Client company vehicle was damage by snow. The insurance company issued a cheque to repair the vehicle. Is the insurance proceeds considered income? Do any one know of literature I can read up on.
Yes - the proceeds should offset the repair expense. If the expense was less than the insurance proceeds, the net difference will increase taxable income. If the expense was more than the insurance proceeds, the net difference will reduce taxable income.
@Nezzer I agree with you. The client is asking for some sort of document or literature that states that.
Give him a copy of the ITA - i’ts probably somewhere in sections 56-59. But, you’re the tax expert who studied this stuff - not him. If he doesn’t trust you, I’d tell him to take his business elsewhere.
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Is general principle not enough? If the insurance premiums are deducted from income then you should expect - barring specific provisions otherwise (such as those related to life insurance or replacement properties)- any proceeds from it to be added to income.
I would think that paragraph 12(1)(f) would pretty much nail that down.
Income inclusions
- 12 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable
Insurance proceeds expended
(f) such part of any amount payable to the taxpayer as compensation for damage to, or under a policy of insurance in respect of damage to, property that is depreciable property of the taxpayer as has been expended by the taxpayer
(i) within the year, and
(ii) within a reasonable time after the damage,
on repairing the damage;
In AI generated layman’s terms…
Paragraph 12(1)(f)
Paragraph 12(1)(f) states that insurance proceeds will be included in income if they relate to damage to equipment and the taxpayer spent them on repairing the damage. The taxpayer must have spent the proceeds on repairs within the same tax year the taxpayer received the proceeds and within a reasonable time after the damage. Determining “a reasonable time after the damage” is a question of fact. This income inclusion is generally offset by the taxpayer deducting the repair expense from income, to the extent that the expense is not on account of capital.
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Thank you everyone!
Could you not just Google “accounting for insurance proceeds on property, plant, & equipment?”
won’t be as interesting as seeing the answers in this posting
D&D Professional Services
Dara Dallyn
780 819 9486
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I agree with all that it should be included in income if proceeds exceed the cost of repairs. But this is not the client’s vehicle. It’s the company’s vehicle, so wouldn’t the company receive the cheque from insurance, not the client? If the employer gives the employee the insurance proceeds to have it repaired, could that not be considered a reimbursement? Just a thought. Check if the T4 has a benefit for use of company vehicle.
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