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Estate and gift duties

6.60. Like personal income tax, Federal estate and gift duties are progressive levies. In the absence of offsetting adjustments to the rate scale and to the size of exemptions, duties will bite into estates and gifts with ever increasing severity as rising prices cause money values to become inflated.

6.61. The point is illustrated for estate duty in Table 6.H, though in very oversimplified fashion. No account is taken of death duties levied by the States, which are allowed as a deduction from the value of the estate in computing Federal duty; attention is confined to estates passing wholly to close relatives and unconnected with primary production; and the figures do not reflect the concessional treatment of the matrimonial home introduced in 1974.

TABLE 6.H: AVERAGE RATE OF FEDERAL ESTATE DUTY, 1954–55 AND 1973–74 (a)

                             
Average rate of duty  
1954–55   1973–74  
Value of estate at 1973–74 prices (b)  If no change in rate scale or exemptions since 1954–55   Actual   Change between 1954–55 and 1973–74 (actual)  
1   2   3   4  
Per cent  Per cent  Per cent  Per cent 
20,000  (c)  2.0  0.0  -100.0 
50,000  2.4  7.0  0.8  -66.7 
75,000  5.4  9.5  3.7  -31.5 
100,000  7.0  12.0  7.1  -1.4 
150,000  9.6  17.0  14.4  +50.0 
200,000  12.1  22.0  22.0  +81.8 
300,000  17.1  26.2  26.2  +53.2 
500,000  26.0  26.7  26.7  +2.7 
1,000,000  26.7  27.9  27.9  +4.5 
note  




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6.62. As can be seen by comparing columns 1 and 2 of Table 6.H, had no adjustments of any kind been made to the rate scale or to exemptions since 1954–55, average rates of Federal duty on estates of the same real value would by 1973–74 have been higher right across the board; though in the case of very large fortunes already attracting maximum or near-maximum duties as far back as 1954–55, the increase would have been modest.

6.63. While the 1954–55 rate scale still applies—indeed it was introduced as long ago as 1940—the level of exemptions has been adjusted on two occasions: with estates passing wholly to close relatives, the maximum exemption was raised in 1963 from $10,000 to $20,000, and in 1972 from $20,000 to $40,000. These are sizeable increases that more than compensate for inflation; but the exemptions are vanishing ones conferring no benefit on estates above a certain value (currently $20,000 in the case of estates passing wholly to close relatives). It is thus possible, on the basis of columns 1, 3 and 4 of Table 6.H, to identify three categories of estates:

  • (a) Smaller estates, up to a value approaching $100,000 at today's prices, are now in fact burdened with proportionately less duty than in 1954–55 because of more generous exemptions.
  • (b) In the case of very large fortunes (in excess of say $500,000 at today's prices), the fraction going in duty has not been noticeably affected by inflation: in these upper reaches the rate of duty is virtually proportional.
  • (c) The estates to be hit hardest by inflation are those in the $150,000–$300,000 range (at today's prices), being too large to benefit greatly, if at all, from more generous exemptions, yet low enough to attract higher rates of duty as money values rise.

6.64. If the burden of death duties on all estates, and not merely on smaller ones, is to be cushioned against inflation, it is clearly not enough to adjust vanishing exemptions as was done in 1963 and 1972: the rate brackets themselves must be adjusted for rising prices and, if inflation is rapid, must be adjusted quite frequently. Recommendations are made along these lines in Chapter 24 in the context of an integrated estate and gift duty.

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