17 June 1997 Income Tax Severed Letter 9713642 - Communications' fact sheet — Manitoba flood

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.

SUMMARY: Communications' Fact Sheet—Manitoba Flood—ITA-12(1)(x), 9, 54, 44—Fact Sheet issued by Revenue Canada—Taxation of financial assistance to victims of the spring 1997 Manitoba flood.

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.

Taxation of Financial Assistance to Manitoba Flood Victims In the Spring of 1997, severe flooding devastated some regions in Southern Manitoba, including the area along the Red River Basin. When disaster strikes, the federal government provides financial assistance to provinces through the Disaster Financial Assistance Arrangements when the cost of dealing with the disaster would otherwise place an undue burden on the provincial economy.

Federal government assistance to the Manitoba flood victims includes: $25 million in an advance payment to the Government of Manitoba under the Disaster Financial Assistance Arrangements; accountable cash advances of up to $5,000 to businesspeople and farmers. Up to $25 million will be made available for this purpose under the ReStart Program, which is part of the Jobs and Economic Restoration Initiative; $1.25 million of youth funding for post-flood activities, notably to provide employment for about 500 young people. These funds are made available under the Government of Canada Youth Employment Strategy; and $10 per acre to help defray the costs of services needed to assist in seeding (custom seeding), and a total of $500,000 for logistical measures under the Crop Restoration Program.

Some flood victims may also have received support from their employers in the affected regions, and from Canadians across the country through the Red Cross and other voluntary organizations.

Assistance from the federal and provincial governments

In general, when victims of a disaster receive payments from the government for personal losses, these payments are not taxable. Normally, the following will apply:

Payments received from the governments to cover personal losses Not taxable

Payments received to cover the loss or damage to a personal residence No tax consequences

Payments received and spent for the replacement of destroyed rental or business properties No tax consequences

Payments received and spent for the repair of rental or business properties No tax consequences

Personal expenses Not deductible

Personal losses Not deductible

Assistance from employers

Usually, financial assistance that an employer gives to employees is a taxable benefit and must be reported as part of their income. Due to the extenuating circumstances of the flood, a tax remission order will eliminate federal tax on most payments made to flood victims by their employer. However, the payments must have been made under certain conditions:

- the assistance must be in addition to the employee's regular salary, paid even when the employee was unable to report to work because of the flood; - the assistance must be seen as reasonable under the circumstances; - the assistance must be based on an employer- employee relationship, and not because the employee holds shares in the business; - the employer must have granted the assistance on a voluntary basis; - the employer must have made the payment without regard for the employee's work performance, length of service, or any other work-related factor; - the employer cannot have granted financial assistance in exchange for past or future services; and - the employer cannot have used the amount of financial assistance to compensate the employee for the loss of employment income.

With the remission order, employees will not have to include the amount of any such assistance in their income when they file their 1997 income tax return.

Employers are not required to withhold taxes on these payments. Employers who give financial assistance to their employees will be allowed to deduct those payments as business expenses when they file their income tax returns.

Employers are asked to submit a list showing the name, address, and social insurance number of each employee who received financial assistance, and the amount of each payment. Employers should send the list and an explanatory note to:

Winnipeg Tax Services Office 325 Broadway Winnipeg MB R3C 4T4

Employees should note that they do not have to report these payments on their income tax returns. Therefore, the information will not appear on the T4 slips.

For more information

Anyone wishing more information about the tax consequences of the financial assistance they received can call Revenue Canada officers at the following tax offices:

Winnipeg: (204) 983-6350 (service in English) (204) 983-6188 (service in French)

Anywhere in Manitoba, toll-free: 1-800-959-8281 (service in English) 1-800-959-7383 (service in French)