Full and fair settlement of a personal injury claim against the driver who caused the car accident will include compensation for all the damages suffered as a result of the accident injuries. The law divides these damages into categories, sometimes referred to as “heads of damages.” Settlement of an ICBC claim, especially a claim that arises from a major car accident that causes significant injury such as a head injury or brain injury or spinal cord injury can result in payment of a significant amount of money under each head of damage. This article will answer a question that our ICBC car accident lawyers are often asked: is an ICBC settlement taxable?
Is my ICBC settlement taxable?
The simple answer is no, but the full answer is more complex – tax implications depend on what head of damage we are talking about and how much you receive:
- General damages or “non-pecuniary” damages (that is, money for pain and suffering and loss of enjoyment of life) are not taxable.
- Damages for past and future wage loss are not taxable as they are calculated as “net income loss” before being paid out (in other words, the amount you are paid in an ICBC settlement is net of taxes you would have paid had you earned that income, using the appropriate tax bracket).
- Damages for past and future medical expenses are not taxable.
- ICBC Part 7 benefits, which include funding for wage loss and treatment and rehabilitation expenses, are not taxable.
Settlement of large claims involving serious injures can result in significant amounts for future income replacement and medical expenses. To cover those expenses, settlement proceeds will need to be invested. Here’s the catch: the investment income earned on those proceeds is taxable. Where that is the case, the settlement can include a tax gross up, which is essentially extra money to address the tax implications of investing settlement funds over the long-term. In some cases, a structured settlement may be best, as it can minimize or even eliminate taxes on the settlement. Instead of a single, lump-sum payment, payments are made monthly for a defined number of years and over the individuals lifetime. These payments are tax-free, and do not have to be reported on income tax returns.
Before settling your claim, get advice from an experienced ICBC car accident lawyer
The team of top ICBC car accident lawyers at Simpson, Thomas & Associates have an enviable record of success, handling all types of claims including major loss claims and catastrophic injury cases. We aim to continue build on our reputation of providing quality service to our clients. Use our e-Form to request a free consultation or call (604) 689-8888 to find out how our experienced personal injury lawyers can guide you through the ICBC claims process, maximize your compensation, and minimize tax implications.