David Macdonald, Senior Economist for the Canadian Centre for Policy Alternatives, and author of the report Born to Win – Wealth Concentration in Canada since 1999, thinks Canada should have an inheritance tax.
Currently in Canada taxes are paid before an estate is distributed to its inheritors. For example, there is an assumed deemed disposition of assets at death that might trigger capital gains to be paid by the estate.
Also any RRSP or RRIF assets are added to income in the year of death and are taxed as personal income. There is probate paid on estate assets but the percentage charged is extremely low.
However there is not a separate inheritance tax. This is a problem according to Macdonald’s report, released in late July.
Canada is the only G7 country that does not have a federal inheritance tax.
MacDonald argues the need for an inheritance tax because of the growing inequity of wealth between the haves and everybody else.
According to Statistics Canada, the 87 wealthiest families in Canada are worth almost $3 Billion each. The wealthiest families’ assets have grown 37% from 2012 to 2016.
Just over half of the wealthiest families in Canada have received their wealth from previous generations. Just under half of those families created their own wealth.
McDonald’s solution is introducing an inheritance tax.
As is usually the case when someone voices a strong opinion there are those that take the opposite view.
Greg Mankiw, a Harvard economics professor, has written much on inheritance tax. His opinion in The Estate Tax is One Death Penalty Too Manyis “It is a good rule of thumb that when you tax an activity, you get less of it.”
Mankiw argues it is better to motivate wealthy families to continue to expand their empire. The economic benefits will create more growth, opportunity, employment and prosperity.
Taxing inheritance in Canada would result in additional revenue. That would be helpful.
But the fallout could be a reduced incentive for wealthy families to continue to invest and expand. That would ultimately be a greater cost.