Inheritance and gift taxes in Canada have a complex history dating back to Canadian Confederation. They are beginning to see a return to prominence in the provincial sphere.
Provincial succession duties
Succession duties have been held to be valid "direct taxation within the province," and can apply in the following scenarios:
property of a deceased person, whether he was at the time of his death domiciled in the Province or domiciled elsewhere, situate within the Province passing to any person for any beneficial interest property of a deceased situate outside the Province at the time of the death of the deceased, and the beneficiary of any of the property of the deceased was a resident at the time of the death of the deceased where the deceased person was at the time of his death domiciled in the Province, and where the property of the deceased comprises any personal property situate without the Province in respect of which any beneficial interest passes under the law of the Province to a person who is domiciled or resident in the Province
Succession duties came into effect in the various provinces at the following times:
Many incidents involving double taxation arose from liability to duty in different provinces, as well as other jurisdictions abroad, which were dealt with inconsistently among the provinces.
Collection in Ontario
Ontario was especially notable in its pursuit of duties. Mitchell Hepburn, in his capacity as Treasurer of Ontario, adopted a more aggressive approach in their collection on large estates, which resulted in millions of dollars in extra government revenues. He made no apologies for doing so, as he noted in a speech in 1938:
In 1937, legislation was passed that allowed for reexamination of estates for deaths that had occurred back to the beginning of 1916, and also included many gifts inter vivos within the duty's scope. Hepburn consequently ordered that all files relating to estates worth $500,000 or more, together with those of smaller estates where evasion was suspected, were to be reopened, with the expectation of raising further duties anywhere from $70 million to $100 million. The collection tactics employed included the seizure of books and records without a warrant, different methods for valuing assets, and the assessment of penalties that could amount to double or triple the amount of the duty involved.
One estate of particular focus in this campaign was that of the late John Rudolphus Booth, who had died in 1925. Although succession duties of $4.28 million were paid in 1927, Hepburn subsequently claimed more in 1937. Booth's heirs eventually paid another $3 million in 1939.
Where succession duty could apply
Duty cannot be charged where property is left outside the province to beneficiaries who are neither resident nor domiciled in the province. Taken as a whole, chargeability to succession duty depended upon whether the donor's domicile, the donee's residence, as well as the donee's status at the date of the deceased's death and the date of the disposition of the estate. In 1967, Ontario published a table outlining the various effects:
Federal estate taxes
Death taxes, which were not subject to the territorial limitations that affected provincial taxation, were first introduced at the federal level under the Dominion Succession Duty Act passed in 1941.() in 1941, In his Budget speech that year, Minister of Finance James Lorimer Ilsley explained why the federal government was entering in this area of revenue:
It was later replaced by the Estate Tax Act () in 1958, which was repealed at the end of 1971.
The succession duty focused on the succession being transferred, as opposed to the estate itself, which made it similar in scope to the UK's Succession Duty Act 1853. The estate tax, in comparison, was modelled more along the line of the US estate tax.
At the introduction of each tax, the property that was subject to each was identified as follows:
Gift tax
Gift tax was introduced as part of R.B. Bennett's New Deal in 1935. It was framed as an antiavoidance measure, as explained by Edgar Nelson Rhodes in that year's Budget speech:
As a consequence, it was imposed by the Parliament of Canada later that year as part of the Income War Tax Act.
The tax was wide in its scope: