The Canada Revenue Agency (CRA) recently released a translated technical interpretation with helpful guidance on the tax treatment of a death benefit payment in certain specific situations.
A death benefit is income of either the estate or the beneficiary who receives it. Up to $10,000 of the total of all death benefits paid (other than CPP or QPP death benefits) is not taxable. The CRA had the following to say about a death benefit:
- A benefit received on the death of a person does not qualify as a death benefit unless it may reasonably be considered to be paid in recognition of services rendered by an employee in the course of office or employment can only be resolved after a full analysis of all relevant facts and documents specific to each situation.
- The failure to pay a salary to the individual in the two years prior to death does not result in the amount to be paid by the corporation not constituting a death benefit where there was a bona fide employment relationship between the deceased individual and the corporation for years and the corporation paid the individual a salary for services rendered during those years as an employee,
- Whether or not the amount to be paid is minuted before or after the death of an employee does not, in itself, determine whether or not it constitutes a death benefit.
- The death benefit may be paid over more than one taxation year. With this information, trustees and executors may find some tax savings in the reporting of receipts in the deceased’s tax return(s).
With this information, trustees and executors may find some tax savings in the reporting of receipts in the deceased’s tax return(s).