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Death Benefits - Tax Free Money To The Shareholders
Where an employee dies and subsequently a payment is made to a spouse or other beneficiary in recognition of the employee's service in employment, the amount received may be tax free. Basically, the first $10,000 is tax free and the $10,000 limit is shared amongst beneficiaries.
The amount paid by the employer is a tax deduction to the employer as long as the expense is incurred to earn income. It is therefore important that the death benefit is part of an ongoing employment contract such that the expenditure is considered to be a cost incurred to earn income.
The death benefit can easily be incorporated in an owner-managed business where the shareholder receives employment income. A director's resolution to allow a death benefit to be paid upon the death of a shareholder may be adequate to document a death benefit.
This issue is complex. Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice.
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