Accident Settlement Claim - Tax rules?

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Mar 10th, 2022 11:19 pm

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Mar 9th, 2022 11:44 am

cessnabmw [OP]: Deal Addict; Feb 9, 2012; 4322 posts; 795 upvotes; Toronto

Mar 9th, 2022 11:44 am

Accident Settlement Claim - Tax rules?

Hi! Tried searching but can't find clear info on this.

Let's say you had an accident claim and it was being settled for $100K.

The lawyers cut is 33% + HST and disbursements. You end up with say:

Settlement: $100,000
Fees: $33,000
HST:$4,290
Disbursements: $8546.83
Net: $54,163.17

I see on CRA that you don't have to claim this as income.

Are we allowed to claim the lawyer's fees, HST or disbursements on our taxes? Or are none of those allowed since we aren't claiming the income?

6 replies

Mar 9th, 2022 12:06 pm

will888: Deal Expert; Dec 12, 2009; 26135 posts; 16150 upvotes; Toronto

Mar 9th, 2022 12:06 pm

Is this an insurance claim? I think the way insurance claims work is that you are the one paying for the coverage then you don't have to book the settlement. If this is an employer plan that is the making the settlement, then it is taxable. If the settlement is taxable, the legal fees are eligible for deduction.

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Mar 9th, 2022 1:17 pm

cessnabmw [OP]: Deal Addict; Feb 9, 2012; 4322 posts; 795 upvotes; Toronto

Mar 9th, 2022 1:17 pm

will888 wrote: ↑ Is this an insurance claim? I think the way insurance claims work is that you are the one paying for the coverage then you don't have to book the settlement. If this is an employer plan that is the making the settlement, then it is taxable. If the settlement is taxable, the legal fees are eligible for deduction.

Insurance claim.

Mar 9th, 2022 1:48 pm

ml88888888: Deal Fanatic; Jan 19, 2017; 8118 posts; 4741 upvotes

Mar 9th, 2022 1:48 pm

cessnabmw wrote: ↑ Hi! Tried searching but can't find clear info on this.

Let's say you had an accident claim and it was being settled for $100K.

The lawyers cut is 33% + HST and disbursements. You end up with say:

Settlement: $100,000
Fees: $33,000
HST:$4,290
Disbursements: $8546.83
Net: $54,163.17

I see on CRA that you don't have to claim this as income.

Are we allowed to claim the lawyer's fees, HST or disbursements on our taxes? Or are none of those allowed since we aren't claiming the income?

it is one way or the other: report your settlement as income & claim the fees, or don't report & don't claim fee paid.

Mar 9th, 2022 2:02 pm

Scote64: Deal Fanatic; Jan 21, 2018; 8101 posts; 8903 upvotes; Vancouver

Mar 9th, 2022 2:02 pm

The insurance settlement is compensating you for something you already had and then lost, so net zero value to you, and therefore not income. You can't deduct expenses paid on legal services unless they were a business expense in connection with the operation of a business.

Mar 10th, 2022 3:52 pm

cloak: Deal Addict; Sep 2, 2009; 2589 posts; 2582 upvotes; Ottawa

Mar 10th, 2022 3:52 pm

If part of the settlement was for lost income/wages, that portion could potentially be taxed.

Mar 10th, 2022 11:19 pm

Arrow: Deal Fanatic; Apr 1, 2001; 6393 posts; 1077 upvotes

Mar 10th, 2022 11:19 pm

Related to this, apparently if your lawyer wins an amount to “pay back” your sick bank that you had used from work related to the accident, you can claim this amount (the amount that was paid back) as a deduction.

I’m not an expert though. Seek professional advice.

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