Estate Tax: Social Equality or a Terrible Idea

As I started reading a recent article by Linda McQuaig of the Toronto Star titled “Tax Exempt Fortunes Feed Inequality” I knew I my views would be widely divergent.

The article proposed that removing the Estate Tax in 1972 deprived Ottawa of much needed revenue and put Canadians on a path toward greater inequality. Estate tax, which is/has been a huge issue in the United States, is essentially a tax levied at death on the deceased’s accumulated wealth.

Ms. McQuaig suggests restoring an Estate Tax based on a plan by Neil Brooks an Osgoode Hall tax professor. She argues restoring the Estate Tax would remove or partially address income inequality. Mr. Brooks’ plan would be to tax estates greater than $1.5 million which Ms. McQuaig says, would be enough to set up a $16,000 education trust for each Canadian child on their 16^th birthday.

Ms. McQuaig suggests some may protest this as a tax on the wealthy; I protest estate tax as a double tax. One accumulates wealth with after-tax dollars so to tax your estate on death is double tax. The United States has at least justified estate tax with substantially lower income taxes while one is alive.

For example, take hypothetical Guy, a successful business owner who risks his house and all his assets to start a business. He and his spouse make, on average, $250,000 a year for say 25 years. Each year they pay income tax of approximately $100,000 on their income. Say they keep $75,000 after living expenses and use that to buy a house for $500,000 and a cottage for $300,000 over time. Upon death the house is worth $1,000,000, the cottage $700,000 and the remaining cash around $1,200,000.

Upon the death of the last surviving spouse, their executor would have to pay income taxes on the inherent gain in the cottage of approximately $100,000 on their final terminal tax return. There would be no income tax on their principal residence.

The estate would be worth in total $2,800,000 after paying the $100,000 in taxes. Applying Mr. Brooks’ proposed $1,500,000 exemption, there would still be estate tax on $1,300,000. Say the rate is 40%; the US has an even higher rate, that would be an additional double tax of $520,000.

You can argue as Ms. McQuaig that this is just social policy; I argue it is a blatant double tax.

I recently ate at the Hy’s steakhouse location in Toronto with some friends. We had an excellent meal, including caesar salad, black and blue ahi tuna ,filet mignon and Cajun rib steak. We were well taken care of by the General Manager and Director of Eastern Operations Michael Shatz. The Toronto location is a beautiful restaurant and we were all dressed in a style you would describe these days as “casual smart” (dress pants and shirt) or, in the case of the girls, nicer.

Which brings me to my point of discussion: What is the proper dress attire for a fine restaurant? While I think most people are somewhat “old school” and dress differently depending on the restaurant, I often see people in jeans and t-shirts. Casual is appropriate for many restaurants, and while I have no problem wearing jeans to those type of restaurants, I would never wear a t-shirt.

I think what bothers me is the lack of respect for the restaurant and the other diners. It is like these casual dressers are saying “I don’t care if I am spending $200 or more, I will wear what I feel like.” It just seems to smack of disrespect for the other diners who reserve that restaurant for special occasions, or even those who just expect a minimum dress code. Maybe I have just hit the age where I have now become my parents.

The CRA and the PGA, Some Strange Rules

I recently read that Toronto Police Association president Mike McCormack said the Canada Revenue Agency (“CRA”) has decided that allowing the police to park at police stations is a taxable benefit. Mr. McCormack says the taxman is looking for three years back taxes and that could amount to “thousands of dollars” for each officer.

I have never understood CRA’s position on parking where a company has its own parking lot. You are driving to your place of employment to work, how is that a personal benefit?

The CRA’s position on parking is set forth in the following links:

T4130 Employers’Guide Taxable Benefits and Allowances

Parking Questions and Answers

Parking Definitions

In general, the CRA considers there to be a taxable benefit for parking whether the employer owns the parking lot or not. The most common exceptions are for scramble parking and parking provided for business reasons.

Business reasons relates to situations when an employee regularly uses his/her automobile to perform employment duties such as travelling off-site to meetings or service calls.

The CRA defines regularly as:

We consider "regularly" to be an average of three or more days per week. If the employee requires the use of a vehicle for business purposes less frequently, we will accept a pro-ration of the benefit. For example, if the employee uses a vehicle in the course of his or her duties 1 day per week, the value of the parking may be reduced by 20%, since the employee required a spot for business purposes 20% of the time.”

Employers often overlook the potential taxable benefit for parking which can result in a surprise income addition, and taxes payable, for their employees. Employers should review this issue with their advisors.

Stupid Golf Rules

As I get older, the injuries I ignored in my youth are coming back to haunt me. My knees now prevent me from playing basketball and my back keeps me from hockey. The one sport I seem to be able to handle physically is golf. I have a set game with my friends and we are all pretty good golfers (12-15 handicaps) and more importantly, we all have the same philosophy; we play golf for fun.

We play to be outdoors. We play for the challenge of the game. We play teams for lunch and we play to make fun of each other. We allow gimme’s and just take penalties from where we go out of bounds. We let one another move balls from divots.

Now I know anyone reading this who is a golf purist is offended by our lack of adherence to the rules and is already saying “You are not a 12 handicap if you play the way you do.” You know what, I agree, and our handicaps hurt us in any regulated tournament or club-like championship as they are understated due to the way we play. But we would rather play the way we play and we don’t care what our true handicaps really are. But, different strokes for different folks, and I understand those who are strict play-by-the-rules types, it is just not how we want to play the game as a recreational golfers.

After this year’s PGA when Dustin Johnston was penalized for grounding his club in a trap which did not look like a trap, some of golf’s archaic rules were revisited by many journalists and bloggers.

The following are some rules that just seem stupid in my opinion.

Balls in divots- You cannot take a free drop from a divot on a ball that lands in the fairway. How crazy? Someone else creates a divot and you hit a good shot and you are penalized by playing the ball from a large hole? How does this make sense when you get a free drop from ground under repair or a drain?

Padrig Harrington was penalized in a tournament when the wind blew his ball as he set up. He was penalized not because the ball moved, but because he had addressed the ball. How crazy is that? Mother Nature affected the ball, not the player.

Michelle Wie had a famous disqualification because she failed to sign her scorecard before leaving the scoring area. Everyone watching the tournament knows the score with all the electronic scorekeeping, so who cares when she signs?

You cannot fix a spike mark made on the green. Again, someone else created the impediment, but you suffer.

Golf is the most challenging game I have ever played and it can be enjoyed by playing strictly by the rules or using modified rules for weekend hackers.