| July 4, 1990 | |
| SASKATOON DISTRICT OFFICE | Head Office |
| Enquiries and Office Exam | Rulings Directorate |
| Roberta Albert | |
| Donna Cheesman | 957-2098 |
| 5-9753 |
SUBJECT: Disaster Relief Fund
We are writing in reply to your round trip memorandum of March 12, 1990 whereby you referred taxpayer correspondence to us concerning payments received during 1989 from the above-noted fund and requested that we provide you with a copy of our response. The taxpayer requested assistance in allocating proceeds from this fund between business and personal items. As discussed on June 4, 1990, (Albert/Cheesman), our Directorate generally respects a District Office's determination on such questions of fact.
However, we are prepared to provide the following general comments which may assist you in your determination.
The relevant facts as we understand them:
1) 24(1)
2)
Our comments
In general, payments made by the provinces to victims of a disaster in respect of personal losses, as opposed to businesses losses, would not be included in the recipient's income for income tax purposes. Similarly, any costs incurred in respect of such personal losses would not be tax deductible since they would constitute personal or living expenses. However, based on an understanding that such assistance is paid pursuant to an order-in-council, paragraph 4 of Interpretation Bulletin IT-182 provides that any amounts paid to businesses, including self-employed individuals and farmers, would, to the extent that they represent reimbursements of expenses or costs incurred as a result of the disaster, either be included in the recipient's income or treated as proceeds of disposition depending on whether the expenditure reimbursed was of a current or capital nature. This treatment is not unreasonable since it will generally preserve the neutrality of the taxpayer's tax situation as any costs incurred by the taxpayer which are being reimbursed would be tax deductible or would be added to the cost of its capital assets. Such treatment is also comparable with the tax treatment accorded to insurance proceeds relating to items which are insurable.
With respect to the need to allocate government assistance because the cheques do not include a breakdown of expenditures covered, we suggest that the amounts be allocated as is considered reasonable having regard to all the circumstances.
We trust that our comments will be of assistance.
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch