Alberta Flood 2013: CRA Extends Tax Filing Deadlines and Offers Guidance to Taxpayers

by Bennett Jones LLP
Contact

While the immediate business disruptions resulting from the recent flooding in Southern Alberta have, to some extent, been dealt with, the hard work of rebuilding has only just begun. While tax obligations are often over-looked in these difficult times, penalties and interest, as well as substantive tax liabilities, can result as a consequence of actions taken during the rebuild process. Fortunately, the Canada Revenue Agency (CRA) has recently issued some much needed guidance for affected Albertans. While the impact of the guidance must be assessed on a case-by-case basis, the following summarizes at a high level the applicable principles.

Extension of Tax Return Deadlines

Federal Returns

Generally speaking, corporations with December 31st tax year ends would have had to file income tax and, possibly, GST returns by July 2, 2013. The normal deadline for individuals carrying on business was June 17, 2013. Fortunately, the Minister of National Revenue has exercised her discretion to extend some of these tax filing deadlines, confirming, on June 26, 2013, that taxpayers affected by flooding in Alberta will have until August 2, 2013, to file their federal tax returns. The press release indicates that the CRA “will proactively adjust the due date for all federal business and other returns filed in Alberta that were due during the flooding” such that a federal business return filed by August 2, 2013, will be considered as filed on time. While the press release refers only to “flooding”, it is hoped that this will extend to late-filed returns which were due to the associated mandatory evacuation of many areas, including portions of downtown Calgary.

Notwithstanding this welcome relief, there remain some unanswered questions, which will need to be reviewed in the coming weeks. For example, many businesses which were unable to file election forms or objections on a timely basis due to the flooding will need to evaluate their options in obtaining extensions. Notably, the “automatic” relief does not extend to payment deadlines, such as monthly tax instalments. Where taxpayers have not been able to meet payment deadlines due to circumstances beyond their control (including flooding and mandatory evacuation), consideration should be given to making an application under taxpayer relief legislation to request the cancellation or waiver of interest and penalties. The CRA has indicated that it will expedite taxpayer relief requests, which are considered on a case-by-case basis.

Alberta Returns

While the Government of Alberta has not announced a similar automatic extension, the Alberta Tax and Revenue Administration indicated, on June 25, 2013, that penalties and interest will be waived where a corporation or business was unable to comply with legislated tax filing or payment requirements due to the flooding and mandatory evacuation. Where such penalties or interest are assessed, applications for relief will need to be made on a case-by-case basis.

Taxation of Alberta Flood Relief Assistance Payments

In the past couple of weeks, the CRA has also provided guidance to taxpayers on the taxation of disaster relief payments.

Payments to Individuals from Government

The CRA has confirmed its position that flood relief assistance payments made to individuals by a government, municipality, or public authority in respect of the individual’ personal losses or expenses, as opposed to business expenses, will not be taxable. This position extends to payments to individuals from a government for temporary housing and meals and for loss or damage to an individual’s personal residence.

While the CRA has not commented directly on the taxation of the pre-loaded debit cards distributed by the Government of Alberta in relation to the flood, the foregoing position should apply such that no tax should be payable on these amounts.

Payments to Individuals from Employer

Subject to a very few legislated exceptions, when an employee receives any payment from his or her employer, that payment is included in his or her employment income and hence subject to tax at ordinary income rates. The CRA has historically said that even disaster relief payments will fall within this taxable category. In the spirit of generosity displayed during the Alberta flooding, various Alberta employers, however, may wish to offer non-taxable assistance to their impacted employees. In one recent example, the CRA has confirmed that, where certain conditions are satisfied, the payment can indeed be made on a non-taxable basis.

In the example reviewed, an employer with several employees that were impacted by the flooding was creating a relief fund by collecting donations from other employees and then matching those contributions. The relief fund is to be directed to employees to assist in recovery efforts, with the payments to an employee being based solely on need and the extent of damage to that employee’s property. In that situation, the CRA listed a series of criteria to be met which, if satisfied, would generally result in the payment being non-taxable, on the basis that the payment was made to a particular employee in their capacity as an impacted individual, rather than in their capacity as an employee. The enumerated criteria are as follows:

  • The individual was affected by a disaster. For these purposes, the CRA refers to the definition of disaster used by Public Safety Canada, which includes, amongst other things, a naturally occurring phenomenon which overwhelms the community’s ability to cope and results in 100 or more people affected, injured or evacuated. It should be beyond doubt that the Alberta flooding meets this criteria;
  • The payment is made within a reasonable period of time and is philanthropic in purpose to compensate individuals for personal losses or damage they suffered during the disaster;
  • The payment is voluntary, reasonable, and bona fide;
  • The payment is not based on employment factors such as performance, position, or years of service, etc.;
  • The payment is not made in exchange for past or future employment services or to compensate for loss of income and is not in respect of regular salary paid to an individual who is unable to report to work because of a disaster;
  • The employer does not take a business expense deduction in respect of the payment (a charitable deduction would also not be available); and
  • The payment is made to an individual dealing with the employer at arm’s length and is not made to a shareholder or a person with influence to control the employer’s decision. Where this requirement is not satisfied, the CRA will examine the particular facts to determine whether the payment was received by the individual in his or her capacity as an individual (i.e., not as an employee or shareholder) and is therefore not subject to income tax. Where the facts demonstrate that the individual received the payment on the same basis as other individuals dealing at arm’s length with the employer, the CRA confirmed that the payment would likely be considered to have been received in his or her capacity as an individual, assuming all other conditions above are met.

The articulation of these criteria by the CRA remove some of the uncertainty formerly surrounding the undertaking of funding relief by employer organizations.

Payments in Respect of Business Losses from Government

The provisions of the Income Tax Act as well as the CRA’s position with respect to disaster relief payments provide for a similar, although not identical, result in respect of payments made for business losses. The CRA has recently provided its views on three types of business-related government assistance.

Consistent with the provisions of the tax legislation, the CRA confirmed that government assistance received to offset the cost of business expenditures reduces the amount of otherwise deductible business expenses incurred. Alternatively, the full assistance payment made be included in income, with an offsetting deduction for the expense actually incurred, such that there is no net income inclusion.

Where government assistance is received in order to compensate for lost or damaged property, the payment will generally constitute proceeds of disposition to which the ordinary rules surrounding the computation of gains or losses from the disposition of property would apply. The Income Tax Act, however, contains certain rules which permit property owners to defer the tax on any gain to the extent that the owner reinvests the proceeds in a replacement property within a specified period. Where property characterized for tax purposes as capital property, depreciable property, or eligible capital property was damaged by the flooding, the owner may electively be able to defer any tax consequences so long as a replacement property (within the meaning of the applicable provisions) was acquired, in the case of capital property and depreciable capital property, by the end of the owner’s second tax year following the year of the flooding (or, if longer, 24 months after the end of the tax year, pursuant to proposed amendments), and, in the case of eligible capital property, by the end of the owner’s first tax year following the year of the flooding (or, if or, if longer, 12 months after the end of the tax year, pursuant to proposed amendments). The replacement property rules are complex and should be reviewed with respect to each particular taxpayer’s circumstances.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bennett Jones LLP | Attorney Advertising

Written by:

Bennett Jones LLP
Contact
more
less

Bennett Jones LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!