Concessions for Dependants

24.29. Two arguments suggest a case for special treatment of the surviving spouse's share of an estate. First, a husband has a moral and legal obligation to provide for his widow. Indeed, it might be said, in justice, that the support she has given him during his life has had its share in the creation of the property left to her by her husband. Secondly, if the purpose of an estate duty be to tax wealth once a generation, it is logical that property passing on death between spouses should be exempt.

24.30. The Committee agrees that there should be special treatment but would not recommend complete exemption. Complete exemption would be exceedingly generous in the case of large estates passing to a surviving spouse. In addition, it would open up avenues for abuses which would give rise to inequity. For example, a testator might leave half his property to his wife and half to his children. The half left

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to his wife would be taxed only on her death; but the result would be tax on two estates, each half the original estate, and under a progressive rate structure there could be substantial tax saving. Some planning of this kind will be available even under a partial exemption. The tax planning involved would be defeated in a degree if, notwithstanding the partial exemption, property passing to a spouse were taken into account in determining the rates of tax on property that is not exempt. This, however, could not be done under an integrated system of the kind proposed if the exemption available to a spouse is to be available in relation both to gifts and to bequests. This may be an argument for confining the exemption in favour of spouses to property passing by bequest, a matter discussed below.

24.31. The manner of any relief under an estate duty for a surviving spouse may take the form of an exemption of the bequest received by the spouse or a tax on part only of the bequest received. The initial question is whether the relief for a surviving spouse under the integrated system should be available for both gifts and bequests. If it is available for both, it follows that the exemption should be of a fixed money sum and not a fraction of the property passing to the spouse. Were it the latter, the amount of the exemption could not be determined until death. The Committee prefers, in any event, that the exemption should be of a fixed money sum.

24.32. If the exemption is made available in relation to gifts as well as bequests, there will be a measure of complexity, especially if the exemption in respect of a gift is made optional and any bequest on death is not sufficient to absorb the exemption. There are problems also in the operation of the exemption where the spouse who has received a gift dies or the marriage is dissolved and the donor remarries. There would need to be a separate exemption for each successive legal spouse.

24.33. The Committee is inclined to favour the availability of the spouse exemption in relation to both gifts and bequests. It does not propose that it be available to a de facto wife since, if the spouse exemption is available in relation to gifts during life, it will be impossible to define a de facto spouse in a manner that can be administered.

24.34. The size of the additional exemption for property passing to a spouse needs careful consideration. An amount of the order of $60,000 might be contemplated at today's level of prices, additional to the amount subject to zero rate referred to in paragraph 24.24. If the general exemption and the spouse exemption were each to be $60,000, the total exemption available to a surviving spouse would be $120,000.

24.35. The principal exemption proposed is that in favour of a surviving spouse, but other dependants of the deceased ought to attract some relief as well. The relief in the Committee's view should be based on dependency, not consanguinity. Also, it should be available only in respect of property passing on death: an exemption of a gift made to a dependent young person would provide a tax incentive for lifetime giving of a kind that would be difficult to justify. At present prices an exemption of $1,000 for each full year that a child is below the age of 18 years might be appropriate. The exemption should be available to the widow, to the extent that it is not absorbed on property passing to the child, if the child will be dependent on the widow.

24.36. There is no entirely satisfactory way of defining dependency. Dependency determined by age will fail to deal with many cases—the dependent parent of the deceased, for example. It would probably be best that relief be available where the Commissioner is satisfied, having regard to specified tests, that a beneficiary was dependent on the deceased.