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.
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:
- 15% if the payment is $5,000 or less; or
- 20% if the payment 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.
For other amounts paid after an employee's death, see Deceased Employee.