Tax on compensation

Some of our members receive compensation in the form of a one-off payment of accident, illness or disability insurance in the event of injury, illness or other variations that do not naturally fall under the statutory term illness or injury, but which are nevertheless considered medically demanding.

Is the compensation taxable?

There are favorable tax rules for children and young people who, due to personal injury, have received payment from compensation or insurance.

If children and young people under the age of 22 receive a one-off payment due to accident, illness or disability insurance in the event of injury, illness or blemish, the payment is exempt from wealth tax.

It is important to note that in the case of compensation for damages, it is required that the compensation is measured according to the principles in the Damages Compensation Act, Chapter 3 or the Occupational Injury Insurance Act. In the case of personal injury to the child, there is no longer a requirement for how much the child's earning capacity has been reduced.

The wealth tax exemption applies up to and including the income year in which the child/young person turns 21.

The exemption from wealth tax applies regardless of how the amount is placed, for example in bank deposits, annuity insurance, property, car etc. There must be a sufficient connection between the insurance/compensation amount and the location of the amount. The tax exemption is limited to the original insurance/reimbursement amount, or to the part of the original amount that was retained at the end of the income year.

If the child is under 17 years of age

Income and assets of children under the age of 17 are normally taxed together with their parents.

Assets and return on the compensation amount or the insurance amount can still be determined separately for the child if this results in lower tax than if the amount is taxed by the parents. Separate determination of the interest income ensures that the child receives his own personal allowance when the income is determined. If accumulated interest from previous years has led to wealth, this is not covered by the wealth tax exemption. Such wealth can be determined separately for the child, who then receives his own free amount when determining wealth tax. The tax authorities will then make the most favorable calculation. The tax must be shown in the parents' tax settlement and the child must therefore not submit a separate tax return relating to the compensation/insurance payment.

The tax return - what do you have to do?

From and including 2022, the tax return will be pre-filled with information about one-off compensation for children. The information can be found under the topic "Other conditions". You must check the information, and add information about the amount of compensation received if it has not been filled in beforehand.

In order for your tax to be correct, you must attach an attachment showing which amounts in the tax return come from the compensation/insurance amount.

Example:

The amount placed in the bank, state the bank's name and account number.
If the amount is placed in property, state the farm and utility number and any share of ownership.

NB! You must not delete these amounts from the tax return.