PRINCIPAL EARNER COMPENSATION

Quite frequently the injured victim in a compensation claim will be the principal earner in a business. For family, taxation and other very good reasons the business is often operated as a partnership sharing the net profit between partners, some of whom may not earn income for the business. So what happens when the major earner is injured and stops working? Often it is argued that the injured victim can only claim as lost earnings his share of the net profits of the business. This issue has been finally put to rest by the High Court of Australia in the case of Husher v Husher_(73ALJR 1414) where the Court held that when assessing damages for future loss of earning capacity of an injured person it is necessary to identify the capacity which has been lost and the economic consequences which would probably flow from that loss. The evidence of the past earning capacity is the important issue in assessing damages. You do not need to look at the classification of an injured person as a "sole trader" or "partner" or "wage earner" or even "a trading trust". Rather the enquiry is about what the plaintiff would have done in the workforce but for the accident and what sum of money the plaintiff would have had at his or her disposal had he or she not been injured. Accordingly it is now open for those injured to claim the whole of their lost earning capacity not just their share of the business's profits (after distribution through a partnership or trust). This will raise some interesting taxation questions. If a Court makes an award, then that part of the award for lost earning capacity in the future may be treated as a Capital Gain by the Commissioner for Taxation. Or will it be treated as a lump sum payment for personal injury compensation and remain exempt? We are yet to see the full implications of the decision.

DISCLAIMER

These personal injury law articles were published with the express permission of Stacks/The Law Firm. Please note that the information was correct at the time of publication, but personal injury law is subject to legislation changes from time to time and thus it is recommended that you contact a Stacks/Goudkamp lawyer should you have any questions relating to any of the topics above.

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