ARE INSURANCE CLAIMS TAXABLE IN CANADA?
A question that I get asked from time to time is: The money that is paid out in an insurance claim, is that taxable? This creates an interesting question about what is considered income. In order to answer this question, we wanted to look at a few scenarios.
TAXATION ON THE SALE OF VEHICLES IN CANADA
Depending on where you live in Canada, there can be different rules on the taxation of vehicles in Canada. In this section, we will identify if an insurance claim payout is considered the same as selling a vehicle (for tax purposes).
TAX ON PRIVATE SALE VEHICLES IN CANADA
If you’re selling a vehicle privately in all Canadian provinces except Alberta, you are required to pay some amount of tax on that vehicle. Somewhere between 6%-15% of the purchase price. The sale of the vehicle in this scenario is considered income with its own specialized tax rate.
ARE AUTO INSURANCE CLAIMS TAXABLE IN CANADA?
The short answer to this question is no, auto insurance claims in Canada are not subject to tax. If your vehicle is stolen or damaged beyond repair in a covered accident, the money you receive in an insurance claim is not considered taxable income. The same applies to insurance claims where repairs need to be performed on your vehicle.
TAXATION ON THE SALE OF HOMES IN CANADA
In Canada, there are no capital gains taxes on the sale of your primary residence. However, there are taxes on the capital gains of secondary properties. This section is to help identify if an insurance claim payout on a property could result in a tax bill for you.
CAPITAL GAINS TAX ON SALE OF SECOND PROPERTIES
In Canada, if you own more than one property, and you sell your non-primary residence, you’ll be subject to capital gains tax on any profit. For the simplicity of math, if your secondary home was purchased for $100,000 and sold later for $200,000, you would be required to pay taxes on the additional $100,000 in profit.
ARE HOME INSURANCE CLAIMS TAXABLE IN CANADA?
The short answer, once again, is no. Home insurance claims are not considered taxable income, regardless of whether it is your primary residence or not. If you purchased your home for $250,000 and the cost to replace it in the event of a claim was $300,000, you would not pay taxes on the additional $50,000. The same rule applies to the coverage of your contents.
ARE ANY INSURANCE SETTLEMENTS OR PAYOUTS TAXABLE IN CANADA?
According to the Canada Revenue Agency:
“all amounts received by a taxpayer or the taxpayer’s dependent, as … special or general damages … will be excluded from income.”
In short: No, insurance claims are not taxable in Canada.
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We’d like to thank Armour Insurance for sharing their latest blog post with us.
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