Understanding the CPP death benefit

Since Jan. 1, 2019, the CPP death benefit has been a flat $2,500. This one-time, lump-sum benefit typically paid to the deceased’s estate was originally intended for funeral costs.

The death benefit is paid in addition to any survivor pensions that the spouse or common-law partner and/or children of the deceased may receive.

A brief history of the CPP death benefit

When the CPP legislation was first introduced in 1966, the death benefit was calculated as the lesser of:

• six times the amount of the contributor’s monthly retirement pension, and
• 10% of the year’s maximum pensionable earnings (YMPE) for the year of death.

In 1998, the amount was capped at $2,500, but this two-part formula was in place to the end of 2018.

Families of lower-income contributors benefited from the 2019 change to a flat amount because the previous two-part formula could have resulted in a death benefit of less than $2,500.

As mentioned, the amount is not indexed. Had the cap on the death benefit continued to increase in line with increases in the YMPE, the death benefit for 2023 would be 10% of $66,600, or $6,660.

Or, if the $2,500 cap set in 1998 had been indexed, it would have increased to $4,225.

Qualifying for the amount

The death benefit is paid when the deceased has contributed to the CPP for the “minimum qualifying period.” (This also applies for the survivor pension and the orphan’s benefit.)

Contributions must have been made for at least:

• One-third of the calendar years in the deceased’s contributory period for the base CPP (excluding the years after the deceased turned 65 and had pensionable earnings of less than $3,500), but no less than three calendar years, or
• 10 calendar years.

How is the CPP death benefit taxed?

The amount is taxable in most circumstances. The CPP death benefit is normally included in the estate’s income and reported on the estate’s trust return for the year the amount was received.

However, if any income, including the CPP death benefit, is payable to a beneficiary in the year it was received by the estate, the estate can deduct the amount from its income. In this case, a T3 slip will be issued in the beneficiary’s name and the beneficiary will be required to include the amount in income. The estate cannot elect to have the benefit taxed in the estate if the estate has other taxable income.

If the CPP or QPP death benefit is the estate’s only income and a T3 return is not otherwise required to be filed, the death benefit can be included in the beneficiary’s income.

A CPP (or QPP) death benefit will generally not be taxable if the recipient deals at arm’s length with the estate and the following conditions are met:

• the recipient paid the deceased’s funeral expenses,
• the amount does not exceed the funeral expenses, and
• the deceased has no heirs and there is no other property in the estate.

Applying for the death benefit

If the deceased had a will, the executor must apply within 60 days of the date of death.

If there is no will, or the executor failed to apply within 60 days, certain other parties may apply. The order of priority is:

• The court-appointed administrator
• The person or institution responsible for paying funeral expenses
• The surviving spouse or common-law partner
• Next-of-kin

Impact of social security agreements

Canada has entered into social security agreements with more than 50 countries, which may mean the deceased is eligible for the death benefit even if their Canadian work experience is shorter than the minimum period.

Take the example of Samuel, who worked in Ireland for 20 years before arriving in Canada at age 40. Unfortunately, he died six years after his arrival in Canada. The agreement that Canada has with Ireland allows the years he contributed to Ireland’s pension program to be taken into account.

Thus, he is eligible for the death benefit because his combined contribution period is 26 years rather than six years, and more than the minimum of 10 years. (Samuel’s spouse and children would also qualify for survivor benefits, which will be based on his actual contributions to the CPP and not his contributions while working in Ireland.)

Lea Koiv

Tax & Estate

Lea Koiv , CPA, CMA, CA, CFP, TEP, is a tax, pension and retirement expert who has held senior roles at a national insurer and international accounting firms. Reach her at info@leakoivassociates.ca.