Good afternoon,
A client received $5,935 in box 106 - T4A for the death benefit of his dad from Ford Company. His sister received the same amount. I know that death benefit is taxable in excess of $10,000.
My question is the excess of $10,000, is it for each individual or in total?
This is what I found in CRA but does not tell me if there was more than one person.
“You may not have to pay tax on up to $10,000 of the benefit amount you received. If you are the only one to receive a death benefit, report the amount you receive that is more than $10,000 . Even if you do not receive the full death benefit in one year, the total tax-free amount for all years cannot be more than $10,000 .”
Thanks in advance for your reply
I would normally say that the answer is Income Tax Act, Subparagraph 56(1)(a)(iii).
But, you are asking about multiple beneficiaries so I will refer you to “Preparing your Income Tax Returns” available from Wolters Kluwer The answer in all its glory is found at paragraph 925.05 and is very interesting. As this paragraph can’t be copied to this forum without violating copyright, I recommend that you check your own copy instead of asking for it to be copied.
Alternatively, you may go to the CRA’s page where you copied the quote, as the answer is also provided there. The CRA staff who prepared the guide are aware that this can and does happen, so they did provide the answer to this particular situation, with instructions depending on WHO the beneficiaries are.
Hint: Better warn the sister to pay attention to this as well!
Thanks for your reply Tim
I did a lot of research and read the act and contacted CRA before I post this. Even CRA told me that they could NOT find the situation that applies to the brother and sister.
I could not check Wolters Kluwer because I am not registered with them.
Thanks again.
The long and the short of it is that there is a single maximum $10,000 deduction from the total amount of benefit(s) received from the employer(s) with respect to the death of a particular employee or former employee. A surviving spouse or common-law partner has first call. If the spouse or common-law partner received less than $10,000 (or there was no survivor) any other recipient(s) share the remainder of the deduction in proportion to the gross amount each received.
In the case described, the brother and sister would each claim a $5,000 deduction and report $935 as income.
See Income Tax Act section 248 “death benefit” (which actually defines the amount that is taxable to a given recipient).