A death benefit is an amount that is paid to the heirs of a deceased employee, in recognition of services rendered by the employee. The benefit may be an amount refunded for sick leave the employee acccumulated but did not use before their 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.