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Allan Pilon
Level 2

Taxpayer deceased in late December 2020 and received $2,500 T4A Death Benefit and has no Taxable income

 Taxpayer deceased in late December 2020 and received $2,500 T4A Death Benefit and has no Taxable income. .Can the Beneficiaries equally  divide and claim on their individual T1 2020 Returns without having to do a T3 Trust return?  Death Benefit Received in March 2021. 

Thanks Allan

 

 

1 Comment 1
kozakworld
Level 4

Taxpayer deceased in late December 2020 and received $2,500 T4A Death Benefit and has no Taxable income

For starters, the T4A(P) CPP Death Benefit is not claimed on the Final Return of the Deceased because it is received after the date of death.  The intent of this credit is to help pay funeral costs which is why it is issued to the estate.  The executor of the estate is typically the one to receive the T4A(P) CPP Death Benefit and who pays for such funeral costs. Thus, if this was the only income after the date of death, it would be the executor claiming these costs on his/her tax return. If the executor's taxable income is already high, then it makes more sense for the executor to file a T3 Trust return to take advantage of the lower tax rate of a Graduated Rate Estate (GRE) T3 Trust Return.  As far as I know, there is no option to divide the T4A(P) Death Benefit between multiple people - if there was, such as with a T5 slip, there would be a category on the slip to allow such division. I don't think a beneficiary would be too eager to accept having to pay tax on income belonging to the estate.  

A quick note:

A death benefit will generally not be taxable if the recipient is not a beneficiary of the estate, and all of the following circumstances apply:

 - the taxpayer who received the death benefit paid the deceased's funeral expenses
 - the amount of the death benefit is not more than the funeral expenses
 - the deceased has no heirs, and there is no other property in the estate


Other thoughts to consider:
Where there are assets to be distributed, the estate should not be divided to the beneficiaries until all expenses have been paid, all returns have been filed, and a clearance certificate obtained from CRA.  The executors accounting should consider all these expenses.  If, for example, the proceeds of the estate were paid out before receiving a clearance certificate and the CRA found some amounts owing from unfiled tax returns, the executor would be on the hook to pay these debts as it would be difficult to get money back from the beneficiaries after they were already paid out.   

Hope this is helpful.