I am very sorry for your loss. There is a $10,000 tax exemption specifically for "Employer Death Benefits." Whether your lump sum qualifies depends entirely on where the money came from.

To qualify for the $10,000 tax-free status, the payment must meet the CRA’s definition of a Death Benefit:

It must be a payment made by an employer in recognition of your son’s service/employment.

The first $10,000 of this total amount is tax-free. You only report the portion that exceeds $10,000 as income on your tax return (Line 13000).

If this is an employer death benefit, you will usually receive a T4A slip with the amount in Box 106.

For further clarification, we suggest contacting CRA at 1-800-959-8281.

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