19 August 1996 Internal T.I. 9627606 - TAX CONSEQUENCES OF QUEBEC FLOOD RELIEF PROGRAM

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:

Tax consequences of amounts received under the government flood relief program for various regions of Quebec.

Position TAKEN:

Generally, such amounts will be non-taxable; however, in certain instances there may result taxable events.

Reasons FOR POSITION TAKEN:

Generally, amounts will be non-taxable as a result of the principal residence exemption, the replacement property rules or because they have been received to cover personal losses (i.e., temporary accommodations, meals etc.). or for personal-use property. In certain instances, taxable events may result (i.e, capital gains, recapture or business income) where business property, rental property or inventory is involved.

GOVERNMENT FLOOD RELIEF PROGRAM

Description

1.Humanitarian aid for persons having evacuated for more than 14 days.

Temporary lodging: $10/day for 1st person + $5/day/additional person.

2.a)Principal Residence-Single family dwelling.

-Lost: based on 100% of municipal valuation
-Damaged: based on 100% of value of damages

b)Principal residence in a rental property of 3 units or less.

-Lost: based on 100% of municipal valuation
-Damaged: based on 100% of value of damages

Principal residence part

Rental residence partMaximum
Assistance

1. $2,500/household
100 days

2.a) 100% of 1st $100,000
+ 75% of excess

2.b) 100% of 1st $100,000
+ 75% of excess

Tax Consequences
Lost (Destroyed) Property

1. Not taxable (and nothing deductible).

Not taxable (and nothing deductible).

2.a)	Proceeds of disposition (POD), 
par.  54(c); 
	generally no gain:
1) Principal residence exemption (IT- 120R4), or
2) Replacement property (IT-259R2).
		-Special rules if residence partly 
		used for business purposes.
		-See Capital Gains Guide.
		-Loss not deductible.

2.b)-Prorate POD and ACB between

residence and rental part.

-See 2a) above.

-See 4 below.

Tax Consequences
Damaged Property

1. Not taxable (and nothing deductible).

Not taxable (and nothing deductible).

2.a) -If repaired, netted against cost

of repairs (no tax implications).

-If not repaired, POD par. 54(f) -
see treatment for "Lost (Destroyed)

Property" (except no replacement property).

2.b) -Prorate POD and ACB between residence

and rental part.

-See 2a) above.

-See 4 below.

Description

c) Principal residence in a rental

property of more than 3 units.

Principal residence part
-Lost: based on 100% of
municipal valuation for
residence part
-Damaged: based on 100%
of value of damages

Rental part
-Lost: based on 100% of
municipal valuation for rental
part
-Damaged: based on 100% of

value of damages.

3. Furniture and contents
-Lost (owner/renter)

-Damaged (owner/renter)

-Boarder

Maximum
Assistance

c) 100% of 1st $100,000
+ 75% of excess

100% of 1st $100,000
+ 75% of excess

3. $15,000 for 1st occupant
+ $1,000/additional person

Value of damages; but
limited to same max. as lost

property above.

$1,500

Tax Consequences
Lost (Destroyed) Property

c) -Prorate ACB between residence

and rental part.

-See 2a) above.

-See 4 below.

3. -POD par. 54(c).

-Personal-use property

(IT-332R).

-Generally no gain as a
result of rules applicable

to this type of property.

-See Capital Gains Guide.

Tax Consequences
Damaged Property

c) -Prorate ACB between residence

and rental part.

-See 2a) above.

-See 4 below.

3. -If repaired, netted against

cost of repairs (no tax implications).

-If not repaired, POD par. 54(f)
- see treatment for "Lost (Destroyed)

Property".

Description

4. Rental property of more than

3 units (owner live elsewhere).

-Lost: based on 100% of municipal valuation
-Damaged: based on 100% of value of damages

Maximum
Assistance

4. 100% of 1st $100,000
+ 75% of excess

Tax Consequences
Lost (Destroyed) Property

4. -POD par. 54(c).

-Generally no capital gain
or recapture if replacement
property acquired and section 44

and subsection 13(4) apply (IT-259R2).

-Allocate POD between land and building.

-Special rules for allocation between

land and building-subsection 13(21.1) (IT-220R2).

-Possibility of terminal loss on building and

capital loss on land.

-See Capital Gains Guide.

-See Rental Income Guide.

Tax Consequences
Damaged Property

4. -If repaired, par. 12(1)(f) includes

in income. Expenses to repair are deductible.

-If not repaired, POD par. 54(f)-see treatment
for "Lost (Destroyed) Property" (except no

replacement property).

Description

5. Business property (certain businesses).

a) Building
-Lost: based on 100% of municipal
valuation
-Damaged: based on 100% of value
of damages

b) Other assets

Inventory

Other depreciable property

Maximum
Assistance

5a) 100% of 1st $100,000
+75% of excess

5b) $25,000 + 75% of excess;
but limited to value in last
tax balance sheet

Tax Consequences
Lost (Destroyed) Property

a) -POD, par. 54(c)

-See 4 above.

-See Business and Professional

Income Guide.

b) Inventory -Income inclusion.
			-Deduction for destroyed 
			 inventory.

Other, etc.-POD, par. 54(c).
			-Allocate proceeds to the 
			different classes
			-See replacement property 
			rules (IT-259R2).
			-Terminal loss possible.
			-See Capital Gains Guide.
			-See Business and Professional 
			Income Guide.

Tax Consequences
Damaged Property

5a) -See 4 above.

-If property not repaired, see also possible
application of section 44 and subsection 13(4).

b) Inventory -See comments under

"Lost (Destroyed) Property".

Other, etc. - If repaired, par. 12(1)(f)

includes in income. Expenses to repair are deductible.

- If not repaired,-see treatment for
"Lost (Destroyed) Property"

Financial Assistance from some Employers

Description

Some employers want to financially assist
their employees who were victims of the

flood. This humanitarian aid could help

those employees recover some of the losses
for which they will not receive any other

financial assistance.

Tax Consequences

-generally, the value of the gift received by an employee should be included in the employee's income, in accordance with subsection 5(1) and paragraph 6(1)(a) of the Act.

-a Remission Order will eliminate the tax consequences arising from a gift received by an employee from eligible employer arrangements.

-contract Victor Girard, (418) 698-5560, at the Chicoutimi tax services office.

This document deals with financial assistance to individuals for their principal residence, owners of rental properties and certain business owners. The comments take into account any information we received up to August 7, 1996. This document also deals with financial assistance that some employers may provide. Other measures may exist which could have additional tax consequences.

These are general comments and some specific situations could have different consequences. For further information on the tax consequences of the financial assistance programs, please contact the Income Tax Rulings and Interpretations Directorate at (613) 957-8953.