Reintroducing death duties would have an adverse impact on the accumulation of wealth and would only serve to benefit lawyers and insurance companies, the Liberal Democrat candidate for North Sydney has warned.
Speaking to SMSF Adviser, Liberal Democrat for the seat of North Sydney Sam Kennard said it is deeply concerning that the government is considering the idea of re-introducing death duties.
“Death duties have the adverse effect of discouraging the accumulation of wealth,” he said.
While the government might be under the impression they will earn a considerable portion of tax from introducing death duties based on the current size of most estates, Mr Kennard said that, in reality, this is unlikely to occur given the tax will have a significant behavioural impact.
“When they implement the death duties tax, people will change their behaviour because they’ll think ‘why would I leave all of this money to my kids and the government, I may as well change the way I operate and reduce my wealth – maybe buy a bigger boat,” he said.
“There’ll be less wealth accumulated and it’ll have quite a negative impact for everyone – people will start to make decisions that are not in the best interest of saving and investment.”
Death duties, he added, will also result in a capital drain from Australia as wealthy people will find, and go to, low tax jurisdictions to preserve their assets.
“Australia should encourage wealth creation. Death duties have the opposite effect,” he said.
Death taxes could be particularly difficult for business owners, explained Mr Kennard.
These taxes in other parts of the world, he continued, have had very negative consequences on the ability of the business to be passed from generation to generation.
“In some circumstances, it may force them to break it up and sell off assets, bring in new partners and all sorts of things that they didn’t intend to do in order to pay the tax bill so they can continue the business in some form,” he said.
“They may even have to sell their entire business.”
He added that death duties will no doubt lead to extra business for lawyers, as people pursue exotic structuring to minimise or avoid the tax entirely.
“The lawyers will try to find holes in the rules and people will pay lawyers to minimise their tax,” he said.
It would also create a new industry of insurance products targeted at poorer taxpayers, said Mr Kennard.
“In the US they have products available from the insurance companies that accommodate for the tax burden that you’ll pay for, so that they don’t need to break up the assets,” he said.
“The government shouldn’t be touching super and shouldn’t be touching death duties; they should be cutting spending and finding ways to reduce taxes.”
Death duties are double taxation on the same income, Mr Kennard argued: “The assets accumulated through one’s hard work and success of a lifetime would be taxed again upon death.”
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