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Are Insurance Claims Taxable in Canada?

Jan 30, 2025 12:10:25 PM

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.

Tax-on-private-sale-vehicles-in-Canada-by-provinces

If your vehicle is written off after an insurance claim, is the money from the claim considered income?

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.

In the event of a covered loss on a primary or secondary home, is your home insurance claim payout taxable?

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.

Do-you-pay-tax-on-any-insurance-claims

A Note About Insurance Fraud

Just in case you need a quick refresher, here is a short note about what insurance fraud is and what the penalty is for committing insurance fraud. Insurance fraud is a broad-reaching charge that can include any of the following:

  • Misrepresenting the details of a robbery or vehicle collision
  • Filing an insurance claim for an accident or break-in that didn’t occur
  • Including pre-existing damage in an auto insurance claim
  • Claiming items that weren’t stolen or damaged, or inflating their value
  • Overstating injuries after an accident to receive more benefits
  • Overcharging an insurance company for home restoration work
  • Offering "free" treatment for an unrelated injury or unnecessary treatment after healing
  • Billing an insurance company for medical services that were not provided

The Criminal Code of Canada categorizes fraud into three levels: fraud under $5,000, fraud over $5,000, and fraud exceeding $1 million.

  • Insurance fraud under $5,000 can result in a maximum prison sentence of 2 years.
  • Insurance fraud over $5,000 can lead to a maximum prison sentence of 14 years.
  • Insurance fraud exceeding $1 million carries a minimum prison sentence of 2 years.
Jake McCoy

Written by Jake McCoy

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