Tax on personal injury compensation received in 2008 for 2007 accident

J

Jano

Registered User
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Hi everyone,
My full time student son was hit, while walking, by a car in Oct 2007 and the driver's insurance company have now offered to settle for out of pocket expenses and compensation. Can he claim the income for 2007 retrospectively as the accident happened then? He has a lot of part time work this year and would have a tax liability if tax on the compensation income has to be paid in 2008. He had no income in 2007.
- BTW can a student claim rent relief against their personal income tax?
Thanks!
 
Thanks, but I am confused now as I rang the tax office today to ask about the possibility of claiming against 2007 income for the compensation received in 2008 and explained the situation and that the injuries were minor so we knew tax would be payable etc. The 2 supervisors in the office both stated that the income was tax free and when I referred to the documentation given in the link from Clubman (thanks), that states that minor injuries are not tax exempt, they insisted I was wrong!!! When I pressed on about the fact they told me they know their job and not to worry but I still think tax has to be paid??!!! Can anyone help??? Last thing he wants/we want is a tax bill down the line when the money is gone on fees etc. Any advice???? Thanks
 
Jano - don't depend in Revenue officials for the full picture. If you are in any doubt then get professional advice. Unfortunately Revenue officials can and do disseminate incorrect or incomplete information from time to time (not deliberately or as a matter of policy I hasten to add!) but acting on such inaccurate information will not be accepted as an excuse for making an incorrect return etc.
 
Thanks Clubman, was thinking the same. The leaflet online seems clear that tax has to be paid so I think the revenue staff were mistaken. It is not an everyday enquiry to be fair. Still can't find out if possible to offset compensation against 2007 tax - assuming that tax will have to be paid. As he had no income in 2007 it would solve the tax issue for him if this was allowed. Most of the compensation is not actually "compensation" as such. It is just a refund of out of pocket medical expenses etc so that part will presumably be tax free. Thanks again.
 
Did you get the name of the person you were speaking to and would be prepared to put it in writing or why not write or e-mail them
 
Jano said:
Thanks Clubman, was thinking the same. The leaflet online seems clear that tax has to be paid so I think the revenue staff were mistaken. It is not an everyday enquiry to be fair. Still can't find out if possible to offset compensation against 2007 tax - assuming that tax will have to be paid. As he had no income in 2007 it would solve the tax issue for him if this was allowed.
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Would the date of the compensation award or the cheque (?) payment not determine which tax year this money falls into as income?
 
Jano said:
Thanks, but I am confused now as I rang the tax office today to ask about the possibility of claiming against 2007 income for the compensation received in 2008 and explained the situation and that the injuries were minor so we knew tax would be payable etc. The 2 supervisors in the office both stated that the income was tax free and when I referred to the documentation given in the link from Clubman (thanks), that states that minor injuries are not tax exempt, they insisted I was wrong!!! When I pressed on about the fact they told me they know their job and not to worry but I still think tax has to be paid??!!! Can anyone help??? Last thing he wants/we want is a tax bill down the line when the money is gone on fees etc. Any advice???? Thanks
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My wife is in the exact same situation. She was in a car crash a couple of years ago - not her fault. Early in 2008 the case was settled out of court. Initially I thought the award was tax exempt - but from reading this and the revenue site now I think there may be tax due. I've spoken to 2 different people in revenue about it and both said there's no tax due! When you point out that this seems to be contradicting what is on their web site they advise to write/mail them. I'm going to mail them tonight about it - may also talk to a tax accountant about it.

Bogle
 
bogle said:
I've spoken to 2 different people in revenue about it and both said there's no tax due!
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With the best will in the world Revenue staff can and do give out incomplete or incorrect information from time to time. You need professional advice so this is a good idea:
may also talk to a tax accountant about it.
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ClubMan said:
With the best will in the world Revenue staff can and do give out incomplete or incorrect information...
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Not sure I agree with that Clubman! Two people both talk to revenue independently and probabaly to different officials as well and both are given seemingly contradictory information to what's on their website sounds a bit careless to me! Anyway I'm going to talk to a tax accountant first before contacting revenue in writing.

Bogle
 
Hi Guys,
I've been doing a bit of googling on this and it would appear to me that the revenue advice is correct after all on this. The personal injury compensation is treated as a capital gain ...

"Sums obtained by way of compensation or damages for any wrong or injury suffered
by an individual, e.g. physical injury, libel or slander (whether in respect of personal
or professional reputation) etc., not are chargeable to Capital Gains Tax."

This comes from the Taxes Consolidation Act 1997.
The document linked to by Clubman above relates to exemptions for income derived from personal injury compensation for example income derived from investing the award.

Please note that I am not a tax expert, advisor or accountant and the above is just my own personal understanding of the matter.

Bogle
 
bogle said:
Not sure I agree with that Clubman! Two people both talk to revenue independently and probabaly to different officials as well and both are given seemingly contradictory information to what's on their website
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How does that conflict with what I said about Revenue officials sometimes giving out incorrect or incomplete info?! :confused:
 
Decided to ring the Personal Injuries Assessment Board (PIAB) to see what their take is on the tax on compensation and they insist it is not taxable. However, if the money received is invested and earns a return, this is taxable except in certain cases which you can see when you re-read the information on revenue.ie:
"What compensation payments do not qualify for exemption?

The following compensation payments do not qualify for exemption:
  • Compensation payment received as a result of minor injuries
  • Compensation payment to an individual whose injury causes permanent incapacity but the incapacity is not total or does not prevent the individual from maintaining himself or herself."
They are talking about taxing the income arising from investment of the compensation, not the compensation itself it would seem. If you are permanently and totally incapacitated and can no longer maintain yourself you will not pay tax on the income arising from investing the compensation. Otherwise, you will pay tax this income! This was not clear when reading the revenue info without having spoken to PIAB first.
 
Jano said:
Decided to ring the Personal Injuries Assessment Board (PIAB) to see what their take is on the tax on compensation and they insist it is not taxable.
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I doubt that the PIAB are qualified to give authoritative tax advice! In my opinion you need professional advice from somebody qualified and authorised to give tax advice.
 
Given the confusion involved, I think it would be prudent to seek professional advice. Thanks for your help.
- Jano
 
Jano said:
Decided to ring the Personal Injuries Assessment Board (PIAB) to see what their take is on the tax on compensation and they insist it is not taxable. However, if the money received is invested and earns a return, this is taxable except in certain cases which you can see when you re-read the information on revenue.ie:
"What compensation payments do not qualify for exemption?

The following compensation payments do not qualify for exemption:
  • Compensation payment received as a result of minor injuries
  • Compensation payment to an individual whose injury causes permanent incapacity but the incapacity is not total or does not prevent the individual from maintaining himself or herself."
They are talking about taxing the income arising from investment of the compensation, not the compensation itself it would seem. If you are permanently and totally incapacitated and can no longer maintain yourself you will not pay tax on the income arising from investing the compensation. Otherwise, you will pay tax this income! This was not clear when reading the revenue info without having spoken to PIAB first.
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Jano that is my understanding of the matter as well. I think the award is regarded as a capital gain but no capital gains tax is due because its from "compensation or damages for any wrong or injury..."
 
Sorry to bring up an old thread but I was wondering if anyone received a definitive answer from revenue on whether personal injuries settlements are taxable?
I received a small settlement for personal injuries and my solicitor advised that it was not taxable. This was a factor in my decision to accept the settlement but from revenue it appears as if it may be taxable. The injuries were minor.
Thanks
Tommygirl
 
Just was looking through the info and to finish this topic.
According to InjuriesBoard.ie

Q26. Is the compensation awarded taxable?

A: No. Compensation awarded by InjuriesBoard.ie is not subject to Income Tax.
 
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