Is payment under compulsory motor liability insurance taxable?
To answer this question, we need to be clear about what we mean by the word “payment.” After all, the insurer can pay not only insurance compensation. As of 2021, the following items of money received from an insurance company may be:
- directly the payment received in the form of MTPL insurance compensation for the restoration of the car - looking ahead, we point out that only this is not subject to income tax,
- penalty for refusal or delay in compensation,
- financial sanction in the form of a fine in favor of the plaintiff (victim of the accident),
- compensation for various damages (moral damage, legal costs, etc.).
In accordance with paragraph 1 of Article 213 of the Tax Code of the Russian Federation:
when determining the tax base, income received by the taxpayer in the form of insurance payments is taken into account, with the exception of payments received: under compulsory insurance contracts carried out in the manner established by the legislation of the Russian Federation;
Thus, the insurance payment itself (direct compensation for damage) under compulsory motor liability insurance is not taxed. And even if you receive a letter from the insurance company reminding you of the need to pay, you can safely ignore it in cases where only the payment for the main compensation was made.
And this is quite logical, because in fact this is not the profit of the victim - this is the amount of money that he will spend on repairing his car (or health).
TCB
Loss of market value is included in the insurance compensation, so this part of the payment is also not subject to personal income tax deduction from the driver.
Penalty
In accordance with paragraph 21 of Article 12 of the Law on Compulsory Motor Liability Insurance, the insurer, in case of violation of its obligations, pays the victim a penalty and a financial sanction. In total they cannot exceed 400,000 rubles.
But penalties and financial sanctions are not included in the insurance payment, since they are a measure of the insurer’s liability for failure to fulfill obligations. And since this is not an insurance payment, it means, in accordance with the Tax Code, it is subject to taxation as income.
Fine
In accordance with clause 3 of Article 16.1 of the Law on Compulsory Motor Liability Insurance, if the insurance company does not voluntarily pay the insurance compensation, the court will collect a fine from it in favor of the victim (plaintiff). The fact that this amount will be awarded by the court does not exclude it from the tax base, and the victim will also have to pay tax on it.
Additional expenses associated with an accident
If harm is caused in an accident, not only restoration costs are subject to compensation, but also other expenses, the most common of which are:
- expenses for evacuation of a vehicle from the scene of a traffic accident,
- storing a damaged vehicle in a paid parking lot,
- delivery of the victim to a medical facility and others.
They are caused by the occurrence of an insured event and are part of the insurance compensation, therefore they will not be taxed.
As a general rule, insurance compensation and (or) security upon the occurrence of an insured event, received from a Belarusian insurance organization or from a foreign organization in connection with its activities through a permanent representative office in Belarus, are subject to income tax (subclause 1.2, clause 1, article 154 of the Tax Code ).
However, this rule does not apply to:
1) compulsory insurance carried out in the manner established by law (subclause 1.1.1, clause 1, article 158 of the Tax Code).
Situation 1. Benefit paid for an insured event at the expense of Belgosstrakh funds
An employee of a construction organization suffered a work injury in July 2021. In relation to him, the organization entered into a compulsory insurance agreement against industrial accidents and occupational diseases.
A temporary disability benefit assigned in connection with an industrial accident is an insurance payment from the funds of compulsory insurance against industrial accidents and occupational diseases upon the occurrence of an insured event, which recognizes the fact of damage to the health of the insured as a result of an industrial accident or occupational disease, confirmed in the manner prescribed by law (subclause 292.2, clause 292 of the Regulations on Insurance Activities*).
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*Regulations on insurance activities in the Republic of Belarus, approved by Decree of the President of the Republic of Belarus dated August 25, 2006 No. 530 (hereinafter referred to as the Regulations on insurance activities).
Such benefits are not included in the tax base when calculating income tax;
2) voluntary insurance against accidents and illnesses for the duration of a trip abroad, voluntary long-term (for a period of at least 3 years) life insurance, voluntary long-term (for a period of at least 3 years) insurance of additional pensions, as well as under voluntary insurance contracts for medical expenses (if such contracts are concluded for a period of at least 1 year) (subclause 1.1.3 clause 1 of article 158 of the Tax Code);
3) insurance contracts concluded outside of Belarus and providing for insurance payments in compensation for damage caused to the life, health or property of an individual, which were received by the injured person and (or) persons who are in a relationship with him in a close relationship or relationship, guardian, trustee and ward (subclause 1.1.4 clause 1 of article 158 of the Tax Code).
Situation 2. A voluntary insurance contract is concluded with a non-resident
In January 2021, a Belarusian organization entered into an agreement with its employee on the use of his personal car for business purposes. In connection with regular business trips to the Republic of Lithuania, the Belarusian organization in the same month entered into a voluntary insurance agreement for a car belonging to this employee with a Lithuanian insurance company (registered in the Republic of Lithuania and does not operate in Belarus through a permanent establishment). The beneficiary under this agreement is an employee of a Belarusian organization. In June 2021, in connection with the occurrence of an insured event (an accident with damage to a car), under the terms of a concluded voluntary insurance agreement, a Lithuanian insurance company transferred an insurance payment to an individual.
Taking into account the fact that the insurance payment was made to compensate for damage caused to the property of an individual, it is not his income subject to income tax.
For reference: in a similar situation, but in relation to 2021, the specified insurance payment would be subject to income tax in the manner provided for in Art. 178 of the Tax Code, since as amended by sub. 1.1.4 clause 1 art. 158 of the Tax Code, effective in 2021, such insurance payments were not included in the tax base if they were made to compensate for harm caused only to the life or health of an individual;
4) voluntary insurance of liability for harm (in the event of harm to the life, health or property of an individual by a person whose liability is insured) (subclause 1.1.5, clause 1, article 158 of the Tax Code).
Situation 3. Contract of compulsory insurance of civil liability of vehicle owners and contract of voluntary insurance of civil liability
In April 2021, as a result of an accident due to the fault of the driver of a transport organization's car, an individual's car was damaged.
In the same month, the insurer of the culprit of the accident, in accordance with the contract of compulsory insurance of civil liability of vehicle owners, drew up a report confirming the occurrence of an insured event and determined the amount of damage in the amount of 2,320 rubles. The insurer of the person responsible for the accident compensated the individual for the damage caused to the car in May 2021.
A third party repaired a damaged passenger car in May 2021. The actual costs for its repair amounted to 2,700 rubles.
Due to the fact that the amount of insurance compensation did not fully cover the cost of restoring the car, an individual submitted a claim to the culprit of the accident (organization) in June 2021 for compensation of this difference in the amount of 380 rubles. (2,700 – 2,320).
Taking into account the requirements of Art. 941 of the Civil Code of the Republic of Belarus (hereinafter referred to as the Civil Code), the claim was satisfied by payment by the insurer of the culprit of the accident to the individual of insurance compensation in accordance with the contract of voluntary insurance of civil liability, the object of insurance under which is the property interests of the insured associated with liability for obligations arising from him as a result causing harm to third parties in connection with their professional activities.
Insurance compensation paid to an individual both in accordance with a compulsory civil liability insurance contract for vehicle owners and a voluntary civil liability insurance contract is not subject to income tax (subclause 1.1.1 and, accordingly, 1.1.5 clause 1 of Article 158 of the Tax Code) .
For reference: a legal entity that has insured its liability through voluntary or compulsory insurance in favor of the victim, in the case where the insurance compensation is not enough to fully compensate for the damage caused, compensates the difference between the insurance compensation and the actual amount of damage (Article 941 of the Civil Code).
I received a letter from the insurance company - what should I do?
Here you need to clearly distinguish from whom such a letter came - from the tax office or an insurance company. The fact is that in the vast majority of cases it is the insurer who sends it. And in this case, it has the status of only a notification - a reminder as a gesture of goodwill from the insurance organization.
To pay or not to pay – in any case, it’s up to you to decide.
How much to pay?
The exact tax amount will depend on the amount received, but the tax rate will be the same for everyone.
The tax rate is established by Article 224 of the Tax Code of the Russian Federation and is equal to 13%.
You can calculate the maximum tax amount. To do this, let’s take the maximum payout amounts as an example.
Let’s say that an insurance compensation in the amount of 400,000 rubles was collected from the insurer through the court, a fine of 200,000 rubles was awarded, and, to the maximum, penalties and financial sanctions - that’s another 400,000 rubles.
It turns out that tax will have to be paid on 600,000 rubles, and 13% of this amount will be 78,000 rubles. 13% does not apply to insurance compensation under compulsory motor liability insurance, as we found out above.
A simpler example: the insurer paid the owner of the car 50,000 rubles, which included the following amounts:
- 42,000 – for restoration repairs under OSAGO,
- 4,000 – for evacuation and parking,
- 2,000 – for harm to health,
- 2,000 – TCB payment.
In this case, none of these amounts are subject to income tax, since they all constitute the bulk of the insurance compensation. Thus, it is possible to avoid paying fees in the absence of penalties and fines almost 100%.
What is personal income tax charged and what is exempt from tax?
The controversial issue of collecting taxes from insurance payments compulsory motor liability insurance implies an exemption from paying tax on compensation for material damage, but leaves some payments from which the citizen who received the income must transfer tax to the budget:
- by law, individuals are exempt from paying personal income tax on income paid under compulsory motor insurance policies, compulsory medical insurance, voluntary personal and pension insurance, according to which payments are provided in the event of death, injury to health and reimbursement of medical expenses (except for covering the price of sanatorium and resort vouchers);
- fines when paid by the insurance company in favor of the policyholder are subject to taxation;
- penalties for late payment of taxes are specified in the Tax Code of the Russian Federation and their value is 20-40 percent of the amount of unaccrued tax. It is also possible to incur criminal liability for such an offence;
- Monetary compensation for moral damage is not recognized as an individual’s income and no tax is charged.
We invite you to familiarize yourself with: Personal income tax
Provided that the insurance payment covers the loss incurred as a result of an accident caused to the vehicle or the health of the victim, personal income tax is not charged on such compensation. That is, if the payment is only enough to compensate for losses, it is not considered income. If an individual spends the compensation for other purposes or, after restoration repairs, part of the funds from the insurance company remains, this is considered profit, on which it is necessary to pay 13% tax.
Where to pay - to the insurance or tax office?
If you have to pay tax, it should only be done to the tax office. But there are certain subtleties in this issue.
If the insurance company voluntarily pays you a penalty and financial sanction, which, in truth, happens extremely rarely, then, in accordance with Article 226 of the Tax Code of the Russian Federation, it must, as a tax agent, independently withhold and transfer the amount of tax to the budget of the Russian Federation.
Most often, these amounts are still recovered from insurers through the courts. Then the tax on the income received will have to be paid by the victim himself. And also perform a number of actions related to this, for example, filing a tax return.
Answer
Since insurance premiums for the insured person are paid by the employing organization, insurance payments under the contract will be subject to personal income tax. The tax agent will be the organization paying the insurance payment to the individual, i.e., the insurance company.
Since payment under an insurance contract does not occur within the framework of an employment contract or a civil contract for the performance of work or provision of services, this payment is not subject to insurance premiums.
I received a letter with taxes - can I not pay and what are the consequences?
You can always not pay, but you must understand that this will be a tax offense for which liability is provided. The amount of the penalty will depend on whether you filed a tax return or not, and can be up to 30-40% of the tax amount. But paying a fine does not relieve you from the obligation to pay the tax itself, so possible “losses” must be summed up.
The deadline for filing a tax return is set until April 30 of the following year, and the tax on this return must be paid no later than July 15. If you miss these deadlines, but still decide to pay the tax, the main thing is to do it before the tax authorities discover the non-payment, then you can avoid a fine.
This topic is becoming more and more relevant, because in a situation where there is less and less money in the treasury, they remember all the debtors of the state.
