26 February 1999 External T.I. 9831975 - ICE STORM PAYMENTS

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 treatment of Ice Storm Assistance payments.

Position:

No immediate tax consequences for payments respecting personal losses.

Business assistance payments respecting current expenses netted against the expenses incurred or included in income and the expenses incurred deducted. Assistance in respect of capital expenditures applied to reduce the cost of the property.

Reasons:

53(2)(k) and 13(7.1) of the Act.

XXXXXXXXXX 983197

Wm. P. Guglich

Dear XXXXXXXXXX:

Re: Payments received from the Eastern Ontario Disaster Relief Fund

This is in reply to your letter of November 16, 1998, requesting our views as to the tax treatment of payments received from the Eastern Ontario Disaster Relief Fund.

Eligible costs for ice storm relief under the Ontario Disaster Relief Assistance Program include the restoration, repair, or replacement to pre-disaster condition of primary residences or garages, primary places of business, and farm buildings. Some examples of eligible costs include:

• generator expenses
• cleanup of property for safety reasons
• damage to essential furnishings (including television antennas and microwaves)
• damage to buildings
• lost business inventory
• farm equipment, livestock, orchard stock and dumped milk
• restoration of power on private properties in the storm area
• extreme financial hardship due to lost income.

Our Comments

Where a payment is in part of a personal nature and in part business related, the amount of the assistance received will be required to be allocated, on a reasonable basis, between the personal and business portion.

In general, disaster assistance payments made by a government, municipality or public authority to individuals in respect of personal expenses, as opposed to business expenses, would not be included in the recipient’s income for income tax purposes. Similarly, any costs incurred in respect of such personal expenses would not be tax deductible since they would constitute personal and living expenses.

Business Assistance

Assistance payments received from the Eastern Ontario Disaster Relief Fund for damaged business or rental property are ordinarily netted against the repair costs to that property or if it relates to the replacement of that property, it normally reduces the cost or capital cost of that property.

Similarly assistance payments received in respect of current expenses are ordinarily netted against the expenses incurred.

If you have a specific question concerning the income tax treatment of a particular payment please contact the Revenue Canada officers in your local tax services office.

We trust our comments will be of assistance to you.

Yours truly,

J. F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch