Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Taxpayer questioning consistency of Guide T4001 and Guide T4011; T4001 says prepare T4 for the year payment is made & T4011 says include amounts in employment income in year of death, even if received after.
Position: General comments given.
Reasons: The two guides are not inconsistent – general comments made.
XXXXXXXXXX L. Holloway, CPA CA
June 26, 2018
Re: Technical Interpretation – Amounts paid to Deceased Employees
This is in reply to your email of March 2nd, 2018 in which you requested some guidance reconciling statements made in two guides issued by the Canada Revenue Agency (“CRA”). Your letter described a scenario whereby a retired employee has a right to receive a bonus payment (a restricted share unit) in 2017 and in 2018. The employee dies in 2017, but the employer was not aware of the death until January 2018. Under the terms of the plan, if the employee dies, all entitlements are payable immediately. The employer makes the payment to the deceased’s estate in 2018 instead of 2017. You requested confirmation of your understanding of the reporting requirements in the scenario presented based on statements made in CRA Guide T4001, Employers’ Guide – Payroll Deductions and Remittances and Guide T4011, Preparing Returns for Deceased Persons.
Under the subtitle: “Death of an employee” the Guide T4001 states:
Salary, wages, accumulated vacation pay, taxable benefits, and other amounts owed to an employee by his or her employer, for work done up to the date of the employee’s death, is employment income in the year the amount is paid. This includes any retroactive pay adjustments, when a collective agreement or other authorizing instrument was signed before the date of death……Employment income and retroactive pay adjustments that you pay to a deceased employee, or to the employee’s estate, have to be reported on a T4 slip in the year in which the amounts are paid even if they were earned by or owed to the employee in a different tax year.
Guide T4011 describes amounts that an employer pays to the deceased person’s estate as follows:
“There may be amounts that an employer will pay to a deceased employee's estate. For these amounts, an employer will usually complete a T4 or T4A slip.
Some of the amounts an employer pays will be part of the deceased's employment income for the year of death. Report these amounts on the final return. The amounts are employment income for the year of death even if they are received in a year after the year of death. Box 14 of the T4 slip should include the following amounts:
- salary or wages (including overtime) from the end of the last pay period to the date of death;
- salary or wages (including overtime) for a pay period finished before the date of death, but paid after death; and
- payment for vacation leave earned but not taken.”
Based on the above statements, it is your understanding that the employer will issue a T4 for the 2018 tax year, however the executor must include the amount in the deceased’s 2017 tax year. Your letter requested confirmation or alternatively correction of your interpretation.
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
We agree with your understanding of the statements made in Guides T4001 and T4011 as reproduced above. The T4 prepared by the employer would reflect the year of payment, which in your example occurred in 2018 and the amounts received by the estate should be reported on the final return of the deceased in 2017, the year of death.
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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