Splitting Survivors Benefit

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retireat50
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Splitting Survivors Benefit

Post by retireat50 »

I am helping a senior couple with their taxes. One of their parent's passed away and the estate of course paid out $2500 survivivors' benefit to the one filer's sister. The comment to me was that the sister was "taking half into income". It is of course on a T4AP in the sisters name so this really is not possible unless she is taking some kind of deduction later on?

Has anyone heard of this?

Although the sister paid half of the benefit to the filer, from a tax standpoint the sister would have to pay full tax on this....all I can suggest to them is that the filer remit back to the sister an amount making her whole on the tax the sister paid on the full amount....ie $1250 X her marginal tax rate.

The other alternative is to not worry about the sister, she'll have to deal with CRA for not claiming the full T4 amount and add the $1250 into other income on the filer's side so at least he is on side with CRA....but the former option above seems alot simpler to me.
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DavidR
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Re: Splitting Survivors Benefit

Post by DavidR »

I think you are referring to the CPP Death Benefit.
Usually the T4A is in the name of the Estate. https://www.canada.ca/en/services/benef ... nefit.html

If the Estate prepares a T3 return, it will report the income and either (a) pay the tax or (b) allocate the income out to one or more of the beneficiaries by preparing T3 slip(s). Alternatively, rather than having the Estate prepare a T3 return, I believe that CRA has an administrative policy to simply let one or more beneficiaries report the income.
retireat50
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Re: Splitting Survivors Benefit

Post by retireat50 »

Yes the death benefit - OK that's exactly it. The death benefit went to the trust (and a T4A) - physically it just happened to go to the sister. So the plan is they each are claiming 1/2 of the death benefit as other income as the sister deposited the cheque and then paid half to the brother who is the filer in this case. I'm not doing the sister's T1
fraser
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Re: Splitting Survivors Benefit

Post by fraser »

We included the CPP death benefit in the final tax return for my father and for my mother. As I recall, those are the rules.
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DavidR
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Re: Splitting Survivors Benefit

Post by DavidR »

fraser wrote: 22 Mar 2017 21:34 We included the CPP death benefit in the final tax return for my father and for my mother. As I recall, those are the rules.
Your recollection may be faulty. CRA's guide "Preparing returns for Deceased Persons" says "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 return for the deceased person." http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-16e.pdf
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Re: Splitting Survivors Benefit

Post by OhGreatGuru »

The confusion is in the mis-named "Final Return". the Final Return is for income received up to the date of death. CPP death benefits are considered to be received by the Estate after death, and should be reported on an Estate Return. If the estate was simple enough that you could escape this return, CRA is willing to tax it in the hands of whichever beneficiary received the cheque.

This could be hard to sort out. If you indeed reported the death benefit as income on the Final Return, you should ask for an adjustment to the Final Return. But check to see if CRA actually included it.

If you have tried to skip filing an Estate Return, and instead want to have it taxed as income to the 2 beneficiaries, you have a problem, because the T4 slip may not have the beneficiaries' names on it. It might be easier to have one sister claim it all, and write the other sister a cheque for half less her marginal tax rate. But, you could try splitting it, and include an explanatory note, and see what CRA does with it.
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