Principal Issues: 1. Is government compensation to flood-affected businesses taxable?
Position: 1. Yes. Any amounts received are generally included under section 9 or specifically included under paragraph 12(1)(x) of the ITA.
Reasons: 1. The Act.
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Dear Colleague:
Thank you for your correspondence of March 4, 2013, about the taxability of government compensation received by flood-affected businesses of the Lake Manitoba region.
Under section 9 of the Income Tax Act, a business that received any government assistance in the year will generally include the amount in calculating its profit or loss from the business. To the extent that the amount was, for any reason, not taken into account, paragraph 12(1)(x) of the Act will apply to include the amount received in the year as income.
The Canada Revenue Agency administers and enforces the Act. The determination of whether government compensation given to businesses because of natural disasters is non-taxable is a question of tax policy. The Department of Finance Canada is responsible for developing tax policy. I am therefore sending a copy of our correspondence to the Honourable James M. Flaherty, Minister of Finance, for his consideration.
I trust the information I have provided and the referral are helpful.
Yours sincerely,
Gail Shea, P.C., M.P.
c.c.:The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
House of Commons
Ottawa ON K1A 0A6
Robert Dubis
(905) 721-5191
2013-048183