Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Is U.S. sourced workers' compensation taxable?
Position: Yes. Based on the information provided the amount will be taxable as an annuity.
Reasons: There are no provisions that exempt the amount from taxation and no treaty provision that provides a deduction under 110(1)(f).
2006-021768
XXXXXXXXXX W. C. Harding
(613) 957-8953
July 24, 2007
Dear XXXXXXXXXX:
Re: Request for technical interpretation
This is in reply to your letter of December 6, 2006, in which you requested a technical interpretation with respect to the taxability of certain amounts received by one of your clients.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office. Nevertheless, we are prepared, to provide the following comments in respect of the issues that you raised. Please note, however, that these are, of a general nature only and are not binding on the Canada Revenue Agency (CRA).
In your letter you asked if an annuity received by a Canadian resident would be taxable where the annuity is paid under the provisions of the United States War Hazards Compensation Act (the "WHCA"). We have examined the information provided with your submission pertaining to the payment of such amounts as well as some of the material that is available on the internet that pertains to the WHCA. In our view the WHCA provides workers' compensation payments in the form of annuities to surviving spouses and dependents of certain employees who are killed on the job. While these annuity payments are described as workers' compensation, they do not satisfy the provisions of paragraph 56(1)(v) of the Act since they are not received under an employees' or workers' compensation law of Canada or a province. However, the receipt of annuities does fall within the provisions of paragraph 56(1)(d) of the Act, and should be reported as annuity income by a recipient.
We are also of the view that there are no provisions of the Canada U.S. Tax Convention that apply to exempt a receipt of WHCA annuities by Canadian residents from taxation by Canada.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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