As per the CRA: Who reports a death benefit that an employer pays?
That depends on who received the death benefit. A death benefit is income of either the estate or the beneficiary who receives it. Up to $10,000 of the total of all death benefits paid (other than CPP or QPP death benefits) is not taxable. If the beneficiary received the death benefit, see line 13000 in the Federal Income Tax and Benefit Guide. If the estate received the death benefit, see the T4013, T3 Trust Guide.
On what return do I report Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) death benefits for the estate of the deceased?
The amount of the CPP or QPP death benefit is shown in box 18 of Form T4A(P), Statement of Canada Pension Plan Benefits. Do not report this amount on the final return for the deceased person.
If the CPP or QPP death benefit is payable to a beneficiary in the year it is received by the estate, a T3 slip will be issued in the beneficiary's name and the beneficiary will be required to include the amount on their T1 return. The estate does not have the option to elect to have the benefit taxed in the estate if the estate otherwise has taxable income.
If the CPP or QPP death benefit is not paid or made payable to a beneficiary in the year it is received by the estate, the amount will be included in the estate’s taxable income reported on its T3 Trust Income Tax and Information Return in the year it is received by the estate and the estate will pay tax on that amount.
Where the CPP or QPP death benefit is the only income of the estate and a T3 return is not otherwise required to be filed, the death benefit can be reported directly on the T1 return of the beneficiary.
Unlike a death benefit that an employer may pay to the estate or to a named beneficiary, the CPP or QPP benefit is not eligible for the $10,000 death benefit exemption. You have to report all other CPP or QPP benefits on the deceased's final return. For more information, see line 11400.
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