Will I Be Taxed On Personal Injury Damages?
If you recently received money compensation from a court settlement, you might be wondering, how are you going to report these earnings? Are they taxable?
Let us help you clarify your doubts.
When you suffer a physical or emotional injury caused by an accident, you will probably be entitled to a non-pecuniary damage, also known as compensation for “pain and suffering”. Is it logic that an amount of money you receive to reimburse you for your loss is taxable? The answer is no.
The Canadian Revenue Agency (CRA) based on the Surrogatum Principle will determine if the compensation award received is an income or a capital receipt based on the nature of the income this compensation is meant to replace, then, the court will determine which will be the tax treatment of this award.
In the case of Personal Injury Damages, the Canadian Revenue Agency (CRA) does not consider awards for pain and suffering taxable income. Income tax is only paid on taxable income, a non-pecuniary damage is not replacing an income, it’s an amount set on court meant to reimburse you for your loss, therefore, is not taxable. In general, any compensation received for hospital expenses, medications and interest generated by the award by the end date of the court decision are also non-taxable.
Some people decide to receive a lump sum settlement in a structured annuity, also known as “structured settlement”.
A structured settlement is a financial arrangement on court, the claimant agrees to receive part, or all of the settlement in the form of periodic payments on an agreed schedule by the defendant in compensation to a personal injury. All of these payments, including interest, are not taxable.
In certain situations, this award can become taxable. If you invest your award for interest, profit or gain, what you earn will become a taxable income.
If the settle compensation replaces an ordinary income, be it from a business, property or employment sources, then your award will be treated as ordinary income and will be taxable. In cases when the settle compensation payment is meant to repair or paid the complete loss of an asset, then this amount will be taxable as proceeds of disposition from property.
If you want to know more about Personal Injury Damages, contact a local law firm in Brampton, a Personal Injury Lawyer at Lofranco Corriero will answer all your doubts and will help you to go through this difficult moment.
If you have been injured in an accident and looking to claim personal injury damages benefits, call Lofranco Corriero Personal Injury Lawyers at 1-866-563-7262 at for a free, no-obligation consultation. Alternatively, fill in the contact form here and an experienced lawyer will get in touch with you regarding your specific case. If you are unable to travel, we can accommodate you and visit you at a place and time of your convenience.
About Lofranco Corriero: Lofranco Corriero is a Toronto-based law firm that has been representing personal injury victims in Ontario for over 40 years. Since 1980, the team has settled thousands of claims and worth millions of settlement dollars. Their strength as a law firm is that they are trial lawyers - they are not afraid to go to court if need be to win their clients the settlements they deserve.
Lofranco Corriero lawyers can be contacted via 1-866-563-7262 or you can submit a contact form for a free, no-obligation consultation here.