the definition of “other income replacement assistance” in section 4(1).

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