Do you have to pay income tax on personal injury claims?
If the injuries you have sustained in a car accident are preventing you from earning as much as you used to, you will have a claim for lost income. But, taxes still play a role. If you were making $100,000 a year before the accident, but as a result of your injuries you can now only make $50,000, you might think that you should get $50,000 per year in compensation.
You are only entitled to recover what you would have earned after tax.
In Alberta, the Insurance Act states that if you were injured in a car accident, your loss of income award will be reduced by the amount you would have paid in taxes. That means your $50,000 per year claim will only get you about $33,500 (based on a tax rate of 35%).
However, if you were injured in a slip and fall accident (i.e. any accident other than a car accident), then your loss of income award is NOT reduced by the amount you would have paid in taxes. That means your $50,000 per year claim would get you something much closer to the $50,000 if no vehicles were involved in your injury.