4 November 1980 Income Tax Severed Letter

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.

Mr. J.D.L. Campbell Director Pay Policy Interpretation Division Department of Supply and Services Compensation Services Branch Hull, Quebec K1A 0S5

M.E. Bartley Tel. 995-0051

November 4, 1980

Dear Mr. Campbell:

We wrote to you on April 4, 1979 to advise you that we would treat amounts paid under the Public Service Superannuation Act "... as a death benefit", as death benefits to the recipients rather than as pension benefits although the amount is received out of a pension fund or plan. This is also the treatment of amounts paid in similar circumstances under the Judges Act and the Tax Review Board Act. This practice has not changed but there is a further aspect of it which we wish to bring to your attention.

A death benefit may arise where any person receives an amount or amounts upon or after the death of an employee in recognition of his service in an office or employment. Subsection 248(1) of the Income Tax Act defines a "death benefit" as the portion, if any, of such a payment which remains after making the deduction contemplated by one of paragraphs (a), (b), (c) and (d) of the subsection. It follows that any payment which is a "death benefit" is the amount which remains after making the appropriate deduction and not the amount from which the deductions are to be made.

Frequently the payment upon the death of an employee is received by his widow. Depending upon the amount of the payment and the decedent's employment income for his last year, the amount which the widow may de- duct in determining the amount of the death benefit is $10,000. If (say) $25,000 is paid to a widow, the amount which she will include in her income as a death benefit under subparagraph 56(1)(a)(iii) of the Act is calculated under subsection 248(1) as follows;

Amount received upon or after the death of the employee         $25,000 
Deduction allowed under paragraph (a)                            10,000 
Amount of death benefit                                         $15,000

On the other hand if $25,000 is paid to her as a death benefit, it is that amount which is included in her income under subparagraph 56(1)(a)(iii) of the Act.

This change in practice will come into effect on January 1, 1981.

Yours truly,

for Direct Non-Corporate Rulings Division

MEB/mn

56(1)(a)(iii)