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death benefit tax

Understanding The Death Benefit Tax Exemption

A death benefit is the gross amount of any payment made on or after the death of an employee as a means to recognize their service in the organization. If an employer pays a death benefit to a surviving spouse, common-law partner, or heir, part of this payment can be exempt from tax (to a maximum of $10,000) when the person files an income tax and benefit return. 

The recipient of the death benefit reports the excess of the amount actually received, minus $10,000 on their tax return. For instance, if the amount received is $15,000, then the difference of $5,000 is reported ($15,000 minus $10,000). If the recipient is the beneficiary of the payment (ex. spouse, common law partner, etc), they would report the $5,000 on their tax return. In the event that the beneficiary is the estate of the deceased, then the estate reports the $5,000. Even if there is no named beneficiary, the estate would also report the amount. Furthermore, if there is more than one beneficiary, the $10,000 exemption would be split among beneficiaries based on their allocated amount as a % of the total amount paid.

For more information regarding the tax exemption and filing see the following page by the Canadian Government on death benefits.