Global push to raise wealth taxes

High net worth earners targeted by revenue-hungry governments

It is likely an understatement that worldwide there is a sense of trepidation among taxpayers on what measures governments will take to raise tax revenues to pay for the pandemic, and as well to respond to increasing wealth inequality, which the pandemic has exacerbated.

A brief survey of what governments are doing provides context, including in the Canadian setting with regard to what the Liberal minority government, elected in last year’s federal general election, may do.

South of the border, there were a raft of proposals, aimed in particular at the wealthy, tabled by the Biden administration, which were significantly changed and did not survive the bill that was passed by the House on Nov. 19, 2021, and is currently stalled in the Senate.

The idea of a wealth tax given the present state of uncertainty south of the border should still be considered a possibility, although it has not taken hold in the current proposals. A number of other countries have now imposed one or are considering doing so. For example, Singapore is currently considering how to expand its wealth tax system in order to meet the challenges of inequality and climate change in the face of a rapidly aging population, which it is concerned will increase income inequality.

In 2018, the Organisation for Economic Co-operation and Development (OECD) published an extensive report titled “The Role and Design of Net Wealth Taxes” in the OECD, in which it acknowledged that there is evidence of increasing wealth inequality and a strong case for addressing it through the tax system. However, it concluded that there are limited arguments for having a wealth tax where a country already has broad-based personal income taxes and well-designed inheritance and gift taxes, but there are strong arguments for having a wealth tax in the absence of such taxes.

Back on May 11, 2021, the OECD released a report titled “Inheritance Taxation in OECD Countries,” which found strong fairness arguments for an inheritance tax levied on the value of assets a beneficiary receives in order to address increasing wealth inequality over the next decade.

Closer to home, what is the forecast for what the government will do in the area of personal tax? Part of the Liberal election platform was a minimum 15% tax on high-earners, which it stated is in order to remove the ability to artificially pay little or no tax through the excessive use of credits and deductions. Apart from a proposed luxury tax on vehicles and boats, no details or draft legislation on other wealth-type tax were included in the government’s Dec. 14 Economic and Fiscal Update.

Will there be future proposals to increase taxes or even possibly introduce a wealth tax or an inheritance tax? The jury is out, but the support of the NDP may be critical to passing legislation which could impact tax proposals, and the NDP in its election platform advocated higher tax rates, a wealth tax and increasing the inclusion rate for capital gains from 50% to 75%. The need for the support of the NDP in the House could tilt future tax measures in this direction.

U.S. and worldwide initiatives, however, could significantly also impact Canadian tax policy and its future direction, which cannot be seen in isolation, as much of the world contends with similar issues and joins in the growing global conversation coming out of the pandemic.

Next time: What’s happening with U.S. estate and gift tax now?

Margaret O’Sullivan is Managing Partner of the Toronto-based trusts and estates law firm O’Sullivan Estate Lawyers. She practices exclusively in the areas of estate planning, estate litigation, advising executors, trustees and beneficiaries, and administration of trusts and estates. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.