A death benefit is an amount that is paid to the heirs of a deceased employee, in recognition of the employee's service. The benefit may be an amount refunded for sick leave the employee accumulated 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 is calculated as follows:

• 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
• 19% if the taxable portion of the death benefit is greater than $5,000

The exemption is generally granted to beneficiaries of the benefit when they file their income tax return.