Research & Publications

Damages: Estimating Pecuniary Loss (Chapter 6)

by Cara L. Brown

Chapter 6 - Treatment of the Self-Employed From an Economic Perspective

Chapter 6 is concerned with the complicated issues that often arise when assessing loss of income for self-employed plaintiffs. The chapter begins with a discussion regarding the prevalence of self-employment in Canada and presentation of guidelines emerging from the case law regarding self-employed plaintiffs. The following topics are explored: causality; lost profits and fixed costs; using economic data to predict business trends; adjusting estimates to account for record-keeping anomalies; the failure rate of businesses; using market values to estimate replacement costs; income splitting; consideration of corporate taxes, and selling one's business to mitigate loss. In order to accurately assess damages for the self-employed, the expert must be proficient in financial statement analysis, and Chapter 6 explores the related concepts of redundant assets and discretionary or non-recurring expenses; adjusting the balance sheet for amortization or depreciation and personal expenses that legitimately double as business expenses; loss of salary/profits versus loss of investment income; and estimating growth of business income. Contingencies for the self-employed are also explored, and a useful checklist of information required by the expert economist in order to assess losses for the self-employed is also included.