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1989-089-e.html
SERVICES PAY DIRECTIVE: 1989-089 (33)
June 14, 1989
Ottawa, Canada
K1A 0S5
SUBJECT: Payment of Entitlements After an Employee's Death
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1
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PURPOSE
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1.1
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This directive supersedes Services Pay Directive 1988-093 (57) dated November
29, 1988 which provided you with an outline of the statutory deductions at
source, advised of appropriate exemptions and specified the applicable income
tax forms to be utilized for the payment of entitlements after an employee's
death. Changes from the above-mentioned directive are identified by a vertical
line.
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2
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BACKGROUND
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2.1
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Upon the death of an employee, the benefits which had accrued or were otherwise
payable by virtue of his/her office of employment may be liable to statutory
deductions at source.
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3
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CANCELLATIONS
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3.1
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This supersedes and cancels the instructions promulgated via Services Pay
Directive 1988-093 (57) dated November 29, 1988.
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4
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PROCEDURES/INSTRUCTIONS
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4.1
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The amounts payable as a result of an employee's death fall into three groups
for taxation purposes:
A. Amounts Included in the Deceased's Income - T4/Relevé
1
These amounts include:
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a)
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salary or wages (including overtime) accrued from the end of the last pay
period to the date of death inclusive;
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b)
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payments for accrued annual and furlough leave or payment of the 4 per cent
vacation pay;
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c)
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adjustments to accrued annual and furlough leave where the collective agreement
or other authorizing instrument was signed prior to the date of
death;
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d)
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salary or wages (including overtime) for a pay period that was completed prior
to the date of death and paid after the date of death. This situation will
primarily occur for casual employees who are paid in arrears;
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e)
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adjustments to salary or wages applicable to the period prior to and including
the date of death, where the collective agreement or other authorizing
instrument was signed prior to the date of death;
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f)
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adjustments to salary or wages (including overtime) as a result of a promotion
which was authorized prior to the date of death; and
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g)
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payment of the employee's share of the unemployment insurance employer premium
reduction (U.I. reduction).
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These payments form part of the employee's remuneration for
the taxation year in which the employee died, regardless of when they are
paid. They are subject to the normal income tax deductions at source and
must be included in the T4/Relevé 1 issued in the deceased's
name.
The amounts payable under b), c), d), e),
f), and g) above, while included in the deceased's income, may be subject to
provisions of Elective Income - Rights or Things under the Income Tax Act
(Sub-Section 70(2)).
A remark must be added by
the paying office to highlight the fact that an election may, within the time
limits prescribed therein, be made under the above-noted
section.
the remark should be as
follows:
"Sub-Section 70 (2) I.T.A.
availability".
Amounts included in the
deceased's income (A) must be reflected in the T4/Relevé 1 issued for
the year of death. Where payment is made in the year subsequent to the year of
death, the T4/Relevé 1 must be amended to reflect all earnings for the
year of death.
B. Amounts Included in the Estate's or Beneficiaries' Income -
T4A/Relevé 1 & 2
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The amounts include:
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a)
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Salary or wages (including adjustments) paid for the period from the day after
the date of death to the end of the month;
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b)
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a payment of severance pay (including future adjustments of same) as a result
of the signing of a collective agreement or other authorizing instrument;
and
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c)
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a return of pension contributions.
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Income Tax must be deducted at source at the rate prescribed for lump sum
payments.
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Amounts included in the estate's or beneficiaries' income
(B) should be reflected in the T4A/Relevé 1 issued for the year in which
they are paid. However, a T4A/Relevé 2 should be produced for (c)
above.
Please note that T4A/Relevé 1
& 2 forms issued for the year of death should not be amended where payment
is made in a year subsequent to the year of death.
When certain payments as outlined in Appendix "A" are made
directly to a widow(er) or estate, payment up to a total cumulative amount of
$10,000 is tax free. That is to say, payments made to the widow(er) or estate
in preceding taxation years must be taken into consideration. An example
follows:
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Year
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Payment
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Non-
Taxable
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Taxable
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1987
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$ 5,000
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$ 5,000
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-
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1988
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$ 3,000
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$ 3,000
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-
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1989
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$ 4,000
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$ 2,000
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$ 2,000
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$12,000
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$10,000
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$2,000
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C. Non-Taxable Amounts
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The following are non-taxable payments. They are not considered earnings and
are not reported on T4/Relevé 1 or T4A/Relevé 1 and 2
slips.
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a)
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supplementary death benefit (SDB); and
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b)
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retroactive adjustments to amounts included in the deceased's income (salary,
accrued leave, etc.), where the collective agreement or other authorizing
instrument was signed after the date of death.
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4.2
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Identification of Payments for Income Tax Purposes
To satisfy the income tax requirements, the paying office
will, immediately upon the death of an employee, issue the appropriate
remuneration statements. That is to say, T4s and Relevé 1s are to be
issued in the name of the deceased, and accordingly a T4A/Relevé 1 and 2
should be issued for the funds paid to the widow/widower or estate in the name
of the recipient. Consequently, the forms (DSS 7744) and (DSS 7743) previously
utilized by paying offices will no longer be required.
Paying Offices must forward only copies of the T4, T4A,
Relevé 1 and Relevé 2 that are required by the employer and the
employee's estate. The copy required by Revenue Canada and Revenue
Québec should be retained and forwarded at year end with the normal
February processing. These copies are necessary since they will not reflect the
same information as contained on the tape forwarded to the Revenue
Offices.
It should be noted that in these
circumstances previous year remuneration statement forms should be used if the
current ones are not yet available.
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4.3
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At calendar year end, when the remuneration statements (T4, T4A, Relevé
1 and Relevé 2) are issued automatically by the various SSC pay systems
in the name of the former employee, personnel offices will, upon receipt of
said remuneration forms, destroy them.
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4.4
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OTHER STATUTORY DEDUCTIONS
The following
general principles govern the requirements for deductions under the appropriate
legislation.
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A)
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Canada Pension Plan (CPP)/Québec Pension Plan
(QPP)
Contributions must be deducted from
amounts which are included in the deceased's income only. This includes
retroactive adjustments as a result of the signing of the collective agreement
or other authorizing instrument before the date of death.
Note that no deductions are made when the signing of the
collective agreement or other authorizing instrument takes place after the date
of death.
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B)
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Unemployment Insurance (U.I.)
Premiums
are deducted only from salary or wages payable up to and including the date of
death. Any retroactive adjustments to those amounts are not insurable under
U.I. regulations.
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C)
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Public Service Superannuation Act (PSSA)/Supplementary Retirement Benefits
Act (SRBA)
Contributions are deducted from
salary or wages up to and including the date of death and from
adjustments.
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D)
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Supplementary Death Benefits (SDB)
Deductions must be taken from salary or wages paid for the month of death and
from adjustments as stated in Note 2 of Appendix "A".
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E)
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The table in Appendix "A" has been prepared to assist the paying
offices in determining the payments which are subject to statutory deductions.
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4.5
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The amounts paid under the circumstances described in this directive cannot be
transferred directly to a registered retirement savings plan except for a
return of contributions. It should be noted, however, that severance pay can be
transferred to an RRSP on behalf of the employee's widow(er) or estate if the
employee had terminated his employment before he died and accordingly these
funds should be reflected in Box I of the T4A in the name of the
employee.
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4.6
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Treasury Board has confirmed that where an employee (who has been employed for
a continuous period of one year or more) is on authorized Leave Without Pay and
dies, the employee's estate/beneficiary is entitled to payment for the full
month of death even though the employee has received no earnings in that
month.
Payment would not be made where death
occurs during a period when the employee is absent without authorized
leave.
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4.7
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The above policy is also applicable to Canada Post Corporation.
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4.8
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Further information concerning pay for the month of death is contained in
Section 2.2, Chapter 9, Volume 15 of the Personnel Management
Manual.
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5
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INQUIRIES
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5.1
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Any queries on the foregoing should be addressed to Advisory Services - Pay,
Bernard Potvin (819) 956-2064 or Jan Norris (819) 956-2063.
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Original Signed by
M.-J. Posen
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Marie-Josée Posen
Director
Personnel Products Branch
Accounting, Banking and Compensation
Directorate
Reference: CJA 9015-15-3
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