If you have suffered an injury as the result of an accident and have sought and received compensation, you cannot be taxed for money that covers the costs of your injury. That statement refers to more than what you have paid to doctors or to any medical facility.
Here are all the costs that might be covered, and could be a source of tax-free funds
The cost to you of having lost wages during the time that you were recovering.The total cost of your medical expenses, including the money that was paid to any therapist, treatment facility or any facility in which you might have been tested or examined by means of an X-ray machine or a scanning device.
Costs related to your emotional distress would be covered, if that distress had developed as a result of your physical injuries. An award for emotional distress that cannot be linked to a physical injury should not be viewed as a source of tax-free money. The money awarded in order to compensate you for your pain and suffering cannot be taxed.
A portion of the funds that the court declared to be yours was used to pay your lawyer’s contingency fee. The government cannot tax any of the money in that portion of your awarded funds. Still, if you have won a personal injury case, you should not assume that every cent that you eventually receive falls under the category of tax-free money. There are times when the government can tax some of the money that has been won by the person that got injured in an accident.
Payments that can be taxed
Sometimes a damage payment results from a breach of contract. The government does not view that loss as one that falls in the same category as the losses suffered by an accident victim. Therefore, a payment made for such damages can be taxed. In addition, payments for punitive damages can be taxed.
Understand, too, that the government has a record of the date when your case was filed. It knows the amount of time during which your case was pending. If the decision by the court was appealed, the government knows how long it took to the court to reach a new decision, once that appeal has been made. You deserve to get the interest on your award while your case is pending, but the government can tax that interest. Your personal injury lawyer in Red Deer would be the best judge to let you the total amount you will receive.
Closing thoughts on the times when you could potentially get taxed
Although you may not like the fact that the government could demand that you pay taxes on such funds, realize that you will get some money. You will not be like the person that fell for a gold coin scam or an oil and gas scam. Such a person does not owe the government any money, but, by the same token, he or she does not get any money, because someone has scammed them.