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08/13/2018 13:30 EDT | Updated 08/14/2018 18:40 EDT

It’s Time For Canada To Start Taxing The Ultra-Rich When They Die

The majority of Canada's current wealthiest families didn't earn their fortunes, but had them passed down, from as far back as six generations.

There's a group of people in Canada that avoids paying taxes, gets special privileges hard-working Canadians can't and passes the rewards on to their children, enticing them to use the same tactics instead of making an honest living.

This sort of rhetoric is often used to describe those receiving social assistance, but in reality, it applies to the ultra-rich.

It's beyond time for the state to crack down on them, for the benefit of Canada's working class. Here's why, and how, it should be done.

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Canada's $100 bill.

Wealth inequality

Wealth inequality in Canada is staggering. According to a new report by David Macdonald, senior economist at the Canadian Centre for Policy Alternatives (CCPA), "Canada's wealthiest 87 families now have 4,448 times more wealth than the average Canadian family, and they collectively own the same amount as the lowest-earning 12 million Canadians."

The wealthiest families' riches increased by 37 per cent from 2012 to 2016, while what the CCPA classifies as "middle class" families saw their worth go up by only 16 per cent in the same timeframe. There's no indication this disparity will shrink anytime soon.

Inheritance tax

No single method can sufficiently cut down the wealth disparity, but there's at least one relatively simple step forward, which is long overdue: tax the ultra-rich when they die.

Since 1972, Canada has had a 0 per cent inheritance tax. According to the CCPA, implementing a 45 per cent inheritance tax — meaning the state would take 45 per cent of inheritance when it's passed down from one generation to the next — would bring in at least $2 billion for the federal revenue annually. The CCPA suggested families in Canada must be receiving an inheritance of more than $5 million before the tax would apply.

Canada is the only G7 country that doesn't have an inheritance tax

This money could then be used by the state to pay for programs and services Canadians want. According to a 2017 Broadbent Institute commissioned study by Stratcom, the overwhelming majority of Canadians either strongly, or somewhat, support: universal pharmacare (86 per cent); public dental services (85 per cent); a publicly funded national childcare system (68 per cent.)

By taking from those who can afford it, and giving to those in need, the inheritance tax can help bring these desires closer to fruition.

This may sound unimplementable, or like a utopian vision with no basis; it's not. Canada is the only G7 country that doesn't have an inheritance tax, as it was eliminated in favour of a capital gains tax. Japan has an inheritance tax of 55 per cent, Germany 50 per cent, France 45 per cent, and the United States and United Kingdom 40 per cent.

This tax is also one of the better ways to tackle wealth disparity directly, because it solely targets the ultra-rich.

In the U.S. in 2016, the inheritance tax affected just 0.2 per cent of the population — families receiving inheritances of $5.49 million per person — but brought in $18 billion in tax revenue.

Ducking and dodging

The ultra-rich, and those who fetishize them, will claim these families or individuals have earned their wealth fairly, and therefore don't deserve to be "punished" for supposedly just looking after their children.

This idea is flawed. The majority of Canada's current wealthiest families didn't earn their fortunes, but had them passed down, from as far back as six generations. Meanwhile, the ostensibly self-made amass their wealth on the backs of others, sometimes drastically underpaying workers, and occasionally breaking the law to boost profit margins.

But, even assuming the wealthy fairly earned their fortune, the reality is most of them don't pay back their fair share to society while alive. This is because the ultra-rich are able to take advantage of several tax loopholes to game the system.

Chris Wattie / Reuters
The Canada Revenue Agency (CRA) national headquarters in Ottawa on March 13, 2017.

For example, if you earn $100,000 a year in income, you'll be taxed based off of that sum. But due to the capital gains tax, if you make $200,000 in profit from stocks or property in a year, you'll only be taxed on the first $100,000.

Sure, anyone can technically benefit from this tax, but in reality, 90 per cent of these tax savings go to the top 1 per cent in Canada. According to the CCPA, this tax break keeps at least $11 billion out of the state's hands annually.

The dividend tax credit is another example. This credit is offered to corporate employees, under the assumption that their employer has paid corporate taxes. In reality, some corporations avoid paying tax entirely, and the rest typically pay low rates.

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As reported by the Broadbent Institute, "Most of this tax credit goes to the top income earners: 91 per cent of this benefit goes to the top 10 per cent and half of it is accumulated by the top 1 per cent."

According to the CCPA, this tax break keeps at least $5 billion out of the state's hands annually.

Then, there are tax havens, which the Panama Papers did some work in exposing. According to Statistics Canada, there's currently more than $199 billion Canadian dollars in offshore tax havens, leading to tax losses of between $6 billion to $7.8 billion annually.

With this in mind, there's no excuse that Canada hasn't implemented an inheritance tax. It's not an adequate solution on its own, as it hardly recuperates what the ultra-rich take, but it's a step toward pulling the country out of their hands.

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