Taxes Owed On Lawsuit Settlement Following Car Accident
The Insurance Corporation of British Columbia (ICBC) is an arm of the Provincial government. If the monetary benefits delivered by ICBC comes from the government, why should it get taxed? The fact is that money that comes from ICBC does not get taxed.
How large a benefit can a claimant get from ICBC?
Someone that has agreed to ICBC’s first offer will not get a great deal of money. Yet a claimant has the right to seek more money by filing a lawsuit against BC’s Insurance Corporation. Still, a monetary award that was won in a lawsuit will not get taxed, because the awarded money has come from ICBC.
ICBC’s handling of an award
The Insurance Corporation has the right to deduct some money from the award before delivering it to the waiting claimant. The money deducted should equal the amount of money that the government would have collected in taxes from the claimant’s lost wages. Those lost wages get returned to an employed claimant as part of ICBC’s insurance benefits package.
Typically, that is the only part of the package that gets taxed. The reimbursements for medical expenses do not qualify as taxable income. Similarly, the money paid for housekeeping expenses does not qualify as taxable income.
How a lawsuit might create more taxable income
It could be that ICBC Lawyers in Victoria has argued for consideration of a victim’s lost opportunity to earn a living in the future. If that were the case, then the award would include money for jobs that the claimant had been denied. The denial of jobs to the claimant would also represent a denial of taxable income that could have been paid to the Province.
In other words, the money awarded for the lost opportunity to earn a living would qualify as taxable income. In keeping with ICBC’s policy, the tax money in that award would get deducted from the reward, before it was delivered to the waiting claimant.
A lawsuit might also get initiated by a claimant that was self-employed. It could be that ICBC had refused to give that entrepreneur a fair payment for the money lost, while he or she was recovering from the accident-caused injury. If a lawyer could convince a court that the claimant/entrepreneur deserved a larger compensation for lost income, then BC’s Insurance Corporation would have to deliver that added amount of compensation.
The ruling in the lawsuit would be both good and bad news for the self-employed claimant. The good news would be the fact that the lost profits would be made available to the entrepreneur that had lost them. The bad news would be the realization that the awarded money could get taxed by the government.