COURT CASES on TAX GROSS UP
When a Plaintiff is involved in a motor vehicle accident, and is awarded damages for future care, they will invariably invest the money, and draw from it from time to time. However, when this is done, they will be taxed on the amount taken out. The Courts have recognized this, and award what is known as “tax gross up” damages to help offset negative tax consequences.
In Sartori v Gates, the British Columbia Court of Appeal commented on this area of law. The Plaintiff had asked for $10,000, and the ICBC lawyer had suggested that $3,000 would be more appropriate.
 Accordingly, it is not correct to say that courts are not inclined to give plaintiffs the benefit of these potential investments, nor is it correct to say that it is inappropriate to penalize them by taking into consideration the tax benefits of a tax free savings account.
 In result, I find the tax free savings account benefits to be a lawful consideration in defining the tax gross up amount. That said, however, Townsend is also authority (among many, many others) for the principle that, “compensation aims at restoring the victim to the position that person would have been in had no loss been incurred”.
 A cost of future care award is founded on the theory that the tortfeasor must provide a fund from which the victim may draw to meet future expenses as they occur. It is a presumption of law that the fund will be invested and will earn income. According to the theory, as I understand it, the fund and its income, is a separate stand-alone phenomenon. It appears to me that Mr. Szekely has treated it as such in his analysis. Therefore, the tax benefits available to the plaintiff, by virtue of a tax free savings account, are exhausted in this separate stand-alone account.
 Finally, the fund available to meet the plaintiff’s costs of future care is $41,333.33. I find it is more probable than not that the income to be earned from the investment of this fund will be interest income. Therefore, I make no allocation for capital gain or dividend income and assess the tax gross up at $10,025.