Accident Compensation needs to reconsider weekly compensation payments due an Auckland hairdresser after the High Court overruled repayments demanded totalling $655,000. With her company employing up to 25 staff at any one time, business net profitability could not simply be imputed to her as income for ACC purposes.
By rich-world standards, New Zealand has a high proportion of closely-held companies. Director/shareholders have a discretion as to how resources are extracted from their company: shareholder salary; loans; directors’ fees; or dividends. Sandy Hamilton, owner of Auckland hairdresser Olette, challenged Accident Compensation assessment of earnings related compensation payable while she worked part-time recovering from injuries suffered during childbirth in 1999.
The High Court was told Accident Compensation alleged Ms Hamilton restructured benefits she received from Olette after 2004 to increase accident compensation payments. Previously, she was paid by Olette as a shareholder/employee, with earnings related compensation supplementing her income for the reduced hours worked. Restructuring in 2004 saw the shareholder/salary removed and Ms Hamilton instead being paid an agreed hourly rate for hours worked. At one point, Accident Compensation had Ms Hamilton under covert surveillance to check she was working only the hours she said she was working; this investigation revealed nothing untoward.
In response to the 2004 restructuring, Accident Compensation reduced compensation payable, arguing there had been no loss of earnings in any real sense; benefits received as an Olette director should be included as ‘income’ received. It calculated 75 per cent of company net profit should be imputed as income received for Accident Compensation purposes. This had the effect of reducing ongoing weekly compensation. For the income years in question, company net surpluses were in six figures, exceeding $200,000 some years. Accident Compensation alleges Ms Hamilton was ‘overpaid’ $655,200 in earnings related compensation for the years 2004 to 2015.
Justice Edwards ruled it was too simplistic to assume 75 per cent of net profits is income received by Ms Hamilton. She is one of two directors of Olette. A family trust is majority shareholder. Accident compensation legislation requires assessment of ‘reasonable remuneration’ for shareholder/directors in closely-held companies. Any surplus beyond this is a ‘dividend’ imputed to shareholders; in this case imputed to the Hamilton family trust.
Accident Compensation made no attempt to determine what should be ‘reasonable director’s remuneration’ for a person in the position of Ms Hamilton managing a business with income derived from a substantial staff roster. Former levels of weekly compensation were reinstated until such time as Accident Compensation reviews its assessment.
Justice Edwards commented any distributions received by Ms Hamilton as beneficiary of her shareholder family trust were not to be treated as ‘income’ from her hairdressing business when calculating earnings related accident compensation.
Hamilton v. Accident Compensation Corporation – High Court (27.11.19)
20.002