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The Tax Base

24.11. The base of an estate duty must at least include that property owned by the deceased at the time of his death which in fact becomes part of his estate administered by his personal representative. However, the objective of taxing all wealth once a generation will require that the base be wider than this actual estate. In some circumstances property should be included in respect of which the deceased had only some of the incidents of ownership and which does not in fact pass to his personal representative. And valuable rights should be included which the deceased had at the time of his death but which ceased on his death or suffered a change on death that diminished their value. The tax base for the present Commonwealth estate duty and, though to a lesser extent, for the death taxes of the States, is too narrow and should be widened.

24.12. The Committee proposes that the base of estate duty should include property the deceased had power to acquire at the time of his death. Thus it would include property the subject of a power of appointment which the deceased had at the time of his death and could have exercised in his own favour. It should also include property in which a deceased person had an interest for life. If it is not included, property in which a life interest is given, for example in favour of a son, may escape tax for a generation: it would not be subject to tax until the death of the son's children who are given the property subject to their father's life interest. It is also proposed that there should be provisions whereby property subject to discretionary trusts will be brought to tax on the death of a beneficiary.

24.13. The base should include valuable rights in the form of an option to acquire property or a right to repayment of a loan or rights attendant on shares which the deceased had at the time of his death even though those rights are, by their terms, extinguished by his death. The option may be so expressed that it lapses on death; the right to recover the loan may be conditional on a personal notice being given which cannot be given after death; the articles of association of the company may provide that the shares will cease to carry certain rights on the death of the shareholder.

24.14. In addition to extensions to the tax base, it will be necessary to ensure that property included in the base is taxed at its true value. The law will need to take account of the various techniques used in ‘estate planning’ to bring about a change in the value of an asset on death so that the value for computing tax liability is far less than its value to the deceased during his life. Associated with this loss of value is an increase in the value of assets already owned by the deceased's heirs. One of the techniques involves a valuable parcel of shares which, by virtue of a provision in the articles of association of the company in which the shares are held, suffers a considerable decrease in value on the death of the shareholder.




  ― 443 ―

24.15. No extension of the tax base can ensure that all wealth is taxed at least once a generation. The law cannot forbid a grandfather leaving his property to his grandchildren when their parents are still living. Generation-skipping of this kind could be dealt with indirectly by provisions that would make tax on the grandfather's estate depend on the difference in age between himself and his grandchildren, but such provisions would be complicated and could produce some unexpected and probably unwelcome consequences.

24.16. The Committee's detailed proposals for the base of the reformed estate duty are set out in Appendix A to this chapter. The appendix also includes the Committee's proposals in regard to the base of a reformed gift duty which, as indicated in the next paragraph, should be integrated with the estate duty.

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