Inheritance Tax/Death Duties

My instinctive reaction to this topic is to be quite strongly opposed to it - I don't think it is "fair" that I should have to pay tax on funds and assets that my parents have accumulated through living prudently and are the results of them paying taxes throughout their lives on the income used to accumulate my eventual inheritance. Likewise, I don't want my kids to have to pay tax on my eventual estate - as I feel if I have done without in order to leave something to them, and have saved and invested the money I have earnt throughout my lifetime, that has already been taxed, it is a major disincentive to know the ATO will take another slug once I've departed the land of the living. However - I found myself agreeing with the sentiments of the following article from Business Spectator http://www.businessspectator.com.au/bs.nsf/Article/death-tax-duties-duty-rich-wealthy-bequest-tax-pd20100930-9S8HA?OpenDocument&src=kgb

The following is an exerpt from the article:

As the report makes clear it is time to have a serious debate about whether it might be better that the children of really successful parents and grandparents start with just a silver spoon in their mouths, not a whole ‘tax free’ cutlery set.

Quite rightly, most Australians who have scratched together a few dollars are very strongly opposed to the government taking it off them as they slip through death’s door. While hard working Australians might reluctantly accept that they cannot take it with them when they die they very firmly believe that they should decide where it goes here on earth. However, the inheritance tax debate needs to focus on the living, not the ghosts who give it. The arguments outlined in the report were far more nuanced and compelling than the critics admit and the issue of who gets taxed and to what extent is the hard choice for the government.

Why is it fair that a young entrepreneur starting out with nothing and building a great company that is sold for $10 million is taxed on his proceeds and some lazy trustafarian whose father dies inherits his $10 million without paying a cent in tax? Remember that the estate of any rich person passes on assets to the beneficiaries without that being a disposal that triggers capital gains tax. This is already a huge concession by the tax office. Ask yourself why you think it is fair that our most prominent professionals are taxed at nearly 50 per cent for working 100 hours a week whilst Toorak and Double Bay cafes are littered with prestige car driving adolescents whose great aunt Agatha died and left them a tax-free inheritance.

Why do we have endless cases like the three rich middle aged children I know who have made no material contribution to the society. They never had a job between them and have done nothing for charity except attend the occasional ball or cocktail party and they were allowed to split nearly $50 million when the old quarry and surrounding land their grandfather left them was rezoned residential and divided into 400 housing lots. Compare this to hardworking people across Australia who pay a huge part of their overtime in income tax whilst every day is a struggle.

Click to expand...

I've now decided that a form of tax on extremely large estates may very well be a good thing. (I may not be of the same opinion if I was likely to either inherit or leave an estate over 10 million though ) I do hope I'm not turning green

What do the resident experts think?

DocK said:

I've now decided that a form of tax on extremely large estates may very well be a good thing. (I may not be of the same opinion if I was likely to either inherit or leave an estate over 10 million though ) I do hope I'm not turning green

What do the resident experts think?

Click to expand...

Most people say "make the rich pay" but what will it mean. The rich dont sit on huge amounts of money. they use that money. When there is a death duty the estate will sell assets to fund the tax. What they sell may actually be someones bread and butter changing hands.

I've lived in a period of "death duties". It is most unfair in most cases. The rich manage but it is those that live off the rich that suffer.

Another case I have mentioned here before. A neighbour of mine that had a large sheep and cattle property in the family ended up on the pension following a succession of death duties as his grand father died leaving everything to his grandmother. Then his Grandmother died leaving everything to his father who died leaving everything to his mother. Each time there was a death some of the property was sold. In the end what had been a top property is now a group of uneconomic units waiting for someone born with a silver spoon to buy them and put them back together again.

Death duties may sound OK to someone they will not affect but they are a cancer on a capitalist system. Remember that if those that do inherit wealth do not use it wisely then they themselves will distribute it to society in the short term.
,

DocK said:

My instinctive reaction to this topic is to be quite strongly opposed to it - I don't think it is "fair" that I should have to pay tax on funds and assets that my parents have accumulated through living prudently and are the results of them paying taxes throughout their lives on the income used to accumulate my eventual inheritance. Likewise, I don't want my kids to have to pay tax on my eventual estate - as I feel if I have done without in order to leave something to them, and have saved and invested the money I have earnt throughout my lifetime, that has already been taxed, it is a major disincentive to know the ATO will take another slug once I've departed the land of the living. However - I found myself agreeing with the sentiments of the following article from Business Spectator

Click to expand...

As far as I can see, the Greens haven't quoted an estate level at which this would apply, or a %tax rate to be applied, so it's fairly difficult to make much comment at this stage.

The other point I'd wonder about is could individuals bypass any death duty legislation by neatly tying up funds in some sort of trust?

I'd say the philosophical principle would be less important these days than a few decades ago when the tradition of leaving money to one's children was more entrenched than it is now. Gradually over the last 20 years or so, there seems to have been a gradual acceptance that it's up to the individual to provide for their own retirement, and to set themselves up with housing etc in their working lives. i.e. less dependence on an inheritance, and less dependence on government pensions eventually.

But surely - unless some fancy loopholes have been used - we've all paid enough tax by the time we die to reasonably expect we shouldn't again be slugged in our coffins.

Many aspects of this to consider, so a good topic for discussion, DocK.

Henry recommended death duties. To politicians, it's just another way to pluck the goose.

The Greens would tax oxygen to fund bongs for under 18's, given half a chance.

I didn't intend to discuss the Green's position on death duties as such, I honestly don't have any idea of the nitty gritty details of their policy, but was pondering the "fairness" or otherwise of some form of inheritance tax. I completely agree with Nioka's statements on the effect of death duties on rural properties, having grown up in a rural area and seeing the effects as he has described. However, unless the feudal system of leaving the farm to the first-born entirely is followed, rural properties tend to be split between siblings upon the death of the parents in any case - having a similar effect.

I can also see no advantage in taxing the inheritance of a thriving corporate business, which often has also been the family business for generations, as threatening the viability of a profitable concern (which has already paid its taxes on profits) benefits few but the ATO.

So in these respects I agree with the sentiments expressed so far.

However - I also agree with the writer of the article quoted, in that it does not seem fair that some kids who have never worked a day in their lives and have not contributed to the productivity of this country at all, can benefit by inheriting huge sums of money tax-free whilst other more deserving sods pay up to 50% tax on the income they work so hard to generate. Maybe I'm just jealous: I get that tax will be paid on the income earnt on the inherited moolah, but in these instances no thriving enterprise or employees jobs would be threatened if the inheritance itself was subject to tax. I guess it becomes problematic to distinguish between inheriting funds vs assets - should >$10mill in cash be taxed but an estate consisting of property of the same value be untaxed? Or should some level of CGT apply to the eventual sale of assets inherited if above a benchmark level? As usual, it becomes impossible to tax the "undeserving" without punishing the "deserving" - and who is entitled to judge anyway?

One aspect of the article I found quite interesting was the disparity between charitable donations made by the most wealthy in Australia compared to USA. I wonder if the introduction of death duties on extreme personal wealth would make any difference to this?

I guess I really have no answers - just a lot of questions.

Wealth that has allready been taxed in the accumulation stage is not deserving of further taxation. It should be up to the owners who have accumulated that wealth do decide how it is distributed, not the government.

Tax reform should be about equity and simplification, not new taxes.

drsmith said:

Tax reform should be about equity and simplification, not new taxes.

Click to expand...

Ah, but Gillard & Co. have those expensive promises made to the Independents to fund, so any quaintly idealistic notion you may have about no new taxes, drsmith, should be dispelled fairly smartly.

Or perhaps, the same end will be achieved by large cuts to services.

So hard not to feel depressed about so much.

drsmith said:

Wealth that has allready been taxed in the accumulation stage is not deserving of further taxation. It should be up to the owners who have accumulated that wealth do decide how it is distributed, not the government.

Tax reform should be about equity and simplification, not new taxes.

Click to expand...

But the owners that accumulated the wealth are beyond harm - even by the ATO. It might grate knowing what will happen to your large estate while you're alive (and maybe prompt some preemptive action) but no amount of tax levied on one's estate will really affect you once you're dead - the hurt will be felt by the beneficiaries of your largesse - and this is the crux of the matter for me. Is it fair that a theoretical 25 year-old bludger could inherit a small fortune tax-free while his neighbour pays tax at the top marginal rate on the overtime he earns working 60 hours per week? Is it right that by an accident of birth some can loaf their way through life with their trust funds untouched while others are taxed on every cent they earn rather than inherit?

DocK said:

But the owners that accumulated the wealth are beyond harm - even by the ATO. It might grate knowing what will happen to your large estate while you're alive (and maybe prompt some preemptive action) but no amount of tax levied on one's estate will really affect you once you're dead - the hurt will be felt by the beneficiaries of your largesse - and this is the crux of the matter for me. Is it fair that a theoretical 25 year-old bludger could inherit a small fortune tax-free while his neighbour pays tax at the top marginal rate on the overtime he earns working 60 hours per week? Is it right that by an accident of birth some can loaf their way through life with their trust funds untouched while others are taxed on every cent they earn rather than inherit?

Click to expand...

I hear what you are saying, DocK, and if it were simply a cash bank account then your theory would probably work OK.

However, there is possibly only a small percentage of large inheritances that goes to a bludger. What about adult children that have worked and been trained in the family business for the purpose of taking it over. If there is a fixed death duty, then the business may have to be sold to fund the duty possibly taking other employees with it.

You might argue that the parents should transfer the business to the kids earlier, however, death isn't something we can control. It can come unexpectedly. And in a traumatic situation, the child/ren are having enough to deal with grief and keeping a business going without having the added pressure of big brother stepping in making monetary demands.

And if the business happens to be going through a lean cash flow period at the time of death of the parent/s, getting a loan to cover death duties may not be approved.

In another scenario - suppose a house is left to one child - perhaps one that has a physical/mental diability. If they cannot borrow to pay the duty, then the property would have to be sold and another cheaper one purchased with all the relative exit and re-entry costs (eg agents fees, stamp duty, moving, etc, etc).

Maybe if there is an excessive amount of cash sitting in an account, that might be one situation where a death duty could apply. Or if there are multiple properties where one could be sold off to pay the duty. But whichever way you look at it, it will cause difficulties for some in the effort to stop the occasional bludger getting more than he deserves.

IMO, it certainly isn't a fair tax to simply apply it across the board. The accumulated assets or cash have already been taxed so it is a case of double dipping by the government. It didn't work before and, if re-introduced, will need to be another complicated tax that allows for certain circumstances.

Let's hope that the lessons of the past don't have to be re-learned...

DocK said:

Is it right that by an accident of birth some can loaf their way through life with their trust funds untouched while others are taxed on every cent they earn rather than inherit?

Click to expand...

There is more "loafing their way through life" going on through " beach bums" and "dole bludgers" than there possibly will be through any inheritance funding. There are probably more undeserving company directors or politicians bludging their way through life than "inheritance bludgers".

The so called inheritance bludgers are at least spending something that was "earnt" in most cases. Just look at it as a stimulus package being delivered by the "rich" and not by Gillard and Swan.

DocK said:

But the owners that accumulated the wealth are beyond harm - even by the ATO. It might grate knowing what will happen to your large estate while you're alive (and maybe prompt some preemptive action) but no amount of tax levied on one's estate will really affect you once you're dead - the hurt will be felt by the beneficiaries of your largesse - and this is the crux of the matter for me. Is it fair that a theoretical 25 year-old bludger could inherit a small fortune tax-free while his neighbour pays tax at the top marginal rate on the overtime he earns working 60 hours per week? Is it right that by an accident of birth some can loaf their way through life with their trust funds untouched while others are taxed on every cent they earn rather than inherit?

Click to expand...

I agree with Sails and Nioka. I don't think you'd actually find too many children of people who have been successful in business who are 'bludgers' as you call them.

Most parents model and inculcate their own values to their children, and if the parents have worked hard enough to be successful, I'd be betting they will have ingrained in their offspring a decent work ethic.

I'm a little curious about why this seems to be bothering you so much, DocK?
People who are self-funded from whatever source are not being a drain on the taxpayer, unlike the hundreds of thousands living off welfare.

I'm all for supporting people who are unable to look after themselves, but there's too much middle class welfare imo. I'd be more concerned about this than a few people who might be enjoying the privileges of inherited wealth.

Julia said:

I'm a little curious about why this seems to be bothering you so much, DocK?

Click to expand...

The answer might be that there are more born with a chip on their shoulder than there are born with a silver spoon in their mouth.:grenade:

Julia said:

I agree with Sails and Nioka. I don't think you'd actually find too many children of people who have been successful in business who are 'bludgers' as you call them.

Most parents model and inculcate their own values to their children, and if the parents have worked hard enough to be successful, I'd be betting they will have ingrained in their offspring a decent work ethic.

I'm a little curious about why this seems to be bothering you so much, DocK?
People who are self-funded from whatever source are not being a drain on the taxpayer, unlike the hundreds of thousands living off welfare.

I'm all for supporting people who are unable to look after themselves, but there's too much middle class welfare imo. I'd be more concerned about this than a few people who might be enjoying the privileges of inherited wealth.

Click to expand...

nioka said:

The answer might be that there are more born with a chip on their shoulder than there are born with a silver spoon in their mouth.:grenade:

Click to expand...

Whoa - why all the judgements? Bothering me so much???
Who on earth said it was bothering me at all?? I simply read an article that raised some points I hadn't previously considered and thought they were worth discussing. Then I though perhaps it was polite to reply to posts on a thread I had started. Wasn't asking to be vilified. I will eventually be fortunate enough to inherit a reasonable sum myself so no, it's certainly not a case of a chip on my shoulder noika - and I'm quite disappointed that you'd leap to that conclusion about someone you don't know based on a couple of posts on a forum. That's what annoys me about this place - people reading things into posts that simply are not there.

Yes, one would hope that most children of successful parents would go on to emulate them - but this obviously isn't always the case - Paris Hilton being one example that comes to mind. The article I quoted posed the question of inheritance tax being levied on estates in excess of $10 million - leaving most Australians unaffected I would expect.

Sails, you make some very good points. I had already stated that I couldn't see any advantage in taxing a thriving business - I just think it might be more fair in general if some inheritances were taxed. I dislike paying tax as much as the next person, but if I had to pay a small % on funds I received basically through no effort of my own I really don't think I'd complain too much if the revenue helped fund better hospitals and other essential services. Whilst my mother lives off the revenue generated by her capital, acquired through her and my father's own efforts, and already taxed - I will eventually receive my inheritance with gratitude, but I hope not a feeling of entitlement. (And hopefully not real soon either). But I can see that the imposition of any tax, even if only levied on personal estates worth > 10mill or so, would be a nightmare to implement.

Governments should spend wisely what they all ready get before we entertain the idea of an increase tax take.

Simplistic that may be, but it would also help governments more along the high road when it comes to the spending of public money.

DocK said:

Whoa - why all the judgements?

Wasn't asking to be vilified.

That's what annoys me about this place - people reading things into posts that simply are not there.

Click to expand...

And maybe whoa there to you also, DocK. I'm not reading anything into anything but am simply mildly curious about what seems to be a dislike of people who have inherited wealth and the suggestion that they're 'bludgers'.
I just can't quite see on whom they are bludging. Not the taxpayer which is all I'd be concerned about.

To offer the example of Paris Hilton is fair enough. But hell, she is one celebrity out of gazillions of people! .

To say you are being 'vilified' because I've asked why you're bothered about a few people who might be enjoying inherited wealth seems just a bit oversensitive.

If you're going to inherit from your parents, then that's because they want you to have what they don't need, and presumably they are confident you will make good use of the money.
I expect they will get a lot of pleasure out of thinking that you'll enjoy the freedom some extra funds will give you when they pass the great divide.



I asked because I really just can't see it as much of a problem compared to the vast amounts of taxpayer funds going to middle class welfare.

No wish to engage in any animosity.

Julia said:

And maybe whoa there to you also, DocK. I'm not reading anything into anything but am simply mildly curious about what seems to be a dislike of people who have inherited wealth and the suggestion that they're 'bludgers'.
I just can't quite see on whom they are bludging. Not the taxpayer which is all I'd be concerned about.

To offer the example of Paris Hilton is fair enough. But hell, she is one celebrity out of gazillions of people! .

To say you are being 'vilified' because I've asked why you're bothered about a few people who might be enjoying inherited wealth seems just a bit oversensitive.

If you're going to inherit from your parents, then that's because they want you to have what they don't need, and presumably they are confident you will make good use of the money.
I expect they will get a lot of pleasure out of thinking that you'll enjoy the freedom some extra funds will give you when they pass the great divide.



I asked because I really just can't see it as much of a problem compared to the vast amounts of taxpayer funds going to middle class welfare.

No wish to engage in any animosity.

Click to expand...

Again - I cannot see why you have leapt to the conclusion that I have a "dislike" of anyone in particular - along with not being "bothered so much" - these are your words Julia - and I cannot see that you attributing these emotions to me without cause would be designed to add anything to the thread but confrontation. It would be nice to be able to have a friendly discussion, but you don't seem to know how - at least when it comes to my posts. I had hoped that you might content yourself with attacking the subject and not the poster or their motives.

The following from the article I referenced seemed to make sense to me:

This is not the same question as whether the average well-off hard working couple can leave enough money for their grandchildren to get them educated and started on the property ladder. The Henry report talks about needing a relatively high tax free threshold before the tax cuts in. A $10 million threshold should eliminate the angst of grandparents worrying about the legitimate housing or education needs of their offspring. The high minimum will also reduce the costs of monitoring and compliance and reduce the perennial problem of how a tax like this affects the family farm or business.

We hear endlessly from rich people about the dangers of the indigenous welfare culture leeching off the government. Rich people claim that by removing the need for the indigenous population to become self reliant and develop a work ethic we erode their culture. I think their argument is convincing but we should ask why children leech off rich family welfare aren’t far more corrosive to society. Alcohol, drug dependency, and anomie are high amongst both the indigenous and rich sub-populations – it is just that the rich can pay for better rehab.

Click to expand...

I have no axe to grind, am not overly exercised by the subject - just thought it might make for some entertaining, friendly discussion - sadly, as usual this seems to be impossible on this forum.

I'll leave ASF to those that seem to enjoy the argumentative tone introduced on nearly every thread lately.

Great topic DocK......After reading the article in full, I thought there was a lot of presumptions in it.

Who is to say that those who receive inheritance will be bludgers. They may go on to achieve great things for our country.

I'm sure their family has more than paid sufficient tax during their lifetime and the lucky rich kids will still pay tax on the money earnt, plus pay CGT on sale of an asset.

Discussing the charity of some of the US most wealthiest seems a bit of a stretch. Given they are billionaires, I guess their children could still not spend half of that in their lifetime. Yet we are talking about taxing inheritance over $10M in Australia. Great difference.

Then strangely the article goes on to talk about alcohol and drug use between indigenous Australians and rich kids claiming they "are far more corrosive to society". What is this? I thought drug and alcohol abuse touches all classes in society no matter your background. What a ridiculous link.

I'd like to believe that we are still evolving and one day we will be more charitable like our US counterparts. Each generation who has more will give more, but taxing the wealthy to force contributing more to society is crazy and certainly does not make those people feel charitable. If it was me that inherited over $10M I would be saying stuff you, I've given enough in tax thanks.

If this idea is seriously being considered by the Gillard Government then it just a continuation of punishing the wealthy. Good incentive not to achieve anything during your lifetime, because you are just working for the Government after all.

SM Junkie said:

Who is to say that those who receive inheritance will be bludgers. They may go on to achieve great things for our country.

Click to expand...

Pretty much the point I was trying to make, especially the use of the term 'bludgers'.

Take my comments as you wish, DocK. I wasn't at all attacking you. Just found the idea that inherited wealth rendered people bludgers a bit peculiar.

DocK said:

I'll leave ASF to those that seem to enjoy the argumentative tone introduced on nearly every thread lately.

Click to expand...

DocK, good topic. From complete sideline I can sense nothing in terms of argumentative / hostility / villianfication etc.

Just remember that it is very difficult to detect people's tone on the internet and people's attitude are easily mis-interpreted. Hate to see people leave due to simple mis-communicatoin.

People are just looking to understand your view rather than criticise your view.

There are all these talks about difficulties in implementing death tax - to me they are all secondary. Death taxes are in use in many countries so there are ways to make things work. Personally I disagree on principle rather than practicality issues.

Cancel all taxes when we are alive, and tax us once when we die. I'd support that!

skc said:

Cancel all taxes when we are alive, and tax us once when we die. I'd support that!

Click to expand...

I support that too.

That way I can spend it all before I kick the bucket and say cheerio to the government.