When an employee dies and employer makes a payment to the surviving spouse or common-law partner or other beneficiary in recognition of the deceased’s employment service, the first $10,000 of this amount is generally a tax-free death benefit.
Generally, amounts of death benefit are shown on these two slips:
- T4A, Statement of Pension, Retirement, Annuity, and other income (in box 106)
- T3, Statement of Trust Income Allocations and Designations (in box 26)
If you are the only one to receive a death benefit, report the amount you receive that is more than $10,000 on line 130 on your tax return.
If there are more than one person receiving a death benefit for the same person, this $10,000 exemption should be allocated. It first applies to the surviving spouse or common-law partner. If the surviving spouse or common-law partner receives less than $10,000 and other beneficiaries are entitled to receive a benefit in respect of the employee, their exempt limit will be $10,000 less any amount already claimed by the surviving spouse. The remaining exempt portion would then be shared on a pro-rata basis among the other beneficiaries.
If a death benefit was received in installments over more than one taxation year, the total tax-free amount for all years cannot exceed $10,000.