Principal Issues: [TaxInterpretations translation] Can an amount be paid as a death benefit if, inter alia, the deceased employee was, at the time of death, a corporate director?
Position: Yes.
Reasons: Income Tax Act. CRA's position.
From: Bordeleau, François
Posted: December 3, 2009 1:49 PM
TO: XXXXXXXXXX
Subject: File 2009-034713
Importance: High
Dear XXXXXXXXXX,
As agreed, I am sending you this email in response to your letter of October 29, 2009, in which you asked our opinion on whether a death benefit could be paid in recognition of a taxpayer's services as a director.
The gross amount of a death benefit is the amount or amounts received by a taxpayer in a taxation year upon or as a consequence of the death of an employee or former employee in recognition of services rendered by that employee in respect of an office (including the office of a corporate director) or employment. Note that the question of whether the amounts are paid in recognition of services rendered is a question of fact.
The following payments are considered to be the gross amount of a death benefit:
- payments made in recognition of an employee's service, even when such payments are made over an extended period of time or over the lifetime of the recipient, if such payments are made under an employer's fund or plan that is separate from a superannuation or pension fund or plan, and separate from a salary deferral arrangement or retirement compensation arrangement;
- payments made in recognition of the services of an employee who died prior to retirement, in settlement of accumulated sick leave credits to which the employee was entitled under the terms of the employee’s office or employment.
Since the payer and the employer need not be the same person, an amount received or receivable from a testamentary trust is considered to qualify as a gross amount of a death benefit, provided that the amount received by the testamentary trust on or as a consequence of the death of the employee was paid in recognition of services rendered by the employee in connection with an office or employment. Subsection 104(28) provides that if the gross amount of a death benefit received by a testamentary trust is paid or payable to a beneficiary of the trust, the beneficiary, and not the trust, is considered to have received that amount.
If a taxpayer receives a gross amount of a death benefit and that taxpayer is both
- the only person to have received such an amount;
- the employee's surviving spouse,
the amount of the death benefit that will not be included in the surviving spouse's income will be the lesser of the following amounts:
- the gross amount the surviving spouse received in the year;
- the amount, if any, by which $10,000 exceeds the total gross amounts received by the surviving spouse in previous years.
For more information on death benefits, see Interpretation Bulletin IT-508R, Death Benefits, the 2008 General Income Tax and Benefit Guide on page 25 and Technical Interpretation 9129655. I will request that the technical interpretation be sent to you, as this document is only available by subscription.
We hope that the above information will answer your questions.
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Income Tax Rulings Directorate
(613) 957-8972.