Death benefits are amounts paid to the heirs of a deceased employee, in recognition of services rendered by the employee. Such a benefit may be, for example, an amount refunded for sick leave accumulated but not used before the employee's death.
Source deductions of income tax
If you pay a death benefit, you must withhold income tax of 16% or 20% on the taxable portion of the payment (that is, the amount of the benefit minus, where applicable, a maximum exemption of $10,000) only if the benefit is paid in the year of death or the following year.
The beneficiary or beneficiaries of a death benefit will generally be entitled to the $10,000 exemption when filing their income tax return.