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1. The Form of a Death Tax
24.7. The rather unpleasant term death tax has been used as a general expression for a wide class of possible taxes imposed at the time of death, some of which have long histories and some of which have been recently proposed:
- (a) The present Commonwealth tax and that of most of the States is an estate duty, the distinguishing feature of which is that the tax is levied on the value of the estate as a whole.
- (b) Inheritance taxes are those death taxes in which the tax is progressively related to the size not of the estate but of the individual bequests.
- (c) Accessions taxes have been proposed in which the tax is related not just to the size of the bequest but to the total of the sums the beneficiary has received over some period of years (or his whole life) from either that testator or all testators and donors.
- (d) A still nameless variant—that bequests and gifts be taxed as income in the hands of the recipients—was advocated by the Carter Commission (1966) which adopted the theory of the ‘comprehensive income base’.
24.8. Each of these has advantages and disadvantages by various tests. The schemes under (c) and (d) have prime concern for the situation of the beneficiary, if that be thought right. But each is somewhat arbitrary in the feature of his affairs that is held relevant to the rate of tax levied on his receipt: in one it depends upon his wealth and not at all upon his income and, in the other, it depends upon his income in the year of receipt. The Committee, however, believes that the wishes of the testator should predominate over the circumstances of the beneficiary: he (or she) after all saved the wealth in the estate or at least refrained from dissipating it, and subject to his obligations to his family it is rightly his privilege to dispose of it to whom he wishes with such regard as he wishes to their particular circumstances. Hence in the Committee's view the choice in equity between the four lies between an estate duty and an inheritance tax. They are also administratively the simplest.
24.9. While there is some merit, when taxing the assets of a deceased person, in having regard to the number of his heirs, the Committee prefers an estate duty partly because it is familiar and would be complicated to change but for other reasons as well. The Committee is unconvinced that, under the inheritance tax, the burden ‘falls on the beneficiary’ or that there is need in Australia to encourage wider dispersion of legacies. As regards the first argument, a testator can vary the incidence of the tax by the manner in which he makes his will. A person who wishes to leave a sum of money to a beneficiary can provide in his will that inheritance tax shall be charged not against that sum but against the balance of his estate. Even if express legislation forbids this, it will continue to be open to the testator to make a larger bequest to the beneficiary to compensate for the tax the beneficiary will have to pay. The other argument may have force where lingering traditions of primogeniture lead testators to concentrate their legacies on single heirs, but this is not the tradition in Australia. Furthermore, avoidance is probably more easily controlled under an estate duty, particularly where the law permits the creation of discretionary trusts and other equitable interests.