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2 Tax Memo 1 (1954)

handle is hein.journals/taxmmo2 and id is 1 raw text is: TAX No. 2 MEMO July, 1954 THE BASIC ISSUE IN DEATH TAXES Our succession duty law is in need of revision. With these words the Hon. Douglas Abbott, in his 1954 budget speech, announced his decision to have the law re-written. While the Minister did not specifically say so, it is well recognized that more is involved than an overhauling of the existing Dominion Succession Duty Act. The basic question to be considered is whether Canada should change her whole scheme of death taxation and substitute some form of estate duty for the present succession duties. There are two opposing principles in the theory of death taxation, one favouring the taxation of the estate and one the taxation of the beneficiaries. Estate duty is levied on the total value of the property passing at death, regardless of its destination, and rates are fixed solely with reference to that value. This is the form of the British duties and the American federal duties. Inheritance tax; or succession duty, is levied on the recipients of the estate, and rates are fixed according to the amount received by each beneficiary. They usually vary also with the degree of relationship between the beneficiary and the deceased. Many of the American states employ this type of tax. Canada's succession duties are a com- bination of estate tax and inheritance tax. The duty is levied on the recipients but cal- culated with reference to the size of the whole estate as well as to the size of the indi- vidual bequests and the relationship to the deceased. The main arguments advanced in favour of an estate duty are its comparative simpli- city and the ease of its administration and collection. Arguments against it are that it makes no allowance for the circumstances of the beneficiaries and takes little account of the principle of ability to pay. In favour of an inheritance tax the main arguments are that it is more equitable, since it takes account of the size of the individual bequests and the relationship of the benefici- aries to the deceased; that it spreads the burden of the tax; and that it has an economic value in that it encourages a wider distribution of property by testators. Against it are its much greater complica- tions, with the resulting delays and expense of administration and collection. This broad outline is amplified in the following pages, though at this time we attempt to do no more than to give an impar- tial review of the main points which have from time to time been advanced in discus- sions in Canada. The whole subject will be fully examined at the Foundation's annual conference in the fall (Montreal, November 15 and 16); and we shall have more to say about it at a later date. CANADIAN TAX FOUNDATION

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