History of wealth taxes in Canada

Succession duties have been held to be valid "direct taxation within the province," and can apply in the following scenarios:[1]

1. property of a deceased person, whether he was at the time of his death domiciled in the Province or domiciled elsewhere, situate within the Province passing to any person for any beneficial interest
2. property of a deceased situate outside the Province at the time of the death of the deceased, and the beneficiary of any of the property of the deceased was a resident at the time of the death of the deceased
3. where the deceased person was at the time of his death domiciled in the Province, and where the property of the deceased comprises any personal property situate without the Province in respect of which any beneficial interest passes under the law of the Province to a person who is domiciled or resident in the Province

Succession duties came into effect in the various provinces at the following times:

Many incidents involving double taxation arose from liability to duty in different provinces, as well as other jurisdictions abroad, which were dealt with inconsistently among the provinces.[5]

Collection in Ontario

Mitchell Hepburn, Premier and Treasurer of Ontario in the 1930s

John Rudolphus Booth, whose estate was Hepburn's principal target

Ontario was especially notable in its pursuit of duties. Mitchell Hepburn, in his capacity as Treasurer of Ontario, adopted a more aggressive approach in their collection on large estates, which resulted in millions of dollars in extra government revenues.[6] He made no apologies for doing so, as he noted in a speech in 1938.[7]

In 1937, legislation was passed that allowed for reexamination of estates for deaths that had occurred back to the beginning of 1916, and also included many gifts inter vivos within the duty's scope.[8] Hepburn consequently ordered that all files relating to estates worth $500,000 or more, together with those of smaller estates where evasion was suspected, were to be reopened, with the expectation of raising further duties anywhere from $70 million to $100 million.[9] The collection tactics employed included the seizure of books and records without a warrant, different methods for valuing assets, and the assessment of penalties that could amount to double or triple the amount of the duty involved.[9]

One estate of particular focus in this campaign was that of the late John Rudolphus Booth, who had died in 1925. Although succession duties of $4.28 million were paid in 1927,[10] Hepburn subsequently claimed more in 1937.[11] Booth's heirs eventually paid another $3 million in 1939.[12]

Where succession duty could apply

Duty cannot be charged where property is left outside the province to beneficiaries who are neither resident nor domiciled in the province.[13][14] Taken as a whole, chargeability to succession duty depended upon whether the donor's domicile, the donee's residence, as well as the donee's status at the date of the deceased's death and the date of the disposition of the estate. In 1967, Ontario published a table outlining the various effects:

Treatment of dispositions under the Succession Duty Act (Ontario)[15]

Property at date of death	Deceased domiciled in Ontario						Deceased not domiciled in Ontario at death
	At date of death and at date of disposition			At date of death only
	Donee			Donee			Donee
	Resident in Ontario at both dates	Resident at date of death only	Not resident in Ontario at death	Resident in Ontario at both dates	Resident at date of death only	Not resident in Ontario at death	Resident in Ontario at both dates	Resident at date of death only	Not resident in Ontario at death
Real property in Ontario	Y	Y	Y	Y	Y	Y	Y	Y	Y
Personal property in Ontario (disposition made in Ontario)	Y	Y	Y	Y	Y	Y	Y	Y	Y
Personal property in Ontario (disposition made outside Ontario)	Y	Y	Y	N	N	N	N	N	N
Personal property outside Ontario (disposition made in Ontario)	Y	Y	N	Y	Y	N	Y	Y	N
Personal property outside Ontario (disposition made outside Ontario)	Y	N	N	N	N	N	N	N	N
Real property outside Ontario	N	N	N	N	N	N	N	N	N

James Lorimer Ilsley, Minister of Finance in 1941

Death taxes, which were not subject to the territorial limitations that affected provincial taxation, were first introduced at the federal level under the Dominion Succession Duty Act passed in 1941.(French: Loi fédérale sur les droits successoraux) in 1941,[16] In his Budget speech that year, Minister of Finance James Lorimer Ilsley explained why the federal government was entering in this area of revenue:

Death duties, in general, are a very good type of tax, second only to income tax in their essential fairness and the possibilities of adjusting them progressively to ability to pay. They are even better than income tax in so far as they do not have as much tendency to reduce an individual's incentive to hard work and initiative. It is reasonable and just that one should be able to provide something for his wife and children, and others, after his death. It is also reasonable and just, however, that the state should share in what one leaves, at a rate dependent upon the amount of wealth being transferred. Indeed, I find this view so generally held in this country that it is not necessary to do more than call it to mind.[17]

It was later replaced by the Estate Tax Act (French: Loi de l'impôt sur les biens transmis par décès) in 1958,[18] which was repealed at the end of 1971.

The succession duty focused on the succession being transferred, as opposed to the estate itself,[19] which made it similar in scope to the UK's Succession Duty Act 1853.[20] The estate tax, in comparison, was modelled more along the line of the US estate tax.[20]

At the introduction of each tax, the property that was subject to each was identified as follows:

Property	Succession duty	Estate tax
every succession, being every past or future disposition of property by which another person obtains the beneficial interest in property or the income thereof, either immediately or after any interval, certainly or contingently, originally or by way of substantive limitation, including those operating by devolution of law	Y
all of which the deceased was competent to dispose, immediately prior to death	Y	Y
disposed as a donatio mortis causa	Y	Y
disposed as an immediate gift inter vivos	Y	Y
taken as a gift, whenever made, with reservation of benefits	Y
disposed within three years preceding death, either to a trust or as a gift		Y
comprised in a settlement, whenever made	Y	Y
held jointly with one or more other persons, to the extent of the beneficial interest therein	Y	Y
disposed within three years preceding death for partial consideration		Y
disposed under an arrangement with another person (other than a financial institution) to purchase an annuity, whether for life or for any other period in reference to death		Y
disposed at less than fair market value at any time		Y
any annuity or other interest, to the extent that the beneficial interest passes by survivorship or otherwise upon death of the deceased	Y	Y
any superannuation, pension or death benefit that arises on or after death of the deceased		Y
disposed of by any person on or after death of the deceased, whether voluntarily in recognition of employment service, or otherwise under any other agreement		Y
any amount payable under a life insurance policy, whether held (either alone, jointly or in common) by the deceased, or a trust or corporation controlled by the deceased	Y	Y
transferred to or settled upon any person, within three years preceding death, in consideration of marriage	Y	Y
agreed to be transferred to or settled upon any person, within three years preceding death, in consideration of marriage, to the extent that it was actually transferred or settled		Y
that is the subject matter of a transfer, agreement or settlement made at any time in consideration of marriage, where any interest for life or otherwise is reserved either expressly or by implication to the deceased		Y
any estate in dower or curtesy	Y	Y
any disposition within three years preceding death in consideration of the release of any right in dower or curtesy		Y

Gift tax was introduced as part of R.B. Bennett's New Deal in 1935. It was framed as an antiavoidance measure, as explained by Edgar Nelson Rhodes in that year's Budget speech:

This form of tax, adopted by many countries, is being imposed primarily to operate as a deterrent to transfers of property as a gift, chiefly within family groups which would have the effect of reducing personal income to lower brackets and thus securing income tax assessments at rates lower than would otherwise be applicable. It is particularly expedient to introduce this measure at this time in view of the higher rates of taxation provided for in the new surtax on investment income. Not only should this tax put our income tax structure on a more secure foundation but it should operate in a like manner with regard to succession and inheritance taxes levied by the provinces.[21]

As a consequence, it was imposed by the Parliament of Canada later that year as part of the Income War Tax Act.[22]

The tax was wide in its scope:[23]

• it applied to any property (whether situated inside or outside Canada) transferred by way of gift or donation
• it applied "whether the transfer is in trust or otherwise, or direct or indirect, or whether the property is real or personal, tangible or intangible, and shall extend to gifts made by personal corporations"
• several classes of gifts or donations were exempt from tax: those in any year that totalled $4000 or less; those taking effect upon death; those made to charitable or educational institutions, Canada or any province, and certain ones not recognized for income tax purposes[lower-alpha 1]
• where a gift is made to a minor aged 13 to 18 years, liability for tax will not arise until the 19th birthday, provided that the donor has supplied a bond securing the payment of the tax[lower-alpha 2]
• the donor is liable to pay the tax, otherwise there is joint and several liability by both the donor and donee

Upon the repeal of the federal estate and gift taxes on January 1, 1972, the income tax régime was altered to provide for a capital gains tax, which included liability arising from the "deemed disposition" of assets. Liability will arise from gifts from,[32] and the death of,[33] the taxpayer, as well in the following circumstances:

• the use of a property has changed[34]
• the taxpayer emigrates from Canada[35]
• a trust for a taxpayer's spouse or common-law partner, when that beneficiary dies, or on the 21st anniversary of a trust[36]

The provinces have moved in recent years to convert fees for the granting of letters probate and letters of administration from flat rates to ones based on the value of the estate. In 1992, Ontario introduced fees at a level higher than in any other province.[37] The Supreme Court of Canada declared that the method by which it was introduced was unconstitutional, as its basis had not been the subject of appropriate legislation.[38]

As a result, the provinces[lower-alpha 3] passed legislation to legitimate the fees already in effect: