While the Calgary Stampede may be over, Calgarians and other Albertans affected by the devastating floods last month are only beginning the process of fully assessing the damage and rebuilding their homes.
To ease the burden during these difficult times, the Canada Revenue Agency has announced a couple of measures that may help Albertans affected by the flooding. Firstly, it has extended the due date to Aug. 2, 2013 for all federal business and other returns filed in Alberta that were due during the flooding.
"This extension is one of the many ways our Government is helping those affected. For Albertans impacted by the terrible devastation of the flood, there is one less thing to worry about," said Minister Jason Kenney in a press release last month.
Secondly, on Wednesday the CRA issued its opinion on the taxability of a Calgary employer's proposed emergency assistance fund. The CRA was asked whether employees impacted by the floods in Calgary would be taxed on financial assistance received from their employer.
The employer, which is not named in the technical interpretation letter, has several employees impacted by the Calgary flooding. It is organizing financial assistance for its affected employees by collecting money from employees on a voluntary basis which would then be matched by the employer to create a "relief fund."
The money in this fund will then be directed to employees to assist them in their recovery entirely on a needs basis, based on the extent of damage to the affected employee's property.
Normally, the CRA's administrative position is that any disaster relief payment received by an individual from his or her employer is taxable as an employment benefit unless it can be shown that the individual received the payment in his or her capacity as an individual, as opposed to his or her capacity as an employee.
In this case, however, the CRA stated that if certain conditions were met, the payments would indeed be considered to be received by the individual in his or her capacity as an individual and therefore be tax-free.
To qualify, the payments must be "philanthropic in purpose to compensate individuals for personal losses or damage they suffered" and must be made within a "reasonable period of time." The payments should also not be made to a controlling person, shareholder or a "person of influence" such as an executive with power to control company decisions unless it can be demonstrated that the payment was indeed received by that person on the same basis as other arm's length employees affected by the flooding
The payments must not be based on the employee's performance, position, or years of service and not be made in lieu of regular salary that would otherwise be paid to an employee who is unable to come to work due to the flooding.
Finally, the employer cannot deduct the amount paid as a business expense nor can it claim a charitable deduction since the payments are not being made to a registered charity.