5 July 2023 External T.I. 2023-0969491E5 - Disaster relief to make homes habitable - T5007

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.

Principal Issues: Whether assistance to low income individuals in the form of multiple payments to suppliers and contractors to rebuild the individuals' homes after a disaster, would be considered to be social assistance payments, to be included in the recipients' income and reported on a T5007.

Position: No.

Reasons: The CRA's longstanding administrative position whereby disaster relief payments to individuals and compensation for loss of, or damage to a personal residence do not ordinarily result in any income tax consequences to the individual.

XXXXXXXXXX								2023-096949
R. El-Kadi

July 5, 2023

Dear XXXXXXXXXX:

Re: Disaster relief versus social assistance

We are writing in response to your email of March 31, 2023, in which you ask whether your charitable organization (the Organization) should consider the type of assistance it provides to homeowners with minimal financial resources to be social assistance that needs to be reported on a T5007, Statement of Benefits (a T5007).

More specifically, you state that the assistance in question takes the form of repairing homes that have been damaged by floods, fires, hurricanes or other disasters, where home insurance and provincial disaster relief are not sufficient to reasonably recover the use of a survivor’s home. Where some insurance or provincial relief funds are available to homeowners, the latter would make them available to the Organization to offset the costs associated with recovering the use of their home. You also indicate that the assistance from the Organization includes using the services of volunteers, purchasing building materials and paying tradespeople to repair damaged homes and make them habitable after a disaster. Based on your analysis and the information available on the Canada Revenue Agency (CRA) webpage regarding disaster relief, you ask us if we agree with your interpretation that the assistance the Organization provides, as described above, is not social assistance, but rather part of a disaster relief program. Therefore, you are of the view that a T5007 does not need to be issued to homeowners who benefit from that assistance.

Our comments:

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Generally speaking, an amount is included in a taxpayer’s income under the Act if it constitutes income from a source or if a specific provision of the Act applies to the type of payment. If the income does not fall within one of these sources of income, it is generally not included in the taxpayer’s income for income tax purposes.

Paragraph 56(1)(u) of the Act includes in the income of a taxpayer a social assistance payment that is made on the basis of a means, needs or income test and that is received by the taxpayer, to the extent that the payment is not otherwise required to be included in computing the income of the taxpayer or the taxpayer’s spouse or common-law partner.

The jurisprudence has considered the meaning of “receive” to mean “to get or to derive benefit from something, to enjoy its advantages without necessarily having it in one’s hands.” This being said, the question as to whether amounts received by an individual need to be included in their income depends on the nature and purpose of the payments and the facts of the situation.

It is the CRA’s position that payments to an individual from a charity for disaster relief, that are made in a personal capacity, for philanthropic reasons, would not generally be included in the recipient’s income for income tax purposes. Namely, compensation for loss of, or damage to one’s personal residence does not ordinarily result in any income tax consequences to the individual. Such payments or compensation from a charitable organization are akin to payments for disaster relief made by a government, municipality or public authority.

In the present case, homeowners would be technically considered to have received the payments that the Organization made directly to suppliers and tradespersons, to have their homes repaired. While a series of payments to low-income individuals to repair or renovate their home would ordinarily be included in their income as social assistance payments, the nature and purpose of the assistance provided by the Organization to homeowners in the present case seems to be fundamentally different. In our view, the assistance in question should be treated in the same manner as other programs designed to provide assistance for personal losses due to natural disasters or other catastrophic events. In other words, we share your view that assistance to repair an individual’s home / principal residence to make it habitable after a disaster would not constitute social assistance as this term is contemplated under paragraph 56(1)(u) of the Act. This would be the case even if homeowners who received assistance for personal losses were selected based on their financial need. Therefore, the Organization in this case does not need to issue a T5007 to homeowners, and they, in turn, would not have to include the payments in their income.

For situations that do not involve disaster relief, we would like to confirm that the requirement to file a T5007 information return, as referred to in Chapter 2 of the T4115, T5007 Guide – Return of Benefits, applies regardless of whether social assistance is paid by a government body or another organization such as a charity. Namely, where an organization concludes that it has made social assistance payments to an individual on the basis of a means, needs or income test, subsection 233(1) of the Income Tax Regulations (the Regulations) requires that organization to report the payments on a T5007, unless the payment is specifically excluded from this reporting requirement under subsection 233(2) of the Regulations (see Chapter 4 of the Guide for exclusions).

We trust that these comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch