It’s universal that you need to pay taxes for your income. That’s not everything in your logbook. Apart from regular direct and indirect taxes, we owe some more. From fancy gifts given by friends and family to even forgiven loans- you should put each nut and bolt in the scanner of taxation. You never know when the tax receiving agencies call you.
Some money or property which we haven’t yet consumed are coming towards us with taxes. Did I scare you? The number of Alberta car accident settlements is quite a number. So, besides getting an amount, it could also charge you a bit more being a person in Calgary.
Well, if you’re good at your personal finance, nothing to worry about. And, it’s okay to think of something new to ask right now, no problem. After all, it’s not only you who questions- Do car accident settlements get taxed? Here you go.
Before answering that let’s know where you should pay taxes other than you usually do?
Lost income Compensation
The compensation of lost income is taxable. It follows the notion that the complainant would pay an amount of tax against the income that could be earned if there were no accident. The settlement may include the medical bill and other associated expenses. In that case, the tax amount depends on only the lost wage’s recovery.
Sometimes the plaintiff receives an amount of money from the defendant. It is a punishment for the wrongdoer, which the other party receives as an award. It is taxable the plaintiff receives from the wrongdoer as a civil litigation case.
Interestingly, you have the option to get relief from paying for the amount you are receiving as the personal injury award. Choose to receive it in lump sums that are in a structured annuity. Your tax is exempted.
Which payments are not considered taxable?
Basically, after filtering compensation of income and payment for punitive damages, other issues usually do not subsist in the list of taxable settlements. Those include-
- While the amount is under section 87 (Section 87 tax exemption)
- Most of the lottery winnings
- Majority of the gifts and inheritances
- A non-taxable amount by the government of Canada or any allied country
- GST/HST or CCB (Canada child benefit) payment
- Family allowances, support for the handicapped children
- An amount received by a life insurance policy after a person’s death, etc.
It’s not so that your settlement amount is not taxable for a lifetime. If you use that money for any investment, that will turn into an income element.
If the accident gets you severance payment, that will be taxable. The reason will be considering the amount as an income.
The best you can know about a car accident and taxation is from your injury lawyer. Before dealing with it, for the first time especially, never forget to sit with legal matters.
Do car accident settlements get taxed?
It might make you surprised if there is not yet any summon on your name to pay taxes for your car accident settlement. What truly is- there is no tax a person needs to pay if it is about pain and suffering. So, the Tax Act of 1985 suggests that car accident settlement is tax-free.
The Canada Revenue Agency also recognizes compensation received regarding car accidents is not taxable. You might’ve noticed that car accident settlement is excluded from the categories mentioned above as taxable.
The best knowledge you can get about a car accident settlement is from your lawyer. When it’s about financial liability, you‘ll get through for a lifetime. You have the ground for your justice by the law. At the same time, as a citizen and the taxpayer, some obligations you cannot avoid or deny.
So, while receiving money from any source, you must know in which category it falls- as your income or not. The same goes for spending it. It’s certain someone else owes you money after causing damage. Regardless, it’s your concern afterward about where the money would go and if the government has any legal share on that.
That’s all we tried to discuss through do car accident settlements get taxed. Hopefully, it will be relatable, especially if you are at your post-accident phase. It would be pretty offbeat if you’re not wondering about both your treatment and legal formalities.