By: Bruce Constantineau
Vancouver Sun
Thursday, June 10, 2004
The Vancouver Sun will focus on an issue important to British Columbians every day during the campaign. Today we look at where the parties stand on inheritance tax -- a controversial issue during the election campaign.
Adrian Mastracci, investment counsel at Vancouver based ‘fee-only’ KCM Wealth Management, says, "The baby boomer generation would be hit hard by this, at a time when financial markets have not been the greatest.”
When it comes to the prospect of reviving a national inheritance tax in Canada, the NDP is clearly on its own among the major parties.
NDP leader Jack Layton wants to raise more than $3 billion a year by imposing a 17-per-cent tax on estate transfers valued at more than $1 million. The first $1 million would be exempt from the tax so the beneficiary of a 1.5-million estate would pay $85,000 in inheritance taxes.
U.S. authorities impose inheritance taxes of up to 48 per cent on some high-valued estates but the concept was abolished in Canada in 1971, when capital gains taxes came into effect.
Inheritance-tax critics say the measure would hit Lower Mainland residents especially hard because high property prices make it easier for estate values to pass the $1 million threshold.
According to Statistics Canada, B.C. had the highest percentage of families in 1999 with total assets of more than $1 million. More than 56,000 B.C. families -- or 3.3 per cent of the provincial total -- had assets of more than $1 million that year, compared with 3.1 per cent of families in Ontario.
KCM Wealth Management Inc. president Adrian Mastracci said the inheritance-tax proposal amounts to an unfair tax grab.
"With GST and PST and income taxes and probate fees and everything else, it amounts to a big whack," he said. "The baby boomer generation would be hit hard by this, at a time when financial markets have not been the greatest."
But Simon Fraser University professor Marjorie Griffin Cohen said it's a good time to bring back inheritance taxes in Canada because wealthy people in the country have enjoyed dramatic income tax cuts in recent years, which has created greater inequality among Canadians.
"We have an increasingly unequal society and a small tax like this would not hurt anybody really," she said. "It's a relatively benign tax that makes the whole system fairer."
B.C. residents already pay probate fees for estate transfers, starting at six-tenths of one per cent of full value for estates of $25,000 or more, rising to 1.4 per cent of the value of estates worth more than $50,000.
Business Council of B.C. executive vice-president Jock Finlayson said the inheritance-tax proposal might be a more acceptable concept if the personal tax burden on Canadian families were not already so high.
"It's true the U.S. has an inheritance tax but the Americans have very significantly lower personal income taxes," he said. "Ten U.S. states have no state income tax at all."
Finlayson noted that while the proposal would exclude small businesses and farms, it would include homes, making it an unpopular measure in Vancouver where house prices are the highest in Canada.
"It's the kind of measure that would trigger a lot of effort into tax planning by individuals looking to avoid the bite of the inheritance tax," he said. "It would create tremendous pressure for tax loopholes and complicate the overall tax system even more than it already is."
Finlayson said wealthy people are mobile and the proposed tax would make some of them reconsider whether they want to live and accumulate wealth in Canada. "I question whether that is really good for ordinary people in the long term," he said.
WHERE THE PARTIES STAND:
NDP: Leader Jack Layton initiated the inheritance-tax debate by proposing that parent-to-child wealth transfers of more than $1 million be subject to a U.S.-style inheritance tax of 17 per cent. Small businesses and farms would be exempt from the tax that would raise an estimated $3.1 billion annually. The party says only about six per cent of Canadians would ever be affected by the measure.
Liberal Party: The Liberals contend the inheritance tax plan would be particularly devastating to fishing families across the country, who routinely pass on their boats and gear to the next generation. Vancouver East Liberal candidate Shirley Chan said the measure would unfairly penalize Canadians whose parents worked a lifetime and want to leave something behind for their children.
Conservative Party: MP James Moore said his party will never impose an inheritance tax and will do everything it can to oppose such a move. He said it's an absurd idea and an absurd proposition to suggest that Ottawa isn't already taxing British Columbians enough, as 46 per cent of the income of the average British Columbian goes to Ottawa in taxes.
Green Party: Finance critic Pam Munroe said the party has no interest in creating an inheritance tax, preferring instead to shift more taxes onto polluters and cut personal income taxes for low-to-middle-income earners. She said many people want governments to impose greater taxes on wealthy people but feels that can be better achieved through higher consumption taxes on items they buy.
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