Canada Pension Plan (CPP) disability

Decision

[1] I am allowing this appeal. The General Division made errors when it found that the Minister wrongly terminated the Respondent’s disability pension. To fix those errors, I have decided to give the decision that the General Division should have given. I find that the Respondent ceased to be disabled as of December 2010.

Overview

[2] The Minister is seeking to terminate the Respondent’s Canada Pension Plan (CPP) disability pension.

[3] The Respondent is a 64-year-old former farmer and meat cutter. In 1985, he sustained on-the-job injuries to his back and right knee. The Minister approved his application for the CPP disability pension in 1988.

[4] The Respondent had a family farm that he continued to operate despite his impairments. For a number of years, he reported significant gross earnings but no net income. In 2005, the Minister reviewed the Respondent’s status, but it ultimately concluded that he continued to have a severe and prolonged disability, his farming activities notwithstanding. Eventually, the Respondent sold his farm.^{Footnote 1}

[5] In 2018, the Minister received information that the Respondent had started an equipment resale and furniture manufacturing and retailing business. The Minister initiated another review and, based on the Respondent’s reported business income, concluded that the Respondent ceased to have a severe and prolonged disability as of December 31, 2010. It suspended the Respondent’s pension and assessed an overpayment of $104,321.

[6] The Respondent appealed the Minister’s decision to the Social Security Tribunal. The Tribunal’s General Division allowed the Respondent’s appeal and reinstated his pension. It found that the Respondent was credible when he testified that he still had debilitating knee and back pain. It noted that the Respondent worked only one or two hours per day and relied on employees for most tasks. It pointed to years of losses that the Respondent’s business had incurred.

[7] The Minister then asked the Appeal Division for permission to appeal the General Division’s decision. The Minister argued that the General Division made the following errors:

• It assessed the severity of the Respondent’s disability by looking only at his medical conditions; and
• It took the Respondent’s business losses as evidence of disability.

[8] Earlier this year, I granted the Minister permission to proceed because I thought her appeal had a reasonable chance of success. Last month, I held a hearing by teleconference to discuss the Minister’s allegations in full.

[9] Now that I have heard submissions from both parties, I have concluded that the General Division’s decision cannot stand.

Issues

[10] There are only four grounds of appeal to the Appeal Division. An appellant must show that the General Division

• proceeded in a way that was unfair;
• acted beyond its powers or refused to exercise those powers;
• interpreted the law incorrectly; or
• based its decision on an important factual error. ^{Footnote 2}

[11] My job is to determine whether either of the Minister’s allegations fall into one or more of the permitted grounds of appeal and, if so, whether any of them have merit.

[12] In this appeal, I had to answer the following questions:

• Does the Minister have the power to terminate a disability pension and recover back payments?
• Did the General Division err in law by looking only at the Respondent’s medical conditions?
• Did the General Division err in law by taking the Respondent’s business losses as evidence of disability?
• If the General Division did make an error, what is the best way to fix it?

Analysis

The Minister is empowered to terminate disability pensions and recover back payments

[13] One of the background questions in this appeal is whether the Minister has the authority to re-open her prior pension approvals. I am satisfied that she does, subject to at least one limitation.

[14] Under the Canada Pension Plan and its regulations, the Minister may require CPP disability recipients to undergo examinations and supply reports to prove that they continue to be disabled.^{Footnote 3} If a recipient is found to no longer be disabled, their disability benefits may be terminated.^{Footnote 4} A recipient who has received benefits to which they were not entitled must return those benefits, and any benefit that is not returned constitutes a debt to the Crown.^{Footnote 5} Any such debt may be deducted from other CPP benefits payable to the person who ceased to be disabled.^{Footnote 6}

[15] These provisions, read together, give the Minister broad powers to revisit her prior decisions granting disability pensions. However, those powers are not unlimited. In a case called Kinney, the Federal Court held that the Minister could terminate a disability pension but only as far back as the “last standing decision” confirming eligibility.^{Footnote 7} This means that the Minister must abide by her most recent determination of disability, even if there later emerges contrary evidence from the period before that determination.

[16] In this case, the Minister’s last standing decision was in August 2005—well before the date (December 2010) on which the Minister later found the Respondent had ceased to be disabled. I am therefore satisfied that it was open to the Minister to terminate the Respondent’s benefits when she did.

The General Division erred by looking only at the Respondent’s medical conditions

[17] CPP disability recipients remain entitled to benefits as long as theycontinue to have a “severe and prolonged” disability.^{Footnote 8} A disability is severe if it causes a person to be incapable regularly of pursuing any substantially gainful occupation. A disability is prolonged if it is likely to be long continued and of indefinite duration.

[18] The General Division had to determine whether the Respondent ceased to be disabled as of December 31, 2010. I have concluded that it made a legal error in doing so.

[19] The General Division correctly determined that the Minister bore the onus of establishing that the Respondent’s disability ceased to be severe and prolonged by that date. However, the General Division made an error of law by focusing on whether the Respondent’s medical condition had changed, rather than on whether he had regained his ability to regularly pursue a substantially gainful occupation. The latter test required a more comprehensive analysis than what the General Division provided.

[20] Early in its analysis, the General Division wrote:

The Minister must prove on a balance of probabilities the [Respondent] ceased to be disabled as of December 31, 2010. In order to do so, the Minister must show that the conditions upon which disability payments were granted to the [Respondent] in May 1988, and reaffirmed in August 2005, had improved such that he no longer qualified [emphasis added].^{Footnote 9}

This passage suggests that the General Division was primarily looking for improvement, or lack of it, in the Respondent’s medical condition. However, it is the capacity of a claimant to work, not the medical condition itself, that determines whether a disability is severe under the CPP.^{Footnote 10}

[21] Later, the General Division affirmed that it had been assessing the Respondent’s disability exclusively through the lens of his medical status:

As the Minister has not proven the conditions upon which the [Respondent] was granted a disability pension improved subsequent to August 2005, I find the Minister has not proven on a balance of probabilities his disability ceased to be severe as of December 31, 2010 [emphasis added].^{Footnote 11}

[22] Capacity to work must be measured using factors other than just the claimant’s medical condition. Those factors may include their background and personal characteristics, their day-to-day activities, and, if any, their employment efforts or business ventures. But when I look at its relatively brief analysis, I see that the General  Division concentrated on the Respondent’s subjective view of the physical constraints that he faced in carrying on his furniture and equipment business. The General Division noted that knee and back pain required the Respondent to (i) hire employees to make and move furniture; (ii) work strictly reduced hours; and (iii) stay at home and communicate with his employees by telephone or email. While the General Division also discussed the business’s profitability, it did so in a cursory manner, ignoring significant indications that selling merchandise was more than just a hobby for the Respondent. Nor did the General Division make any attempt to assess the Respondent’s managerial skills—skills that enabled him to maintain a high-volume operation over a period of 10 years.

[23] Even where claimants face significant physical limitations, they can still have the capacity to work where they take on supervisory duties. The General Division erred in law by focusing on only one aspect of the Respondent’s capacity.

The General Division erred by taking the Respondent’s business losses as evidence of disability

[24] The Respondent’s furniture and equipment business played a central role in the Minister’s decision to cancel his disability pension. The Minister inferred capacity from the fact that the Respondent reported annual revenues exceeding $500,000 from 2011 to 2018.

[25] The General Division determined that the business did not necessarily show that the Respondent had recovered from his disability because he had “sustained a net business loss in 2010, and most years since.”^{Footnote 12} I have decided that the General Division based its decision on erroneous findings made without regard for the information in the file.

The General Division failed to consider important evidence

[26] In its decision, the General Division wrote:

The Minister determined in 1988, and again in August 2005, the [Respondent’s] disability was severe. There is no evidence the conditions upon which the Minister granted the [Respondent’s] disability pension in 1988, and reaffirmed his entitlement in August 2005, improved since [emphasis added].^{Footnote 13}

[27] However, I see that the Respondent reported the following amounts in his personal income tax returns:^{Footnote 14}

[28] To say that there was “no evidence” of a change in the Respondent’s condition is, in my view, a stretch—one that flies in the face of the information on the record. As the Respondent transitioned from farming to retailing, his reported gross revenues increased dramatically, going from tens to hundreds of thousands of dollars in the space of only two years. The Respondent managed to steadily grow those revenues further over the following seven years, and he eventually reached annual sales of more than $1 million in 2016, 2017, and 2018.

[29] None of this was mentioned in the General Division’s decision. Instead, the General Division noted only that the Respondent’s business “operated at a loss in 2010, and most years since.” While this statement was, strictly speaking, accurate, it left much unsaid. It not only concealed the extent of the Respondent’s gross income, it also glossed over the fact that he was making money in multiple years. True, the Respondent recorded losses in “most years,” but he also achieved profits—significant profits—in three of those years. In 2011, 2014, and 2017, the Respondent reported net income of $188,419, $80,430, and $153,620, respectively.

[30] It is worth noting that, since 2014, the Canada Pension Plan has benchmarked “substantially gainful” to the maximum annual amount that a person can receive as a disability pension.^{Footnote 15} For 2014 and 2017, the benchmarks were, respectively, $14,836 and $15,763—both amounts significantly lower than what the Respondent reported for those years. The General Division did not explain how an individual who is supposed to be “incapable regularly of pursuing a substantially gainful occupation” would nonetheless be able to run a business that generated hundreds of thousands of dollars in annual sales and a healthy net income in multiple years.

[31] I acknowledge that the General Division was not required to refer to every piece of available information in its decision.^{Footnote 16} The General Division is presumed to have considered all the evidence, even if it did not discuss all the evidence. However, this presumption can be rebutted if there is evidence too important to ignore.^{Footnote 17} In this case, the amounts of the Respondent’s gross and net earnings demanded that the General Division address them in at least some detail.

The General Division based its decision on a misunderstanding of the nature of business profits and losses

[32] In its decision, the General Division saw a clear link between the Respondent’s business losses and his impairments:

Lack of profit does not necessarily mean the [Respondent] lacked capacity to pursue substantially gainful employment. However, losses that result from his disability are evidence that he was incapable regularly of pursuing any substantially gainful employment in that business, or other occupation. The [Respondent’s] lack of business profitability was mostly due to wages paid to employees, as he was unable to do physical work, and very little sedentary work [emphasis added].^{Footnote 18}

The Minister says that this passage contains perverse or capricious findings of fact. So do I.

[33] The Respondent’s losses cannot be blamed entirely on fact that he hired employees. Many businesses run by able-bodied individuals lose money, and some businesses run by disabled individuals do not.

[34] The General Division was right to say that business losses are relevant in a disability determination. It also rightly noted that such losses, by themselves, are not necessarily proof of disability.^{Footnote 19} However, if the General Division was going to attribute the Respondent’s losses to his impairments, it had to establish a clear connection between the two. The success of a business, or lack of it, is based on many variables besides labour costs, such as:

• sales;
• cost of goods sold;
• overheads such as telephone, internet, insurance, accounting, and delivery expenses;
• interest on loans;
• managerial competence, or lack thereof.

[35] Profitability also depends in part on the natural tendency of businesses to overstate expenses and understate revenues when reporting their income for tax purposes. The General Division ignored all of these alternative explanations for the Respondent’s losses and instead took it for granted that his employee expenses were mostly, or entirely, responsible for the unprofitability of his business.

[36] The General Division did more than just assume that the Respondent’s business was unprofitable solely because of the employee wages. As mentioned, the General Division also failed to squarely address the years in which the Respondent made money. His three years of significant profits, along with his eight years of significant revenues, did not just occur by chance. There must have been a guiding hand behind the operation that produced them. The General Division found that the Respondent was “unable to do physical work and little sedentary work,” but it did not contemplate the possibility—even the likelihood—that he was nevertheless capable of a substantially gainful occupation as a supervisor or manager.

The General Division’s decision lacked logic and clarity

[37] The Supreme Court of Canada has said that administrative decisions must be “based on an internally coherent and rational chain of analysis.”^{Footnote 20} In a similar vein, the Federal Court of Canada requires decision-makers to make their reasons intelligible and transparentso that“the basis for a decision … is understandable, with some discernible logic.”^{Footnote 21}

[38] In my view, the General Division’s decision lacks internal coherence and discernible logic. It is notable that the General Division did not mention any of the precise figures from the Respondent’s eight years of gross income and three years of net income. Nor did the General Division make any attempt to characterize the Respondent’s revenues and profits as high or low, significant or insignificant. The General Division said only that the business “operated at a loss in 2010 and most years since.”^{Footnote 22}  

[39] In doing so, the General Division minimized the Respondent’s revenues and profits. It chose instead to focus on only one part of the story—the Respondent’s five years of losses, which the General Division incorrectly took by themselves as evidence of disability. But while the Respondent may have worked limited hours and delegated tasks to employees, the fact remains that his business generated periodic profits and year after year of significant cash flows. The General Division’s failure to grapple with the implications of those profits and cash flows amounted to a missing link in its chain of analysis.

Remedy: I will substitute my decision for the General Division’s

There are two possible ways to fix the General Division’s errors

[40] The Appeal Division has the authority to address the General Division’s errors.^{Footnote 23} I can refer this matter to the General Division for reconsideration or give the decision that the General Division should have given.

[41] The Tribunal is required to conduct proceedings as quickly and fairly as circumstances allow. It has been more than three years since the Minister called the Respondent’s pension entitlement into question. Sending the parties back to the General Division would only prolong matters and likely result in a decision no different from mine.

The record is complete

[42] I am satisfied that I can decide this matter myself. Both parties had adequate opportunity to make their respective cases at the General Division. I have access to a complete recording of the General Division hearing, in which the Respondent testified at length about the nature of his business and his ability to run it despite his impairments. Since this appeal largely revolves around issues of law and misinterpretation of the available evidence, I have enough information to assess the merits of the Minister’s claim that the Respondent is no longer disabled.

[43] As a result, I am in a position to give the decision that the General Division should have given. In my view, if the General Division had paid more attention to the Respondent’s business sales and profits, it would have concluded that his disability stopped being severe and prolonged at some point.

The Respondent’s income indicates that he was no longer disabled

[44] As noted, the Respondent’s reported gross income from his business grew steadily from 2011 to 2017, reaching a peak of $1.43 million before levelling off and declining in subsequent years. The Respondent reported losses for many of those years, but he also had substantial net income in 2011, 2014, and 2017, indicating that his venture was no mere pastime or hobby.

[45] I don’t doubt that the Respondent still has knee and back pain. I don’t doubt that he still takes medication for that pain. It may well be that he works only one or two hours per day and relies on employees to help him with his business. But none of that changes the fact that he was generating hundreds of thousands of dollars making and selling furniture, buying and selling equipment—sometimes profitably. Even if the Respondent did no physical work, the venture required his vigilance, supervision and managerial skills. Someone had to come up with the idea for the business. Someone had to design and commission the manufacture of the furniture. Someone had to monitor on-line auction sites for items that might be sold at a profit. Someone had to manage the sales of those items and arrange for their delivery. Someone had to supervise employees and make sure that they got paid. Someone had to keep the accounts and do the banking. That someone was the Respondent.

[46] The evidence suggests that the Respondent was able to manage a viable business despite his medical conditions. He was able to regularly tend to its affairs and, even if it wasn’t profitable every year, it demonstrated a capacity to generate substantially gainful returns some of the time.

The Respondent’s testimony suggests that he regained capacity

[47] I listened to the recording of the General Division hearing. I heard the Respondent testify at length about his business, what he did for it, and why. While the Respondent attempted to downplay his involvement in the business, it was obvious that he played an active role in its day-to-day affairs.

[48] The Respondent described the origin of his business this way:

In 2010, when I finished farming, I laid around for two years just doing nothing and it was driving me crazy. So I hired this one guy and I asked him if he could build this kind of stuff [log furniture]. He went over to my shop and built some stuff. And I just said, continue building it. So then I hired a driver and this is how it all started, with this log furniture. And in the last four or five years, I’ve hardly gone down to the shop to see how… in all honesty, the people I’ve hired were all either drug addicts or they didn’t have a license or they were homeless. That’s the kinds of people I hired. I couldn’t get people to work—everybody wanted money, big money, and I couldn’t afford big money.^{Footnote 24}

This passage indicates that in 2010 the Respondent possessed enough drive and energy to embark on a business venture, despite his knee and back pain. In its early days, the venture showed enough promise that the Respondent hired more employees, and he maintained a team for the next several years. In his self-employment questionnaire, the Respondent stated that he had four employees in 2010, eight in 2011, seven in 2012, and between three and six over the next four years.^{Footnote 25} The Respondent emphasized that he had no choice but to hire unskilled, low-cost labour, but he wasn’t running a charity or pursuing a hobby. All the evidence suggests that he intended his venture to make money.

[49] At one point during the hearing, the presiding General Division member noted that the business was “quite profitable” in its first year. The Respondent did not address this point directly and replied, “I’m just buying small items and trying to flip them as fast as I can flip them.”^{Footnote 26} This tells me that, at least some point, the business operated at a relatively high volume. This level of activity would, in turn, suggest a need for more active management than would a business that, say, handled only a small number of high-value items each year. The Respondent later testified that he was the only one who bought and sold the furniture and equipment, the only one who handled the banking.^{Footnote 27}

[50] When asked why he continued to operate a business if it was not profitable, the Respondent replied that he “just felt it would eventually turn around… I did this to get out of CPP and wouldn’t have to depend on the government. You know, when you get in a hole, you just keep trying to dig yourself out of the hole and it did not happen.”^{Footnote 28} While his business was not as successful as he hoped it would be, the Respondent seemed to be under the impression that his losses by themselves were proof of his disability. That is not so. As I’ve already noted, a business can lose money for any number of reasons. In this case, the evidence shows that the Respondent was the force behind an active and sustained enterprise that, while it may have lost money in some years, made significant amounts of it in others.

Conclusion

[51] I am allowing this appeal. The General Division erred by (i) looking only for improvement in the Respondent’s medical conditions and (ii) taking the Respondent’s business losses as evidence of disability. My own assessment of the record convinces me the Respondent ceased to be disabled as of December 2010, when he started his furniture manufacturing and equipment resale business. The Minister’s original decision to terminate the Respondent’s CPP disability pension must stand.