Old tax may be death of TFSA

[jdobbin]

http://www.canada.com/windsorstar/news/bus...1c-a72597aa4137

The return of estate tax could provide revenue compensation as part of a plan to eliminate income tax on capital gains, in order to jump-start investment in companies that need capital during a credit shortage in order to grow, produce jobs and stimulate the economy.

"There was talk last year at some time that the U.S. may go to a tax-free capital gains system," said Gamroth, in an interview. "And the problem is, when we live next door to the United States and it decides not to tax capital gains, we really don't have any choice in the matter if we're going to attract any capital investment."

Wonder if we are going to see that this year or not.

[Riverwind]

Wonder if we are going to see that this year or not.

When it comes to estate taxes the devil is always in the detail. We actually have an estate tax equivalent in Canada because taxes are levied on RRSP and unclaimed capital gains. I don't see the difference if government put in an estate tax that collects the same revenue as the unclaimed capital gains + RRSP taxes. The only problem is the change would create invidual winners and losers since the current laws have created a huge industry dedicated to minimizing estate taxes.

The fact that people jump through rediculous and expensive hoops in order to avoid paying estate taxes is a good argument for a flat estate tax (i.e. why should some people pay less tax because they can afford expensive tax advice/shelters>).

Edited January 26, 2009 by Riverwind

[jdobbin]

The fact that people jump through rediculous and expensive hoops in order to avoid paying estate taxes is a good argument for a flat estate tax (i.e. why should some people pay less tax because they can afford expensive tax advice/shelters>).

If capital gains taxes are completely eliminated, we are likely to see the estate tax come into effect. I don't know how Canada could not copy what was happening south if investment here dried up.

[Riverwind]

If capital gains taxes are completely eliminated, we are likely to see the estate tax come into effect. I don't know how Canada could not copy what was happening south if investment here dried up.

You did not read what I said:

1) We already have something which is basically the same as an estate tax.

2) Replacing the current capital gains based estate taxes with a flat estate tax is a good thing (espcially if all capital gains taxes are eliminated).

Edited January 27, 2009 by Riverwind

[jdobbin]

You did not read what I said:

1) We already have something which is basically the same as an estate tax.

I did read it. It is not the same as estate tax since there are many ways to avoid paying the tax in Canada whereas as estate tax does not give someone the same discretion. This has been talked a lot in the Globe and National Post. I shouldn't be telling you anything new here.

2) Replacing the current capital gains based estate taxes with a flat estate tax is a good thing (espcially if all capital gains taxes are eliminated).

We'll see what the U.S. does. We won't know until we see what they do with their budget. If capital gains taxes are completely eliminated, they may consider an estate tax. At what rate and in what proportion remains to be seen.

[August1991]

The problem with estate taxes is that they encourage people to spend the money rather than leave it to their children. That's not a good basis for a civilized society.

Of course, there are numerous ways around estate taxes (depending on the amount in question) and so the government will not collect nearly as much as it might now project.

BTW Dobbin, I know that Liberals are jealous that they didn't introduce the popular TFSA, but an estate tax would affect much more than the TFSA. All savings would be affected.

[jdobbin]

The problem with estate taxes is that they encourage people to spend the money rather than leave it to their children. That's not a good basis for a civilized society.

Where do you get that from?

As for spending money, isn't that what a consumer economy needs?

Of course, there are numerous ways around estate taxes (depending on the amount in question) and so the government will not collect nearly as much as it might now project.

Yes, I suspect we'll see a lot more money go to charity.

BTW Dobbin, I know that Liberals are jealous that they didn't introduce the popular TFSA, but an estate tax would affect much more than the TFSA. All savings would be affected.

I know the Tories are jealous that the Liberals eliminated the estate tax in 1994 but they can't eliminate all capital gains taxes and have a TFSA without massively going into debt. I know your solution is to cut all government operations but really, that is probably the most extreme of libertarian ideas.

[August1991]

Where do you get that from?

As for spending money, isn't that what a consumer economy needs?

[sigh]I'll try again Dobbin to explain modern macroeconomics to you - instead of this absurdly simplistic version of Keynes that you seem to understand.

[sarcastic voice]Of course, spending is good. That's what is good for an economy. Spend, spend, spend. We don't need saving. Saving is bad. Saving impoverishes people.

Do you really believe that Dobbin? Instead, I suggest that you use common sense.

-----

Societies must save (and invest) and a good way to do this is for parents to leave something for their children. In some ways, this is the basis of life itself.

[msj]

Nothing personal but that article is nothing more than a disjointed mish mash of tax history in Canada and a worthless rumour about US taxation that confuses more than it enlightens.

1) Just because one person claims to hear rumours of the US going to cut capital gains taxes doesn't mean it's going to happen.

We are have entered a deflationary recession. Capital gains taxes are hardly an issue when few will be paying them and in an era of non-stop deficits (with the US already many years ahead of Canada thanks to Bush and now Obama) it is unlikely that taxes will go down for long (moreso in the US than in Canada, hopefully for us).

There is a reason that Mulroney raised the capital gains inclusion to 75% and why the Liberals finally got rid of the $100,000 lifetime gains exemption in 1994 (after Mulroney got rid of it on real property transactions in 91/92). It's called paying the piper.

Notice that the capital gain inclusion rate started going down in 2000 after the deficit was slayed.

That's how taxes work - go up when people clue in to the mess that has been made and go down when the mess has subsided somewhat.

2) The CPC have already laid the groundwork for why Canada will end up having an estate tax - TFSA's.

In a matter of a couple of decades these are going to have so many assets in them the government will drool over the potential tax revenue they can grab if they could only find a way to tax them.

An estate tax would be one of many "good" ideas to attack these structures which, of course, are used primarily by the "rich" (whatever that means) to avoid taxes (or so I hear Jack Layton whispering on his deathbed).

3) People put too much faith into ideas that "rich" people are getting away with dramatically lower taxes on RRIF/RRSP taxes on death than the ordinary person.

Sure, they roll over tax free to the spouse on death. And, if that spouse is smart enough to marry a younger person (pick me, pick me) then the RRSP's/RRIF's could roll over again tax free etc....

In reality, this type of thing doesn't happen often and vast amounts of tax are paid.

I see this all the time - oh, right, I prepare or review over 1,000 tax returns every year so I would actually know these things as compared to people making up tax avoidance stories based on nothing more than ignorance.

The best way to avoid paying that kind of tax is to not invest in RRSP's in the first place but that is a discussion for another thread.

4) At least the current system is taxing economic gains - whether it is capital gains deferred in non-registered accounts or accrued gains in investment income/capital gains in RRSP's/RRIF's (for which the original capital contribution was a tax deduction) the economic gains are taxed on death.

An estate tax, otoh, would be taxing people's capital regardless of gains. An example is the little old lady who saved up $500,000 in GIC's and survived on her OAS/CPP (these people do exist but they never think to marry me just before kicking the bucket).

She paid tax on the interest income each year but doesn't pay tax on the principal of the GIC's because she paid for that principal with after-tax earnings.

An estate tax, however, would see tax paid on that principal amount and that just isn't right.

[bush_cheney2004]

Nothing personal but that article is nothing more than a disjointed mish mash of tax history in Canada and a worthless rumour about US taxation that confuses more than it enlightens.

True, but it is fun to see the resulting machinations anyway....what will the Americans do.....gosh !

[August1991]

Nothing personal but that article is nothing more than a disjointed mish mash of tax history in Canada and a worthless rumour about US taxation that confuses more than it enlightens.

My thinking too.

2) The CPC have already laid the groundwork for why Canada will end up having an estate tax - TFSA's.

In a matter of a couple of decades these are going to have so many assets in them the government will drool over the potential tax revenue they can grab if they could only find a way to tax them.

I wondered about that too. TFSAs are recent in Canada but tehy ahve existed in the UK for over a decade and in the US for almost as long.

I reckon that in time, they will be viewed as an "entitlement" and democratic governments will treat them as an untouchable "third rail" issue.

Unless there is a sudden change in constitutional negotiations, Harper will possibly go down in history as the guy who introduced TFSAs.

[jdobbin]

[sigh]I'll try again Dobbin to explain modern macroeconomics to you - instead of this absurdly simplistic version of Keynes that you seem to understand.

[sarcastic voice]Of course, spending is good. That's what is good for an economy. Spend, spend, spend. We don't need saving. Saving is bad. Saving impoverishes people.

Never send saving was bad. Think I have said that in a recession when everyone saves, it is bad for the overall economy. You don't seem to understand that. Do you really believe your simplistic view of Friedman will help the recession now? It was tried last year and we are still sinking.

Do you really believe that Dobbin? Instead, I suggest that you use common sense.

I was going to say the same thing to you but you are so ideologically tied to libertarian belief that you will watch suffering happen all around you and tell people that it will end if they just had a tax break. Many would say that a job would be appreciated first but you seem to think a mass die off is necessary first.

-----

Societies must save (and invest) and a good way to do this is for parents to leave something for their children. In some ways, this is the basis of life itself.

Society looks beyond the individual family. Estate tax doesn't eliminate everything that passes from generation to generation. Estate tax usually only applies to families of considerable wealth. Churchill said they were needed to prevent an idle rich.

[blueblood]

Nothing personal but that article is nothing more than a disjointed mish mash of tax history in Canada and a worthless rumour about US taxation that confuses more than it enlightens.

1) Just because one person claims to hear rumours of the US going to cut capital gains taxes doesn't mean it's going to happen.

We are have entered a deflationary recession. Capital gains taxes are hardly an issue when few will be paying them and in an era of non-stop deficits (with the US already many years ahead of Canada thanks to Bush and now Obama) it is unlikely that taxes will go down for long (moreso in the US than in Canada, hopefully for us).

There is a reason that Mulroney raised the capital gains inclusion to 75% and why the Liberals finally got rid of the $100,000 lifetime gains exemption in 1994 (after Mulroney got rid of it on real property transactions in 91/92). It's called paying the piper.

Notice that the capital gain inclusion rate started going down in 2000 after the deficit was slayed.

That's how taxes work - go up when people clue in to the mess that has been made and go down when the mess has subsided somewhat.

2) The CPC have already laid the groundwork for why Canada will end up having an estate tax - TFSA's.

In a matter of a couple of decades these are going to have so many assets in them the government will drool over the potential tax revenue they can grab if they could only find a way to tax them.

An estate tax would be one of many "good" ideas to attack these structures which, of course, are used primarily by the "rich" (whatever that means) to avoid taxes (or so I hear Jack Layton whispering on his deathbed).

3) People put too much faith into ideas that "rich" people are getting away with dramatically lower taxes on RRIF/RRSP taxes on death than the ordinary person.

Sure, they roll over tax free to the spouse on death. And, if that spouse is smart enough to marry a younger person (pick me, pick me) then the RRSP's/RRIF's could roll over again tax free etc....

In reality, this type of thing doesn't happen often and vast amounts of tax are paid.

I see this all the time - oh, right, I prepare or review over 1,000 tax returns every year so I would actually know these things as compared to people making up tax avoidance stories based on nothing more than ignorance.

The best way to avoid paying that kind of tax is to not invest in RRSP's in the first place but that is a discussion for another thread.

4) At least the current system is taxing economic gains - whether it is capital gains deferred in non-registered accounts or accrued gains in investment income/capital gains in RRSP's/RRIF's (for which the original capital contribution was a tax deduction) the economic gains are taxed on death.

An estate tax, otoh, would be taxing people's capital regardless of gains. An example is the little old lady who saved up $500,000 in GIC's and survived on her OAS/CPP (these people do exist but they never think to marry me just before kicking the bucket).

She paid tax on the interest income each year but doesn't pay tax on the principal of the GIC's because she paid for that principal with after-tax earnings.

An estate tax, however, would see tax paid on that principal amount and that just isn't right.

i'm not liking the sounds of this...

[jdobbin]

Nothing personal but that article is nothing more than a disjointed mish mash of tax history in Canada and a worthless rumour about US taxation that confuses more than it enlightens.

This is one article of many discussions that have been happening recently.

The issue of capital gains will happen this year and as you say, the assets will pile up fast in the next years. The issue of deficits and debt won't go away if spending and tax issues don't address the problem.

[Riverwind]

Society looks beyond the individual family. Estate tax doesn't eliminate everything that passes from generation to generation. Estate tax usually only applies to families of considerable wealth. Churchill said they were needed to prevent an idle rich.

Wealthy families use trusts to pass wealth between generations free of taxes. Estate taxes fall on the middle and upper middle class.

[jdobbin]

Unless there is a sudden change in constitutional negotiations, Harper will possibly go down in history as the guy who introduced TFSAs.

Did Chretien go down in history as the guy who eliminated the estate tax?

[Alta4ever]

Did Chretien go down in history as the guy who eliminated the estate tax?

Nope Adscam and the go round with the golfcourse looked after his legacy.

[August1991]

Nope Adscam and the go round with the golfcourse looked after his legacy.

Giggle.

[jdobbin]

Nope Adscam and the go round with the golfcourse looked after his legacy.

And Harper will probably be known for his sociopathic personality that kept him from winning a majority.

[Alta4ever]

And Harper will probably be known for his sociopathic personality that kept him from winning a majority.

I rather that then the latter.

[Smallc]

Well, he also might be remembered for his tendency to turn the truth on its head....

[jdobbin]

Wealthy families use trusts to pass wealth between generations free of taxes. Estate taxes fall on the middle and upper middle class.

Trusts are a form of avoiding taxes but they do not completely evade them.

[jdobbin]

I rather that then the latter.

Plus his in and out elections scheme. That still may result in criminal charges.

[Alta4ever]

Plus his in and out elections scheme. That still may result in criminal charges.

Now your just grasping.

The sight of JC on the news talking about his little white balls, given to him from all these important people, tring to justify himself to Gomery is now always what this country will remeber. Even that said it was still better then Trudeau's legacy in the west.

Edited January 27, 2009 by Alta4ever

[jdobbin]

Now your just grasping.

Now you are in denial. This is what the court machinations are all about now.

The sight of JC on the news talking about his little white balls, given to him from all these important people, tring to justify himself to Gomery is now always what this country will remeber. Even that said it was still better then Trudeau's legacy in the west.

The sight of Gomery acting partisan has been addressed by the federal court.

The Liberals survive. The same can't be said for the PCs which Mulroney destroyed.