A death benefit is a payment received subsequent to the death of an employee, in recognition of the deceased employees services.
A death benefit is a payment received subsequent to the death of an employee, in recognition of the deceased employees services. Up to $10,000
can be received by the Estate or beneficiaries of the deceased as a death benefit on a tax-free
basis. As an employment-related cost, this would generally be deductible to the payer
A March 14, 2017 Technical Interpretation
, addressed several questions related to these payments following the death of an owner-manager
CRA noted that the determination of whether an individual is an employee is a question of fact
The fact that an owner-manager received salaries
for several years but was only
paid dividends in the two years prior to death
would not automatically mean that no death benefit
could be received. It would be more difficult
to support an employment relationship where the individual never received employment income
from the corporation.
The existence of a formal commitment
, such as a contract or a Directors Resolution, prior to
the date of death
is not a requirement
for an amount to be a death benefit. Finally, a death benefit could be paid out over time
, but the $10,000 exclusion applies
only once
, not once for each year.
Action Item: Consider this tax-free employment benefit.