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> Loaned money isn't taxable income, so you can save/spend it without affecting your tax rate. > Death is a popular escape from deferred taxes. When you die, y

by nayuki 7mo ago

> Loaned money isn't taxable income, so you can save/spend it without affecting your tax rate. > Death is a popular escape from deferred taxes. When you die, your obligations to the government vanish. Your heirs inherit assets/property at market value. Their assets depreciate from new cost bases. The article talks about taxes in the USA, and I think the treatment of taxes at death is unfair by giving a significant tax advantage to people who hold assets till death, especially with the step-up basis. The way Canada handles it seems more reasonable to me: > Capital property generally includes real estate, such as homes and cottages, investments like stocks, mutual funds or crypto-assets, and personal belongings like artwork, collections or jewelry. When a person dies, they are considered to have sold all their property just prior to death, even though there is no actual disposition or sale. This is called a deemed disposition and may result in a capital gain or capital loss -- https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/capital-gains.html https://www.canada.ca/en/revenue-agency/services/tax/individ... In exchange, Canada does not have an inheritance tax. All taxation is resolved in the estate of the deceased person before the money or assets are passed on without further taxation.

trollbridge 7mo ago
Well, except for that pesky "inheritance tax" thing, which definitely affects people who have net worths that hit multimillion levels.
- hvb2 7mo ago
  Sure but would you rather have an inheritance that gets you to pay that tax or one that doesn't? Because getting a multi million dollar inheritance isn't something a typical person would feel sad about I would think
deleted 7mo ago
[deleted]
CGMthrowaway 7mo ago
Why is the Canadian approach fairer?
- nayuki 7mo ago
  If I understand correctly, the "buy borrow die" strategy of tax avoidance hinges on these aspects of the tax code: Buying an asset is not a taxable event. Holding onto an asset and letting it appreciate is not a taxable event. Borrowing money is not a taxable event. Holding an appreciated asset until death will step up its cost basis to the current market value (thus erasing any capital gains taxes), and it can be passed on but large amounts will trigger inheritance taxes.
  - CGMthrowaway 7mo ago
    Yes but why is the Canadian approach more fair than the US approach?
    - fer 7mo ago
      Because wealthy people can perform buy borrow die and poor people can't, artificially amplifying generational wealth differences.
      - twoodfin 7mo ago
        You don’t have to be wealthy: Homes get a step up basis on inheritance like any other capital asset, and home equity loans are quite popular. Less common but not obscure financial options include borrowing against your 401(k) or other equities.
        Groxx 7mo ago
        401k and home ownership count as "wealthy" in many circles. It's not "I can do whatever I want any time" wealth, but it does still mean "this is not an option for people who likely need it the most" which is the real issue.
skeeter2020 7mo ago
Alberta doesn't have an estate tax either, only a capped probate fee of (I think) a couple hundred bucks.
richwater 7mo ago
Why should the government collect taxes on jewelery I pass down to my children? I already paid income taxes on the money I used to buy it and sales tax at the point of purchase. Why the hell are they entitled to more?
- OfficialTurkey 7mo ago
  I'm not an accountant or tax lawyer (in fact, I'm not any kind of lawyer). My layman's understanding is that value -- from goods and services -- is taxed when it moves between legal entities, be those people, estates, or corporations. This is not a prescriptive legal framework as far as I know, but is a descriptive framework which I have observed and which makes sense to me morally. You paid income taxes on the money when you earned it because it left your employer's pocket and went into yours: the ownership of the value (money) has moved. You paid sales tax when you bought it because you exchanged money for the ring: the ownership of value (money, and a ring) has moved. And you pay an estate tax on it when it transfers from your estate to your children because, you guessed it, the ownership of value has moved.
- jedberg 7mo ago
  To prevent royalty. That is literally the reason. To prevent family dynasties.
  - pyuser583 7mo ago
    It’s terrible at that. Rich people are very good at passing down wealth, even in high tax environments. They just move abroad for a bit. They also pay for education and use networks and names to get their kids jobs and status.
- MagnumOpus 7mo ago
  Why should your children not pay tax on the valuables that they acquired without any work, when everyone else has to earn money and both pay income tax and then pay sales tax to acquire the same jewellery? (And you don’t enter into the equation. You are dead by the time the taxation happens.)
jedberg 7mo ago
It's two sides of the same coin. Imagine a simple example: Mom and dad buy a house for $100,000. When they die it's worth $1,000,000. In Canada, you'd pay gains on the $900,000 difference. In America, you'd pay inheritance tax on the full $1,000,000 (but no capital gains). So in America you're paying tax on a little bit more (I'm of course ignoring the cap gains baseline exception). But the reason America does it the way it does is because imagine it's not a house but a piece of art that mom and dad bought 50 years ago. No one know how they got it or what they paid for it. How does Canada even reconcile such a thing? How can you pay cap gains on it if you have no idea what it cost and no one is alive to even help you guess?
- pinkmuffinere 7mo ago
  Wow this is a great question. How does this work? +1
- Tiktaalik 7mo ago
  Easier than you'd think. The value of homes is very well known and assessed annually in many provinces (some have weirdly become laggards). So no real problem there. Any piece of art that is of any real value would have a provenance and it would be very well known what the value it was at any given time and at sale. If no one knows the artist or can determine the value it is very safe to say its value is nil.
  - jedberg 7mo ago
    It's really not that easy at all. Especially with art or jewelry. We can know the current value. It could even be a very famous piece of art. But these types of things are found all the time in attics and basements. Art especially is moved around without sales records all the time, and jewelry even more-so. Heck, I have things I bought myself that I have no idea what I paid for them. But I'd sure be upset if I had to pay cap gains taxes on these things assume their prior value was zero.
  - toast0 7mo ago
    House purchase price might be easy to determine; although old records aren't always great; certainly the price paid indicated on the front of the deed is often a formal requirement value, not the actual price, so hopefully the real price was written down on the recorded deed too. I wouldn't rely on assessed values, at least without a lot of cross referencing many jurisdictions setup assessments so that they reflect market value, but jot directly. On the other hand, cost basis in a house is not just the purchase price. Many improvements add to the cost basis, and good luck finding records to support that. Especially for a home owned by your parents since the 1970s. That doesn't make it equitable to step-up on death; but it does make it very convenient.

by nayuki 7mo ago

trollbridge 7mo ago

Well, except for that pesky "inheritance tax" thing, which definitely affects people who have net worths that hit multimillion levels.

hvb2 7mo ago
Sure but would you rather have an inheritance that gets you to pay that tax or one that doesn't? Because getting a multi million dollar inheritance isn't something a typical person would feel sad about I would think

deleted 7mo ago

[deleted]

CGMthrowaway 7mo ago

Why is the Canadian approach fairer?

nayuki 7mo ago
If I understand correctly, the "buy borrow die" strategy of tax avoidance hinges on these aspects of the tax code: Buying an asset is not a taxable event. Holding onto an asset and letting it appreciate is not a taxable event. Borrowing money is not a taxable event. Holding an appreciated asset until death will step up its cost basis to the current market value (thus erasing any capital gains taxes), and it can be passed on but large amounts will trigger inheritance taxes.
- CGMthrowaway 7mo ago
  Yes but why is the Canadian approach more fair than the US approach?
  - fer 7mo ago
    Because wealthy people can perform buy borrow die and poor people can't, artificially amplifying generational wealth differences.
    - twoodfin 7mo ago
      You don’t have to be wealthy: Homes get a step up basis on inheritance like any other capital asset, and home equity loans are quite popular. Less common but not obscure financial options include borrowing against your 401(k) or other equities.
      - Groxx 7mo ago
        401k and home ownership count as "wealthy" in many circles. It's not "I can do whatever I want any time" wealth, but it does still mean "this is not an option for people who likely need it the most" which is the real issue.

skeeter2020 7mo ago

Alberta doesn't have an estate tax either, only a capped probate fee of (I think) a couple hundred bucks.

richwater 7mo ago

Why should the government collect taxes on jewelery I pass down to my children? I already paid income taxes on the money I used to buy it and sales tax at the point of purchase. Why the hell are they entitled to more?

OfficialTurkey 7mo ago
I'm not an accountant or tax lawyer (in fact, I'm not any kind of lawyer). My layman's understanding is that value -- from goods and services -- is taxed when it moves between legal entities, be those people, estates, or corporations. This is not a prescriptive legal framework as far as I know, but is a descriptive framework which I have observed and which makes sense to me morally. You paid income taxes on the money when you earned it because it left your employer's pocket and went into yours: the ownership of the value (money) has moved. You paid sales tax when you bought it because you exchanged money for the ring: the ownership of value (money, and a ring) has moved. And you pay an estate tax on it when it transfers from your estate to your children because, you guessed it, the ownership of value has moved.
jedberg 7mo ago
To prevent royalty. That is literally the reason. To prevent family dynasties.
- pyuser583 7mo ago
  It’s terrible at that. Rich people are very good at passing down wealth, even in high tax environments. They just move abroad for a bit. They also pay for education and use networks and names to get their kids jobs and status.
MagnumOpus 7mo ago
Why should your children not pay tax on the valuables that they acquired without any work, when everyone else has to earn money and both pay income tax and then pay sales tax to acquire the same jewellery? (And you don’t enter into the equation. You are dead by the time the taxation happens.)

jedberg 7mo ago

It's two sides of the same coin. Imagine a simple example: Mom and dad buy a house for $100,000. When they die it's worth $1,000,000. In Canada, you'd pay gains on the $900,000 difference. In America, you'd pay inheritance tax on the full $1,000,000 (but no capital gains). So in America you're paying tax on a little bit more (I'm of course ignoring the cap gains baseline exception). But the reason America does it the way it does is because imagine it's not a house but a piece of art that mom and dad bought 50 years ago. No one know how they got it or what they paid for it. How does Canada even reconcile such a thing? How can you pay cap gains on it if you have no idea what it cost and no one is alive to even help you guess?

pinkmuffinere 7mo ago
Wow this is a great question. How does this work? +1
Tiktaalik 7mo ago
Easier than you'd think. The value of homes is very well known and assessed annually in many provinces (some have weirdly become laggards). So no real problem there. Any piece of art that is of any real value would have a provenance and it would be very well known what the value it was at any given time and at sale. If no one knows the artist or can determine the value it is very safe to say its value is nil.
- jedberg 7mo ago
  It's really not that easy at all. Especially with art or jewelry. We can know the current value. It could even be a very famous piece of art. But these types of things are found all the time in attics and basements. Art especially is moved around without sales records all the time, and jewelry even more-so. Heck, I have things I bought myself that I have no idea what I paid for them. But I'd sure be upset if I had to pay cap gains taxes on these things assume their prior value was zero.
- toast0 7mo ago
  House purchase price might be easy to determine; although old records aren't always great; certainly the price paid indicated on the front of the deed is often a formal requirement value, not the actual price, so hopefully the real price was written down on the recorded deed too. I wouldn't rely on assessed values, at least without a lot of cross referencing many jurisdictions setup assessments so that they reflect market value, but jot directly. On the other hand, cost basis in a house is not just the purchase price. Many improvements add to the cost basis, and good luck finding records to support that. Especially for a home owned by your parents since the 1970s. That doesn't make it equitable to step-up on death; but it does make it very convenient.