7 May 1999 Internal T.I. 9908197 - DEATH BENEFIT

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Does regulation 200(1) require a payer of a death benefit to report the gross amount of a death benefit (as defined in paragraph 1 of IT-508R) on a T4A, or the death benefit as calculated under 248(1), which excludes the non-taxable portion of the death benefit. Regulation 200(1) states that a person making a payment described in subsection 153(1) of the Act shall make an information return in prescribed form in respect of such payment. The regulation does nor refer to prescribed information.

Position: Yes.

Reasons: The regulation states to use the prescribed form. The instructions for completing the prescribed form, in this case, are found in the Employers' Guide to Payroll Deductions, which states to report the gross amount of the death benefit. on the T4A.

		May 7, 1999

	Revenue Collection Directorate	HEADQUARTERS
	Trust Accounts Division	David Shugar
		957-8953
	Attention: Carlson Young
		990819

T4A PREPARATION - DEATH BENEFIT

This is in reply to your request of March 29, 1999 for our views with respect to whether the non-taxable portion of a death benefit is required to be included on a T4A information slip. We also provide our comments on the e-mail you forwarded to us from Alan McEwen.

Our Comments

A death benefit is defined in subsection 248(1) of the Income Tax Act (the "Act") as an amount received by a person upon or after the death of an employee in recognition of the employee's service in an office or employment minus a portion of the amount which is exempt from taxation. Where the recipient is the employee's surviving spouse, the exempt portion is the first $10,000 of the benefit. Where more than one taxpayer other than a surviving spouse received benefits in respect of an employee, the $10,000 exempt portion is apportioned among them, based on the amount received by each of them.

Paragraph 1 of Interpretation Bulletin IT-508R states that the term "gross amount" of a death benefit, when used in IT-508R, means the amount or amounts received by any taxpayer in a taxation year upon or after the death of an employee or former employee. Paragraph 1 of IT-508R states that in general terms a "death benefit" is the gross amount received by a taxpayer in a taxation year less an amount of up to $10,000 and is included in the recipient's income under subparagraph 56(1)(a)(iii) of the Act. A reference to the gross amount of a death benefit also appears in subparagraph 6(1)(g)(i) of the Act as "a death benefit, or an amount that would, but for the deduction provided in the definition of that term in subsection 248(1), be a death benefit."

Paragraph 153(1)(d) of the Act requires that every person paying a death benefit withhold therefrom, amounts determined in accordance with prescribed rules. Subsection 200(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in subsection 153(1) of the Act to make an information return in prescribed form in respect of such payment unless an information return in respect of such payment has been made under section 201 or 214.

Prescribed form, and prescribed information

In subsection 200(1) of the Regulations, the phrase "make an information return in prescribed form" is used (and also appears in subsections 200(2), (3) and (4), and subsections 201(1) and (2) of the Regulations). This phrase refers to the form itself, and in the situation at hand, the T4A.

Section 248(1) states that "prescribed" means

(a) in the case of a form, the information to be given on a form or the manner of filing a form, authorized by the Minister,
(a.1) in the case of the manner of making or filing an election, authorized by the Minister, and

(b) in any other case, prescribed by regulation or determined in accordance with rules prescribed by regulation;

The information to be given on a form in respect of death benefits is described in the various guides. These guides, discussed below, are authorized by the Minister.

Administrative requirements

According to the guides that discuss death benefits, it appears that the term "death benefit", as used in the guides, refers to the gross amount of the death benefit. The following excerpts are from the guides that describe the calculation of the tax to withhold from a death benefit, and the amount to be entered on a T4A Supplementary or T3 Supplementary as a death benefit.

On page 55 of the 1988 - 1999 Employers' Guide to Payroll Deductions - Basic Information ("the Employers' Guide") it states:

"If you pay a death benefit to a surviving spouse or heir, that person may be able to deduct part of this payment (to a maximum of $10,000) when he or she files a tax return. Do not deduct income tax from this part of the payment.

Use the withholding rates for lump-sum payments shown later in this chapter under the heading "Withholding rates for lump-sum payments" to deduct income tax from the rest of the death benefit. Report the total amount of the payment on the T4A slip."

The total amount referred to in the statement "Report the total amount of the payment on the T4A slip" is information authorized by the Minister, according to paragraph (a) of the definition of prescribed in subsection 248(1) of the Act.

On page 19 of the General Income Tax and Benefits Guide - 1998 (the "T1 Guide"), in the section titled "Death Benefits (other than Canada or Quebec Pension Plan death benefits)," it states:

"A death benefit is an amount you receive, after a person's death, for that person's employment service. It is shown in box 28 of your T4A slips or box 35 of your T3 slips.

You may not have to pay tax on up to $10,000 of the benefit you received. If you are the only one to receive a death benefit, report the amount you receive that is more than $10,000. To find out what to report if anyone else also received a death benefit for the same person, call our T.I.P.S. service.

Attach to your paper return, a note stating the amount of death benefits you received but did not include in your income."

On page 16 of the 1998 T3 Guide and Trust Return (the "T3 Guide), in the section titled "Death Benefit - Other than CPP or QPP," it states:

"A death benefit is an amount for a deceased person's employment service. It is shown in box 28 of a T4A slip. If the amount is to be taxed in the trust according to the provisions of the trust document, you may be able to exclude up to $10,000 of the amount from the trust's income.

If a death benefit was received by the trust alone, report the amount that is more than $10,000. Even if the trust did not receive all of the death benefits in one year, the total tax-free amount for all years cannot exceed $10,000. To find out what to report if anyone else received a death benefit for the same person, get Interpretation Bulletin IT-508, Death Benefits.

Attach a copy of the T4A slip, or a statement from the deceased person's employer, that identifies the payment as a death benefit."

The above-mentioned guides are consistent in their instructions that the gross amount of a death benefit is to be reported on the information slips. The T1 Guide instructs the person to contact the Department for assistance in determining the amount to report on line 130 of their T1 return in situations where there is more than one beneficiary of a death benefit for the same person.

More than one payer of a death benefit

Paragraph 2 of IT-508R states "Since there is no requirement that the payer be the employer, an amount received or receivable from a testamentary trust qualifies as the gross amount of a death benefit, if the payment received by the trust on or after the death of the employee is in recognition of the employee's service in an office or employment."

Paragraph 15 of IT-508R states "If gross amounts are received from more than one office or employment by any recipient, the gross amounts received in each year by each recipient are totalled and this total amount is used in the calculation of the allowable reduction. In other words, $10,000 is the maximum amount that can be excluded from income under paragraphs (a) and (b) of the death benefit definition in respect of qualifying payments from all sources received by the surviving spouse or other beneficiaries of a deceased employee in recognition of the employee's service from an office or employment."

The calculation of the amount of tax to withhold from a death benefit under paragraph 153(1)(d) of the Act requires each payer to be aware of all other gross amounts of eligible death benefits, paid or to be paid, by any other payer, to the surviving spouse, or other beneficiaries, in prior years and in the current year. Without this information, each payer cannot determine the amounts described in subparagraphs (a)(ii) and (b)(ii) of the definition of death benefit. This is because the maximum amount that can be excluded from income under paragraphs (a) and (b) of the death benefit definition in respect of qualifying payments from all sources received by the surviving spouse or other beneficiaries, is $10,000.

However, according to page 55 of the Employer's Guide, employers are instructed not to withhold tax from the first $10,000 of a death benefit they pay. By following the instructions in the Employers' Guide, insufficient tax would be withheld when there is more than one payer of a death benefit is respect of a former employee. Should exemptions be given totalling more than $10,000, any remaining tax would be determined by the recipient on their T1 return.

Conclusion

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In our view, the information required to be reported on the T4A is the gross amount of the death benefit. Subsection 200(1) of the Regulations states that "Every person who makes a payment described in subsection 153(1) of the Act [...] shall make an information return in prescribed form in respect of such payment ... ." In order to properly complete the information returns, the Department issues guides, some of which were discussed above. An information return and the accompanying supplementary information slips are prescribed forms and an information slip preparer is required to complete the information slips with all the information required to be given on that form. The information required to be reported on the T4A form is explained in the Employers' Guide and states that the preparer is to "Report the total amount of the payment on the T4A slip." The use of the Employers' Guide is integral to the proper preparation of all the information slips referred to therein, and in subsection 200(1) of the Regulations.

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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