If you have been in a motor vehicle accident, you might wonder if you will have to pay taxes on the personal injury settlement that is ultimately reached (or the damages award if it goes to trial). After all, a car accident settlement payout can be in the range of tens of thousands or even hundreds of thousands of dollars.
Fortunately, for Alberta car accident settlements, there is a straightforward answer to this commonly asked question. The answer is no. The Canada Revenue Agency does not treat car accident compensation as taxable income.
From the Government of Canada: You do not have to report certain non-taxable amounts as income, including the following:
- any GST/HST credit and Canada child benefit payments, including those from related provincial or territorial programs
- child assisstance payments and the supplement for handicapped children paid by the province of Quebec
- compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident
- most lottery winnings
- most gifts and inheritances
- amounts paid by Canada or an allied country (if the amount is not taxable in that country) for disability or death due to war service
- most amounts received from a life insurance policy following someone’s death
- most types of strike pay you received from your union, even if you perform picketing duties as a requirement of membership
- elementary and secondary school scholarships and bursaries
- post-secondary school scholarships, fellowships, and bursaries received in 2018 are not taxable if you are considered a full-time qualifying student for 2017, 2018, or 2019
Note: Income earned on any of the above amounts (such as interest you earn when you invest lottery winnings) is taxable.
For more information about the Canada Revenue Agency’s guidelines regarding nontaxable amounts click here.