1 March 1999 External T.I. 9833305 - DISASTER FINANCIAL 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 Government Disaster Financial Payments.

Position: Payments in respect of capital expenditures applied to reduce the capital cost of the property. Payments in respect of current expenses netted against expenses incurred, or included in income and the expenses incurred deducted.

Payments re personal expenses not subject to any immediate tax consequences and the expenses are not deductible.

Reasons: Paragraph 53(2)(k) & subsection 13(7.1).

Mr. Dave Neville
Chief
Financial Assistance Programs		983330
Emergency Preparedness Canada		Wm. P. Guglich
Jackson Building
122 Bank Street
Ottawa, Ontario
K1A 0W6

March 1, 1999

Dear Mr. Neville:

Re: Tax Treatment of Disaster Financial Payments by a Province

Your letter of November 6, 1998, to our Security Directorate, wherein you inquire about the tax treatment of disaster financial payments made to individuals and businesses, has been referred to us for a reply.

Under the system of disaster financial assistance in place in Canada, the provincial government usually designs, develops and delivers disaster financial assistance to victims of emergencies and disasters. In the event of a large scale disaster in Canada, the federal government can also provide financial assistance to the provinces through the Disaster Financial Assistance Arrangements (“DFFA”).

The type of eligible costs that may be reimbursed to individuals under the DFFA include:

• restoration, replacement, or repairs to principal residences
• restoration, replacement or repairs to essential furnishings, appliances and clothing
• assistance in the restoration of small businesses and farmsteads, including buildings, stock and equipment
• costs of damage inspection, appraisal and clean-up.
• Our Comments

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. Where a disaster 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.

Government assistance payments received for damaged business or rental property are ordinarily netted against the repair costs to that property, or if they relate to the replacement of that damaged property, reduce the cost or capital cost of that property.

Similarly assistance payments received in respect of current business expenses are ordinarily netted against the expenses incurred. Alternatively, assistance in respect of current business expenses may be included in income with a corresponding deduction for the expenses incurred.

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

c.c. Jocelyn Malo
Director
Security Directorate
12th Floor
Albion Towers