Is Settlement Money Taxable In British Columbia?
In British Columbia, there is a simple and popular answer to that question. The settlement money from ICBC is not taxable. The Province’s system has showcased the wisdom behind that arrangement.
All vehicle owners in British Columbia must purchase a product called universal car insurance. Because the insurance company operates within the government system, it would not make a great deal of sense to place a tax on any settlement money.
Admittedly, there are rare times when the court does ask that the person receiving a settlement pay a tax. ICBC Lawyers in Maple Ridge know that those exceptions usually arise when a policy holder is self-employed, and does not get paid by a boss. Those become exceptions, due to the type of actions that ICBC must take, prior to distribution of settlement money.
ICBC’s actions before distribution of awarded funds
Normally, ICBC calculates the amount of government tax money that would have been taking out of any lost wages. Once that calculation has been made, ICBC’s designated employees removed the same amount of money from an accident victim’s settlement. In other words, the government takes the taxes out of the award before it gets delivered to the waiting victim.
That is why residents of British Columbia do not get taxed on settlement money, except in rare cases. Typically, a rare case concerns a monetary award that reflects the ICBC’s decision, after studying a complicated case. A complicated case would be one in which the government could not calculate the amount of owed taxes in any collection of lost wages.
Victims can be compensated for more than lost wages; are all forms of rewarded money off-limits to the tax collector?
In 1985 the voters in British Columbia passed an Income Tax Act. The passage of that act prevented the government from taxing other examples of damage, such as pain and suffering. Unless an accident victim has sustained only a minor injury, that is usually an accident victim’s most substantial damage.
Admittedly, complaints about pain and suffering do not represent the only reportable damage. Still, that specific damage gets classed with all the damages that cannot be taxed by the government of British Columbia. Like all the damages for which ICBC compensates accident victims, it gets paid from the funds held by the Province’s universal car insurance.
Remember, as mentioned above, the government requires every vehicle owner to buy that same universal car insurance. Hence, the residents of British Columbia saw no reason to pay a tax on money that had come from an institution that was part of the government system. After all, those smart residents knew that the same institution decided on the size of the premium that would be paid by each policy holder.