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Tuesday, July 31, 2018

Lack of inheritance tax is making inequality worse, think-tank study suggests

A group called the Canadian Centre for Policy Alternatives (CCPA) has been looking at the question of inheritance tax. Specifically, they have noticed that Canada is the only G7 country without an inheritance tax and they suggest that perhaps we should have one. The idea is that a tax on big inheritances would help even out the disparity between the financial "haves" and "have-nots" in Canada. The additional funds generated by this tax on the wealthy would allow the country to provide services with less pressure on those of more modest means.

The spokesperson for the CCPA says that the real target of an inheritance tax, if one were ever to be implemented, would be the super-rich who did not earn or build their wealth - in other words they did not work for it, create a business that earned it, or even wisely manage and grow a modest fortune into a large one - but simply inherited it. To read a story about the CCPA's views on why we should have inheritance tax, click  here.

Right now, the tax situation for an estate is (this is not an exhaustive study but it hits the high points):
- There is no percentage that goes straight to the federal government on all estates;
- Beneficiaries do not pay tax on what they inherit from an estate;
- Beneficiaries do not pay tax on life insurance proceeds;
- Passing on one home/property (up to a maximum amount of land) is tax exempt;
- Real estate over and above that first property is subject to capital gains tax only if it has increased in value; only 50% of the gain is taxable;
- Farmland can be exempt from capital gains tax as long as the new owners/family members will be farming as well (and other restrictions are met);
- Shares in privately owned companies are subject to capital gains tax if they have increased in value, and again only half of the gain is taxable. This can be deferred by rolling the shares over to a spouse;
- Every individual is entitled to a capital gains exemption of $800,000 for their lifetime that can be applied to shares of a small business, farming, fishing operations, etc;
- Funds in an RRSP or RRIF are subject to income tax of up to 40% of the funds but this can be deferred by rolling the RRSP or RRIF over to a spouse;
- The provinces take a probate fee or estate tax only if the will passes through the probate court, or if there is no will and someone applies to be appointed as administrator of the estate.

Every few years the subject of a possible inheritance tax gets tossed around a bit. I've certainly heard the topic raised once or twice before. So far, the Canadian government does not appear to be seriously considering the idea.

What do you think? Is it a good idea to slap an inheritance tax on the very wealthy? How wealthy  is "very wealthy"?  Or are estates taxed enough already?

7 comments:

  1. How wealthy is "very wealthy"? That's precisely my concern with suggestions like this. It's all about "the rich" paying their "fair share" in the media these days. Let's say we collectively agree that inheritances above $10 million should be taxed at 25%. It'd be hard to find many people who would put up much of a stink. But now the next government comes in and reduces that to $5 million. Next thing you know, the NDP comes to power, reduces it to everything over $1 million. Hey, what about graduated rates on everything above $250 000? It's a slippery slope. For that reason, I'll usually oppose any new taxes.

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    1. I agree with you on the concept that the tax may well end up touching the wrong people. That is my opposition to it as well. If I could be sure that only those who are handing down multi-millions to their children would be affected, I would probably be okay with it. Nobody would actually suffer under that application of the tax. If your average Joe and Jane who work and save and invest all their lives and manage to scrape together a million bucks by the end of their lives are going to pay, then I'm not okay with it.

      Lynne

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  2. If I want to be 'honest' I think there is some merit to it, as a lot of people have inherited a great amount in assets and they have not worked for it, period.
    Other countries have made it work and there is no reason it can't work in Canada.
    I hope it does not happen till after I die, to be 'honest' again. I am not wealthy by any means, but like many, I love my kids more than anything and their welfare is paramount to me.
    Like most parents I have always worked for myself, and for my family.
    We already have an imbalance in this world as to the have and the have-nots and the gap is increasing. This world is run by some very rich and powerful people and they are getting richer.
    Webeye

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  3. I do not think we can trust our corrupt government system to spend this tax fairly. As it is if they just stopped the tax fraud this would not be even necessary. Billions are lost every year to fraud and they don't do a thing about it. I know because I reported income tax fraud by 2 people who robbed me and my mother personally & they did nothing about it.

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  4. I'm surprised to see people using the "they didn't work for it" argument. The government didn't work for it and the folks trying to get their 'fair share' certainly didn't either. Like Anon points out above - this is a very slippery slope - just like the recent attacks on small business owners, higher taxes on folks who earn more than 220K, etc, etc, Enough taxes already!

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  5. The topic I believe, is about 'inheritance tax', not taxes in general.

    Webeye

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  6. Lynne...FYI. Any thoughts on a 'general comments' forum?

    MBA and law graduate changes career gears to launch a bicycle company
    https://www.theglobeandmail.com/business/careers/business-education/article-mba-and-law-graduate-changes-career-gears-to-launch-a-bicycle-company/

    ReplyDelete

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