Recently, the Canada Revenue Agency released a technical interpretation to clarify the commentary in the T4001 Employer’s Guide – Payroll deductions and Remittances, and the T4011 guide, Preparing Returns for Deceased Persons, in respect of income payable at death but not actually paid until the subsequent year.
The CRA confirmed that income payable should only be included in the T4 for the year in which it was actually paid, which could be the year following death. Nevertheless, it must be included in income in the final return of the deceased. Therefore, the amount payable may be required to be included in income for a year prior to the year in which it is reported on the T4.
This conforms with our understanding of the regulations in this regard, however this is a good opportunity to remind ourselves of an alternative.
Several years ago, a fellow blogger wrote that items such as bonuses payable, unused vacation leave paid after death as well as matured, uncashed bond coupons, Canada Pension Plan and Old Age Security payments for the month of your death, and declared but unpaid dividends may be reported separately on a “rights and things” return. Let’s say the inclusion of the income payable referred to above meant that the deceased’s next dollar of income was taxed at the top marginal rate or 53.53% for an Ontario resident. A separate return (in the form of a “rights and things” return) will allow access to a new set of graduated rates and may possibly lower the tax rate on that next dollar by as much as 20%.
Something well worth considering.