2014-0563131I7 Dependency and Indemnity Compensation

Principal Issues: Whether payments of Dependency and Indemnity Compensation received by a Canadian resident taxpayer from the United States Department of Veterans Affairs are taxable under the Act.

Position: Yes. The amounts are annuity payments and are included in income under paragraph 56(1)(d).

Reasons: Consistent with classification of similar payments received by spouses of employees of defence contractors killed in a war zone (see document 2006-0217681E5).

Author: Ward, Jason
Section: 56(1)(d)

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                                                                                                                                                 2014-056313
                                                                                                                                                 Jason R. Ward
                                                                                                                                                 (613) 957-2093

February 16, 2015

Dear XXXXXXXXXX:

Re: U.S. Dependency and Indemnity Compensation

We are writing in reply to your email of December 18, 2014, concerning whether payments of Dependency and Indemnity Compensation (“DIC”) received by a Canadian resident taxpayer from the United States Department of Veterans Affairs are included in income under the Income Tax Act (the “Act”).

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Our comments

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 DIC.  The DIC provides periodic compensation payments to eligible survivors of members of the U.S. military who died in the line of duty or eligible survivors of veterans whose death resulted from a service-related injury or disease.  In our view, these payments are annuities which fall within the provisions of paragraph 56(1)(d) of the Act, and should be reported as annuity income by the recipient.

We trust that these comments will be of assistance.

Yours truly,

Jason R. Ward, CPA, CA
For Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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