Inheritance and gift taxes in Canada have a complex history dating back to Canadian Confederation. They are beginning to see a return to prominence in the provincial sphere.
Provincial succession duties Succession duties have been held to be valid "direct taxation within the province," and can apply in the following scenarios:
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 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 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:
Province Introduced Introductory ActOntario1892 Quebec1892 New Brunswick1892 Nova Scotia1892 Manitoba1893 The Succession Duties Act, S.M. 1893, c. 31, later consolidated as Prince Edward Island1894 British Columbia1894 Saskatchewan1905until consolidated as Alberta1905until replaced by the Newfoundland1914
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.
Collection in Ontario
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. He made no apologies for doing so, as he noted in a speech in 1938:
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. 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. 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.
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, Hepburn subsequently claimed more in 1937. Booth's heirs eventually paid another $3 million in 1939.
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. 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)Property at date of death Deceased domiciled in Ontario Deceased not domiciled in Ontario at deathAt date of death and at date of dispositionAt date of death onlyDoneeDoneeDoneeResident in Ontario at both datesResident at date of death onlyNot resident in Ontario at deathResident in Ontario at both datesResident at date of death onlyNot resident in Ontario at deathResident in Ontario at both datesResident at date of death onlyNot resident in Ontario at deathReal property in Ontario Personal property in Ontario (disposition made in Ontario) Personal property in Ontario (disposition made outside Ontario) Personal property outside Ontario (disposition made in Ontario) Personal property outside Ontario (disposition made outside Ontario) Real property outside Ontario
Federal estate taxes
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.() in 1941, In his Budget speech that year, Minister of Finance James Lorimer Ilsley explained why the federal government was entering in this area of revenue:
It was later replaced by the Estate Tax Act () in 1958, which was repealed at the end of 1971.
The succession duty focused on the succession being transferred, as opposed to the estate itself, which made it similar in scope to the UK's Succession Duty Act 1853. The estate tax, in comparison, was modelled more along the line of the US estate tax.
At the introduction of each tax, the property that was subject to each was identified as follows:
Property Succession dutyEstate taxevery 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 all of which the deceased was competent to dispose, immediately prior to death disposed as a donatio mortis causa disposed as an immediate gift inter vivos taken as a gift, whenever made, with reservation of benefits disposed within three years preceding death, either to a trust or as a gift comprised in a settlement, whenever made held jointly with one or more other persons, to the extent of the beneficial interest therein disposed within three years preceding death for partial consideration 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 disposed at less than fair market value at any time any annuity or other interest, to the extent that the beneficial interest passes by survivorship or otherwise upon death of the deceased any superannuation, pension or death benefit that arises on or after death of the deceased 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 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 transferred to or settled upon any person, within three years preceding death, in consideration of marriage 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 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 any estate in dower or curtesy any disposition within three years preceding death in consideration of the release of any right in dower or curtesy
Gift tax 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:
As a consequence, it was imposed by the Parliament of Canada later that year as part of the Income War Tax Act.
The tax was wide in its scope:IWTA, s. 88 (as inserted by the 1935 amendment)
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 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 the donor is liable to pay the tax, otherwise there is joint and several liability by both the donor and donee
Post-war involvement in revenues Federal-provincial revenue-sharing arrangements (1947-1971) From 1947 to 1971, there was a complicated set of federal-provincial revenue-sharing arrangements, where:
In Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick and Manitoba, the federal government collected estate taxes at full rates, but remitted 75% of the revenues derived from each of those provinces; In Alberta and Saskatchewan, the federal government collected estate taxes at full rates, but remitted 75% of the revenues derived from each of those provinces, which was rebated back to the estate;in Alberta, through In British Columbia, the federal government collected estate taxes at only 25% of the full rate, and the province continued to levy its own succession duty; In Ontario and Quebec, the federal government collected estate taxes at only 50% of the full rate, and remitted 50% of such collections to such provinces, and the provinces continued to levy their own succession duties.
When Edgar Benson's white paper on tax reform was issued in 1969, his original intention was to retain estate and gift taxes in conjunction with introducing capital gains tax, with appropriate relief to avoid double taxation. After public consultations were held through hearings by parliamentary committees, he announced that, as "it is no longer possible to establish a uniform national system of death duties through federal legislation," the federal government would vacate the estate and gift tax field on December 31, 1971. At that time, only British Columbia, Ontario and Quebec were still levying duties of their own. Most of the other provinces revived their succession duties, and also started levying gift taxes, on January 1, 1972.
Provincial succession duties (after 1971) Succession duties continued until the following dates:
Province Repeal Repealing ActNew Brunswick1974 S.N.B. 1991, c.6Nova Scotia1974 Newfoundland1974 Manitoba1977 British Columbia1977 The Succession Duty Repeal Act, 1977, S.B.C. 1977, c. 20Saskatchewan1977 Ontario1979Succession Duty Legislation Repeal Act, 2009, as enacted by the Quebec1985
These taxes were seen to have died out because of their relative unattractiveness, as noted by Peter Hogg:
effective legislation is difficult to draft its complexity makes the taxes costly to administer, relative to the amounts raised the taxes lead to an avoidance industry, often including shifting assets out of the province
Provincial gift tax (after 1971) Gift taxes were levied until the following dates:
Province Repeal Repealing ActNew Brunswick Gift Tax Act, 1972, S.N.B. 1972, c.9 January 1, 1974 S.N.B. 1991, c.5Nova Scotia April 1, 1974 Newfoundland April 9, 1974 Saskatchewan The Gift Tax Act, 1972, S.S. 1972 c. 48 January 1, 1977 British Columbia The Gift Tax Act, 1972, S.B.C. 1972 c. 23January 24, 1977 The Gift Tax Repeal Act, 1977, S.B.C. 1977 c. 15Manitoba The Gift Tax Act, S.M. 1972, c. 10October 11, 1977 An Act to Amend The Gift Tax Act (Manitoba) and The Succession Duty Act (Manitoba), S.M. 1977 (2nd session), c. 2Ontario April 11, 1979 Quebec April 23, 1985 An Act to amend various fiscal laws and other legislation, S.Q. 1986, c. 15, s. 208
Conversion to deemed dispositions for capital gains tax (after 1971)