Understanding the Real Value of a Settlement: What’s Deducted and What’s Tax-Free?

July 15, 2025, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

When you settle a personal injury claim in Ontario, it’s natural to wonder: how much money will I actually take home? Understanding how settlements are calculated, what deductions apply, and which amounts are tax-free can help you make informed decisions.

At Deutschmann de Koning Personal Injury Law, we guide injured Ontarians through the settlement process to maximize their compensation and avoid surprises.

The Role of Deductibles in Ontario Auto Injury Claims

In motor vehicle accident claims, Ontario’s deductible rules under the Statutory Accident Benefits Schedule (SABS) mean certain benefits may be reduced by amounts paid by other insurers or government programs.

For example:

• Income replacement benefits can be reduced by other disability payments
• Medical and rehabilitation benefits may be partially offset by third-party coverage

This can affect the total amount you receive from your insurer, so understanding the rules is key.

What Compensation Is Tax-Free?

Generally, in Ontario, personal injury settlements for pain and suffering (general damages) are tax-free. Similarly, compensation for lost income due to injury is not taxable if it replaces income lost because of your injury.

However, some specific benefits—like interest earned on settlements—may be taxable. It’s important to work with a lawyer who can help structure settlements to protect your interests.

Why It’s Important to Get Legal Advice Before Settling

Insurance companies may offer settlements that don’t fully account for future medical needs or lost income. Without expert legal advice, injured people risk accepting less than they deserve.

Our personal injury lawyers carefully evaluate your claim’s true value by considering:

• Past and future medical expenses
• Long-term care or therapy costs
• Loss of earnings and diminished earning capacity
• Non-economic damages like pain and suffering

This ensures your settlement adequately reflects your injury’s impact.

If you’re considering settling your personal injury claim in Ontario, talk to Deutschmann de Koning Law first. Visit ddinjurylaw.com for a free consultation to learn your rights and options.

About Deutschmann de Koning Law

Deutschmann de Koning Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann and Nick de Koning focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.ddinjurylaw.com or call us at 1-519-742-7774.