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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Proves my point, doesn’t it – that there is nothing inherently illogical about it. If the lawmakers want it, they can / will ask you to push toothpaste back into the tube.
Messy.
For preserving symmetry, you cannot invoke this, without also referring to the great death tax refund (anti-detriment) with the added bonus of also claiming accumulated earnings on refunded taxes. The kite-flying about its mooted repeal is just that, kite flying.
They say death and taxes are inevitable. In combo, they morbidly fascinate even non-actuaries!
Wasn’t this the reason Capital Gains Tax was introduced to replace in part death duties. The Government has reaped far more from this tax than the previous death duties.
Better get ready to top yourself because we already have them, its called the superannuation death benefit tax for non-dependant beneficiaries.
The emotional opposition to death duties in Australia flies in the face of the growing burden on taxpayers of age pensions (unfunded, so really a mortgage on the unborn); exemption of principal residence from Centre-link assessment and capital gains; longevity; abuse of tax-concessional super for inheritance rather than retirement (as the Sole Purpose Test demands). The bonanza of tax-free super post age 60, and taxfree fund earnings in pension phase adds to the load.
You can never tax the dead – it is only the living inheritors who scream near the coffins. If it is ok to tax the living, what is wrong with taxing the estate which still receives the legal protection our taxes are there to finance?
Mr Kennard should be taken at his face value: after his (obviously sad) demise, we should introduce death duties. Call it the Kennard canard, if you must!
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Australia does have death duties. Tax on death benefit payouts from Super to non-tax dependent beneficiaries such as adult children. Perhaps Mr Kennard should lobby for the removal of this tax!
A superficial analysis of Death Duties.
If they have such an adverse affect on wealth accumulation why do many first world countries have them?
If they work in the US and the UK they potentially have a place in Australia.