DISASTER RELIEF PAYMENTS: What Is the Tax Impact? In a June 27, 2013 Technical Interpretation, CRA indicated that there would be no immediate tax consequences for payments respecting personal losses received as a result of Alberta flood relief assistance. In a July 12, 2013 Technical Interpretation, CRA commented on an employer’s emergency assistance plan, under which the employer would match voluntary employee contributions to create a relief fund directed to assist employees in their recovery efforts. All payments would be based exclusively on need and the extent of damage to the employee`s property. CRA indicated that disaster relief payments received in the individual’s capacity as an employee would be taxable. However, payments received as an individual would not be subject to taxation. CRA would generally consider the payments to be received on an individual, non-taxable basis provided all of the following criteria are met: • the recipient was affected by a disaster (CRA refers the reader to publicsafety.gc.ca/prg/em/ cdd/index-eng.aspx in this regard); • the payment is philanthropic and intended to compensate for personal losses or damage suffered during a disaster; • the payment is made in a reasonable period of time following the disaster; • the payment is voluntary, reasonable and bona fide; • the recipient deals at arm’s length with the employer, and not to a shareholder, connected person or person of influence such as executives with the power to control company decisions (CRA notes that payments to such persons may still be received in capacity as an individual, where the facts demonstrate the receipt was on the same basis as payments to other individuals who deal at arm`s length with the employer); • the payment is not based on employment factors such as performance, position or years of service; • the payment is not made in exchange for past or future employment services or to compensate for loss of income; • the payment is not in respect of regular salary for a period in which the individual is unable to report to work due to a disaster; and • the employer does not claim a business deduction in respect of the payment (CRA notes it would not be a charitable contribution as it is not paid to a registered charity). Action Item: Structure relief payments to employees correctly or they may be hit with a big tax bill.
Posted on: Thu, 19 Sep 2013 15:30:28 +0000
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