A death benefit is an amount that is paid to the heirs of a deceased employee, in recognition of services rendered by the employee. Such a benefit may be an amount refunded for sick leave accumulated but not used before the employee's death.

Source deductions of income tax

You must make a source deduction of income tax on the taxable portion of a death benefit only if the benefit is paid in the year of death or the following year. The taxable portion of a death benefit corresponds to:

• the amount of the benefit;
• minus, where applicable, a maximum exemption of $10,000.

You must use the rates applicable to single payments, that is:

• 14% if the taxable portion of the death benefit is $5,000 or less; or 
• 19% if the taxable portion of the death benefit is greater than $5,000. 

The beneficiary or beneficiaries of a death benefit will generally be entitled to the exemption when they file their income tax return.