Can an Alberta Personal Injury Settlement be Taxed

After being paid out a settlement for a personal injury claim, you may be wondering what the tax implications will be. This blog post will address these concerns.

What is a personal injury settlement?

A personal injury settlement is intended to provide you with the compensation that you are entitled to after you have been involved in an accident where you were not at fault, but you were injured. Depending on the severity of your injuries and the impacts these injuries have had on your life, along with many other factors, your compensation can range from thousands to tens of thousands to even hundreds of thousands.

A personal injury settlement is usually broken down into several different heads of damages, however, the most common are special damages and general damages. Special damages are intended to compensate you for any out-of-pocket expenses that you incurred as a result of the accident. General damages are intended to compensate you for the pain and suffering you endured as a result of the accident.

For more information about the different heads of damage, you can read our blog post on this topic here.

Is my personal injury settlement taxable?

Where your personal injury settlement includes only special damages and general damages, you likely will not have to pay any taxes on that settlement amount.

This is because the CRA does not consider the compensation that you receive as part of a personal injury claim to be taxable income. Note that this includes all types of personal injury, such as car accidents and slip and falls. This will also include out-of-court settlements, as well as any damage awards awarded by a judge or jury at trial.

Therefore, the simple answer to the question is no, your personal injury settlement is not taxable.

Are there exceptions to this rule?

The rule that your personal injury settlement is not taxable is not an absolute rule. Like most rules, there are several exceptions. Even though the amount of the settlement itself is generally not taxable, some things that you might decide to do with that money may make it taxable. One of the most common things that people do with their settlement funds is use them for investing.

However, before considering investing your settlement money, you should know that any gains that you make on that investment will be considered a taxable form of income and will therefore be subject to taxes. Note, however, that one major exception to this would be tax-free savings accounts (TFSA), where any gains can be withdrawn tax-free.

If you have been in a car accident that was not your fault and you suffered injuries because of it, you are entitled to make a claim for damages. A personal injury lawyer can help you to achieve a settlement and get you the compensation that you deserve, all while resting assured that you will not have to worry about any tax consequences from pursuing your personal injury claim.