What is the impact of tax on a lump sum award for future care?

Tax gross-up is well described by McLachlin J. (as she then was) in the unanimous decision in Watkins v. Olafson, 1989 CanLII 36 (SCC), [1989] 2 S.C.R. 750 at 764-65: [T]he impact of taxation on a lump sum award for cost of future care is highly significant. The sum is predicated on the assumption that the currently unused portion of the fund will be invested and earn income, for which a discount is made. That income will attract tax.... If no allowance is made for this tax, the judgment will prove insufficient to provide the care required for the predicted lifespan of the plaintiff. The theory of ‘grossing-up’ is that there should be an additional sum awarded to compensate for the tax that will accrue on the interest portion of the award. [emphasis added]