23 June 1998 Internal T.I. 9811327 - GOVET ASST FOR PERSONAL LOSS ON DISASTER

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: whether the Rev Can Fact Sheet on the tax consequences of the Saugenay Flood apply to other government assistance provided as a result of a natural disaster

Position: yes but care should be taken in interpreting the Fact Sheet

Reasons: while government compensation personal losses is generally not taxable and there is generally no income inclusion as a result of government compensation for business or property losses, the compensation will generally be netted against the cost of repairs

								June 23, 1998

	Vancouver Island Tax Services Office	HEADQUARTERS
	Client Services					A. Humenuk

	Attention: Nadine Smith
								981132

Disaster Financial Assistance Program of British Columbia

This is in response to your memorandum of April 29, 1998, concerning the tax consequences of payments made under the Disaster Financial Assistance Program of British Columbia (the Program).

Generally, the Program helps disaster victims cope with the cost of repairs for disaster related property damage. Under the Program, payments are made to assist homeowners, renters, owners of small businesses and farms, charitable and non-profit organizations and municipal governments with costs incurred as a result of a natural disaster. Within the limits set out in the Program, assistance is provided in respect of the cost of alternative accommodation during an emergency and the cost of restoring items and property to their immediate pre-disaster condition. Damage to recreational property, luxury goods, land and items for which insurance was reasonably and readily available is not covered by the Program.

XXXXXXXXXX

You asked whether the information contained in that Fact Sheet is applicable to assistance received under the Program and if not, how the payments made under the Program are treated for income tax purposes.

The comments in the Fact Sheet apply specifically to assistance provided as a result of the Saguenay Flood and thus, may not necessarily be applicable to payments received in other situations. However, to the extent that government assistance is received in similar circumstances, the tax consequences will generally be the same as that described in the Fact Sheet. We suggest that caution be exercised in applying the information provided in the Fact Sheet, since the tax consequences of a particular payment will always depend on the circumstances under which the payments is made.

Generally, payments received by an individual from a government for personal losses and expenses incurred as a result of a disaster, including payments for temporary housing and meals during the disaster, do not have to be included in income for tax purposes. As well, government compensation received for loss or damage to a personal residence as well as money spent for the repair of rental or business property, does not ordinarily result in any immediate tax consequences.

Government assistance received in respect of repairs to capital property is ordinarily netted against the cost of the repairs made. However, the amount of government assistance in excess of the cost of the repairs, if any, would be required to be included in computing income from that business or property under paragraph 12(1)(x) of the Act. From the description of amounts payable under the Program however, the government assistance will not exceed the cost of repairs so there should be no reason to include an amount in income under paragraph 12(1)(x) of the Act.

In summary, while government assistance paid as a result of a natural disaster does not normally result in an income inclusion to the recipient, an analysis of the provisions of the Act is required to determine whether the assistance should be netted against expenses incurred to repair the damage.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.

J.F. Oulton, CA
Manager
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch