TAX QUESTIONS? YOU ASK LAH!

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Q: I am a taxi driver. My car was damaged in a fire resulting a total loss, and I received compensation from my car insurance policy. Is this compensation subject to income tax?

A: The compensation received will be treated as proceeds for a deemed disposal. If the compensation received is more than the residual expenditure (RE) of the car, the difference will be a balancing charge and is taxable. If the compensation received is less than the RE of the car, the difference will be a balancing allowance to reduce the business income as a taxi driver. 

Wishing you plentiful tax savings!

Zen Chow

YYC Tax Guru

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