5 things to know about assessing personal injury claims

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By Michael J Lee 

a forensic accountantAs forensic accountants one of our roles is to prepare reports assessing the economic loss suffered by a claimant as a result of accidents / incidents.

The main concept around assessing compensation claims is that we are trying to award a sum of money to the claimant as to restore them to the same position as they would have been in if there had no incident occurred.

1 – What an Income Tax return says doesn’t decide the future.

Whilst it is important to understand what a claimant has historically earned by having reference to their Income Tax returns when assessing past and future losses it is also important to acknowledge that those earnings may not necessarily reflect a claimant’s potential earning capacity.

In assessing earning capacity it is important to understand what the claimant could have done in the workforce and what sum of money the claimant would have had at their disposal. Matters which may impact a claimant’s earnings can include:

  • Time based / career progression;
  • Industry based factors; and
  • Economic factors.

In addition in formulating an opinion as to the level of earnings a claimant could derive we can analyse various sources of information including, but not limited to:

  • Salary surveys;
  • Statements from employees;
  • Employment contracts;
  • Award rates; and
  • Statistical information.

2 – Different heads of losses

Whilst predominantly our engagements relate to the assessment of losses of income, other heads of loss which we can assist in assessing include, but are not limited to:

  • Loss of Superannuation (past and future);
  • Cost of gratuitous assistance / additional labour;
  • Care costs;
  • Transport (for example, vehicle modification); and
  • Financial losses and losses of services arising from the death of a family member.

3 – Personal Injury claims are not taxable

The fundamental principle of personal injury compensation is to restore the claimant to the same position they would have been but for the incident.

As such lump sum payments received in relation to personal injury actions are not taxable in the hands of the recipient. Therefore, in order to return the claimant to the financial position they would have been in, but for the accident / incident, it is necessary to calculate a claimant’s economic loss on an after tax basis.

4 – Where and how

A claimant’s entitlement to compensation will depend on where and how they became injured.

It is important to know where the claim is being made. Each state of Australia has different rules for when it comes to assessing losses depending on the type of incident (eg. workplace or motor vehicle incident).

5 – Every case is different

It is important to understand that each claim is unique and the courts will consider all of the relevant information when making decision.

Because no claimant is the same, each claim will be considered in light of the facts for that person.  Therefore, time and effort should be spent in the gathering of evidence that is unique to that claimant and their personal circumstances.

Want to know more?

If you would like to know more about the issues raised in this article, please contact Michael Lee our Forensic Services Director for assistance.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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