An individual, who was the sole shareholder of a corporation, received, as an employee, wages for several years but only dividends in the two years preceding his or her death. Alternatively, the individual received only dividends, without any salary or other remuneration as an employee. Would an amount paid by the corporation on the shareholder’s death qualify as a death benefit? Can authorizing minutes by the board be done after rather than before death? Is there a time limit for paying a death benefit? CRA responded:
In the first situation…[if] a genuine employment relationship existed… over the years and the corporation paid him or her a salary in consideration for his or her services rendered during those years, the failure to pay a wage to the individual during the two years preceding his death would not result in the amount paid by the corporation to the employee not being a death benefit.
…[I]n the second situation…the amount paid is not a death benefit because it is not reasonable to assume that it is paid in recognition of the individual's services, as an employee, rendered in the course of an office or employment. …
After indicating that when the amount was recorded in the minutes did not affect its character, CRA stated that “the payment of the death benefit may be staggered over more than one taxation year.”