By Kain Elsmore & Renzo Renda
Working within our Forensic Accounting Insurance group, Vincents’ personal injury experts provide authoritative quantification of damages arising from personal injury related matters.
Understanding Economic Loss
Economic loss is often a significant component of a personal injury claim. Legal professionals practising in the area can be challenged by the need to have a detailed understanding of industry specific conditions and / or accounting and tax issues affecting employed and self-employed claimants.
Assessing the earning capacity of self-employed claimants is not as simple as a mere examination of the business’ financial statements. There can be many areas of income and expenditure which require careful consideration.
Areas of Consideration
We set out hereunder examples and “key” areas for consideration when examining the earnings of (and attempting to assess the economic loss suffered by) claimants operating a road transport related business:
- Attention needs to be turned to the manner in which the claimant derives their income. Is the claimant paid based on a set contract, a rate per kilometre or a combination of the two, etc. Other matters to consider are whether the claimant holds a large contract and whether that contract would have been renewed in the future. Also, are fuel tax credits included as income? In reality, these amounts represent a reduction in fuel expenses (ie. a negative expense).
- Fluctuations in direct costs. Have there been dramatic changes in the historical prices of petrol and diesel? If the business operates under a fixed income contract, is the gross profit margin decreasing (due to static income and increasing fuel costs)?
- When attempting to establish the “true” earnings that a claimant derived from operating a business, it is necessary to consider whether the business has utilised accelerated depreciation rates during the early years of asset ownership. This has the potential to reduce the apparent profits of the business. In such instances, it may be appropriate to “normalise” depreciation. Similar adjustments could be considered in respect to repairs and maintenance related costs (ie. given that significant repairs may be incurred in one year, but may be a result of an accumulation of wear over the life of the asset).
- Change in the utilisation of the primary vehicle. Was the primary truck of the business written off as a result of the accident? If so, was it replaced by a comparable vehicle? Consideration of whether any change in primary vehicle results in a claim for property loss or economic loss.
- Consideration of whether travel and accommodation costs claimed in the business are reasonable. It may be necessary to compare such costs to the allowances to ATO, ABS and benchmarking data.
By no means is the above list exhaustive, generally speaking, “key” considerations can vary dependant on the type of business, the industries in which they operate and the individual circumstances of the claimant.
The experts at Vincents are experienced in assessing the future economic loss of self-employed claimants and are knowledgeable across a variety of industries and occupations. Whether you’re acting for a plaintiff or defendant, the experts at Vincents are able to assist with you with the litigation process.
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.