CRA finds that the heir of a deceased employee who became entitled to a tax-free pay adjustment should count the s. 152(4.2) 10-year claim period from the year of payment

In 2011, a pay equity settlement resulted in the deceased (who had died in 2008 and whose estate finished being administered in 2010) becoming entitled to a retroactive salary adjustment, which was paid later in 2011 by the employer to the sole beneficiary under the will (the heiress). The employer withheld income tax and issued a T4 for 2011 to the estate.

CRA agreed that the retroactive salary adjustment was not taxable to the deceased or the estate, since the pay equity settlement was not signed until after the death.

CRA further indicated that the tax withheld related under s. 153(1) to the year of payment and not to the year of death. Therefore, the taxation year for which the 10-year period provided for in s. 152(4.2) for requesting a refund of the withholding should be computed from the end of the 2011 taxation year of either the estate or the taxpayer's heir. Although it was not within CRA’s remit to determine which of these two should have received the adjustment, it would not object to the heiress being considered to have received the adjustment directly from the employer if she was entitled to the retroactive salary adjustment under the will.

Consequently, the 10-year period s. 152(4.2) period was to be computed from the end of her 2011 taxation year (the year of payment).

Neal Armstrong. Summary of 19 June 2025 External T.I. 2024-1045841E5 F under s. 152(4.2).