A candid review of the administration of the Ontario Succession Duty Act



A candid review of the administration of the Ontario Succession Duty Act



A candid review of the administration of the Ontario Succession Duty Act


WHEN, at the close of his 1937 fiscal year. Old Man Ontario settled his glasses on his nose and took his pen in hand to figure out where he stood financially, he quickly discovered that the biggest single item of his income was derived from money and property which dead men had left behind them. The Ontario Succession Duty Act, as rewritten and put into effect on March 8, 1937, brought $16,000,000 into the provincial treasury last year. More than the gasoline tax, which yielded $11,500,000; more than automobile licenses, which producti $10,500,(XX); and much, much more than the widely publicized liquor revenue, from which the province collected the comparatively insignificant sum of $10,(KX),(XX).

The Ontario Succession Duty Act any succession duty act, for that matter is based u|x>n the quite reasonable hvjxithesis that a rich man, or a man moderately well off, should not lx[XTruitted selfishly to pass on all his property to his heirs when he dies, but that he owes a just debt to the ( iovernment under whose protection he was able to achieve his success.

It is as though the Government said to him: “Look here, now. You have made quite a lot of money in this province. Because of our form of Government, our natural resources, our geographical position, our public services, all the conditions set up and maintained here by, and through Government, it has been made possible for you to become wealthy. Agreed that your own acumen, your hard work and your thrift have had a great deal to do with the amount of money you have made, nevertheless, had t his not been an orderly, reasonably well-governed community during your lifetime, you could not have been so prosperous. Therefore, we think it is only right that your heirs, who, after all, did not themselves earn this projierty, should pay us a fair ¡>ercentage of the estate you are now comixJled to relinquish. “

That is the argument ujx>n which the theory of an inheritance tax is founded. It is fair and reasonable, and it is accepted as fair and reasonable in practically every fiscal system of our modern civilization. Not that everyone is happy about it, of course. Whenever a man amasses sufficient wealth to make it necessary for him to call in his legal advisers to draft a last will and testament, some dispute is bound to follow . Usually the larger the estate, the longer and louder the dispute; but, in principle, the idea of succession duty, of a tax on wealth and property left behind him by a dead man, is accepted everywhere as a just and projxT contribution to public revenues by his heirs.

There is Fear

\7T'.T. in spite of this general acceptance of the theory of an inheritance tax. the administration of the Ontario Succession Duty Act today is causing deep-rooted discontent. Among the not inconsiderable group upon whom the burden of the tax falls, its administration is causing greater resentment against the Government and its employees than any other governmental activity in the province, not excluding the enforcement of the Liquor Control Act, always a contentious issue.

There is a fear. There is a bitterness. There is a feeling that innocent persons are being driven, harried and persecuted to make a Hepburn holiday; and there is—of greater basic significance a rapidly growing conviction that in this s]x*cial branch of its operations, as in some others, government in Ontario has got out of hand, has departed completely from the British idea of democratic government, and is following the idea of a combined autocracy-bureaucracy typified by the totalitarian states in Europe and elsewhere.

On the face of its printed form, the Ontario Succession Duty Act appears for the most part as a mild and equitable piece of legislation, although, because it has become so involved with amendments and amendments to amendments in the past few years, it now requires an expert legal mind to interpret its provisions—and that may well be a part of the trouble.

The present Act exempts estates not exceeding $5,000 in value from payment of all duties. .Where the estate does not exceed $25,(XX) in value, any property passing to grandfather or grandmother, father, mother, husband, wife, child, grandchild, adopted child, daughter-in-law or son-inlaw, is exempt from taxation; and where the estate is $10,000 or less, an uncle, aunt, cousin, brother, sister, nephew, niece, or child of nephew or niece, may inherit without liability for duty. There are a number of other similar exemptions, so that, in this direction, the Act now in force is more generous than the one which it amends.

Why then, the fear, the bitterness? Why should a moderately wealthy, not rich, professional man suddenly stop making a monthly allowance to his son by cheque, feeling safer when the payment is made in cash? Why should lawyers, bankers, trust-company executives say: “The administration of the Act is an outrage against British justice. It has no regard for fair play. It puts bewildered heirs at the mercy of a Queen’s Park bureaucracy but don’t quote me”? For what reason, and by what means, has it become possible for a Canadian provincial government, founded upon the finest traditions of the British jieoples, to hold its constituents in such thralldom that they dare not speak a word of criticism against its actions except in a whisper and behind locked doors?

Hepburn’s Amendments

'"TMIREE YEARS ago the Ontario Government, under Premier Mitchell Hepburn’s direction, wrote into the Succession Duty Act certain amendments. Through those amendments the tax department of the provincial treasurer’s office was granted authority to reopen for tax enquiry all estates valued at $500,000 or more, probated since January 1, 1916. As it was rewritten, the Act granted police ixnvers to agents of the tax department, and it established the provincial treasurer’s office as the supreme authority in contested cases.

Estate lawyers, trustees, and harassed heirs who have forgotten in 1938 details of events that happened in, say, 1918, accuse those amendments. There, they say, is the answer to their fear. If is the manner in which this part of the Act is being administered the manner of an autocratic bureaucracy, employing police methodsthat has inaugurated a regime, regarded as terrorism by many citizens.

Originally the intent and purpose of the amendments were shown to lx* not only innocent of offense but righteous. Many rich men, the Government said, had defrauded previous administrations of succession duties in large sums. This legislation will authorize us to reopen those estates, and. where there has been fraud, to compel restitution and impose ¡xmalties.

It was common knowledge that, to some extent, this was true. There were well-authenticated cases of skulduggery, especially in the transfer of tax-exempt Government bonds to wealthy men whose end was approaching. It had been stated, and not denied, that some bondholders made a nice thing out of loaning tax-free bonds to the heirs of men about to die for a cash consideration. The newspajXTs have reported one case where, it was charged, the testator was kept alive by artificial means, until the necessary transfer had been completed according to the letter of the law.

There had been evasions, concealment of assets, misrepresentation of property values, and this was fraud, evident and indisputable. That such cheating should be punished severely is only common justice. On this basis, the amending legislation was presented to the provincial parliament. The opposition protested vigorously against the clause which makes the provincial treasurer’s department, not the law courts, the deciding authority in disputed cases. The Government replied that to carry all such disputes into the courts would swamp the legislative machinery of the province, and the Government majority put the amended bill through on a straight party vote.

In its original intention, then, this legislation was devised to correct and punish succession-duty frauds in all estates of $500,000 or over probated since January 1, 1916, and to prevent all such frauds in future. But—has the thing worked out that way?

Government officials say it has. Mr. Hepburn sees no fault in the operation of the Succession Duty Act; is, in fact, very pleased with it.

Under the heading, “Let the Treasure Hunt Go On!” a Hepburn advertisement published on October 4, 1937, two days before polling day, made this statement:

“Hepburn has already uncovered $28,000,000, hidden away in inheritance taxes on undervalued estates. Vote to continue the hunt !”

On the evening of the same day, Premier Hepburn said, in a public address at Barrie, that his Government had collected $28,000,000 in the last two years.

Again, in an earlier speech at Belleville, on September 30, Mr. Hepburn said that $50,000,000 was owing the province in succession duties, and added that the only way to get this money was to re-elect his Government.

What Sort of Hunt?

"pXCEPT by inference, there is no mention here of fraud.

The procedure has become a “hunt.” A hunt for what? A hunt for fraudulent practices, or merely a hunt for more revenue with which to glorify Mr. Hepburn’s administration? Too many of the people who are being hunted agree ruefully that this is indeed a hunt. They are the hunted, and they know it. But they insist that the hunt is not necessarily for fraud, but for money; and they say it is a ruthless, relentless hunt, with all the cxids in favor of the hunter. They say they are likedriven birds, and as helpless.

What is fraud? The Criminal Code of Canada contains a clear definition of the legal meaning of the word. But the hunted men and women, many of them old now, and some of them poor, for many things can happen, have happened, even to large estates in twenty-two years, declare that the provincial treasurer’s tax policemen define fraud quite simply as anything that does not conform with their will and authority.

Is the payment of a mortgage on a crippled sister’s home a taxable gift according to the law? When one estate was settled some years ago, officials representing the then Government decided that, under the Act, it was not a gift. In the hue and cry of the current treasure hunt, it has been declared a gift on which succession duty should have been paid, and may now be collected.

Supjx>se that ten, fifteen, years ago certain securities not on the market, for which there existed no known market price, were included in an estate. Their value was fixed by mutual agreement between Government tax officials then holding office, and the executors. Was that fraud? Now, other tax officials go over the estate and decide that the valuation then set, on which the duties have already been paid, was too low. The heirs must pay on the revised valuation—or else. Continued on page 61

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That “or else” is important. When the investigators from the provincial treasurer’s office have gone over a reopened estate with their fine-tooth combs, and have decided that financial aid to poor relations, gifts to charity and other beneficences made during the testator’s lifetime are subject to taxation now, although they were exempted in the original settlement, they can, if they so decide, add those gifts to the estate, and pile up fines, penalties, and compound interest, to a point where to meet their demand would mean stark, utter ruin. That is the genesis of the fear in which their victims live. Faced by complete disaster, any compromise is welcomed, even though it involves a tacit admission of fraud, where no real intention of fraud existed.

Such compromises have been made. There is a record of one estate upon which, after an intensive investigation, the tax department made a flat demand for the payment of $78,000. Legal representatives of the heirs battled for weeks, establishing just claims resulting in a reduction of the original demand to $14,000. They were peremptorily ordered to produce $14,000 by a certain date. Still holding that the levy was excessive, the lawyers served formal notice on the Government that they refused to pay. Final settlement was made for $7,000.

Here is food for deep thought. Estate lawyers point out that, following the originally declared intention of the Act, this estate, if the first claim of the tax detectives was a proper one, had defrauded the Government of $78,000. In review, the treasurer’s department admitted it could justify a claim of only $14,000, then at last accepted $7,000. By what processes of right reasoning did the tax investigators in the beginning set the figure at $71,000 more than the department could finally establish? If there was not $78,000 worth of fraud in the first place, why was the claim fixed at this outrageous figure? If there was $78,000 worth of fraud, the legal men ask, then does not the provincial treasurer’s office itself become a party to the fraud when it accepts $7,000 in full settlement?

Arbitrary Procedure

EXAMPLES such as these, and there are many of them, are offered to substantiate the accusations of unjust, especially un-British administration of the Act now being made—in private—throughout the province. The tax detective is armed with supreme authority. His office is beyond and above the common law. He requires no search warrant, issued by a magistrate for cause, to support his demand for delivery of account books, cheque books, or any other documents he may think he needs, and he may retain them as long as he wishes. Again, in too many instances the attitude and the conduct of these civil servants are open to severe criticism. They proceed, their victims tell you, on a complete presumption of prior guilt. Yet all British law assumes a man charged with a crime to be innocent until he is proved guilty.

There is a well-known case of a Toronto

brokerage house raided—and “raided” is the word—by two tax detectives who brusquely demanded to be shown all the recorded details of a certain account. It chanced that the executive who had had charge of that particular account was away from the office at the time, and the Government officials were asked courteously if they could postpone their investigation until he returned, a case of a one-, or at the most, a two-hour delay. At once they became suspicious that some subterfuge was being planned for their confounding. They refused point-blank to accept the logical explanation offered them, and threw the whole office into an uproar until they got what they were after.

Executors and trustees have other complaints against the conduct of the tax department. Securities and other property constituting an estate are held in the custody of the provincial treasurer’s office until an agreement is reached as to the amount of the succession duty payable to the Government. The present practice of the department is to withhold release of any and all property so held until the duty is paid by certified cheque. Cash in advance. There is nothing in the law to establish this procedure.

So far it has not been openly charged that the power vested in the Succession Duty department is being applied openly for the persecution of political enemies of the administration; but it might lie so used. The threat is always there. That “or else” is everlastingly in the background.

Nothing is Ever Settled

BECAUSE of its sinister implications, the present condition brings about some unexpected results. Life insurance ixflicies are being reviewed, in some cases drastically revised, by men who fear that their natural desire to protect their families after their death, may lead only to a persecution of their heirs and excessive imjx)Sts on their estates. The case of the professional man of moderate means already mentioned discloses another aspect of the fear with which so many citizens are obsessed. He has a son now in his late teens. A year or so ago he came to the conclusion that the boy had reached the age when he should learn the responsibility that goes with handling money of his own.

He said: “I had been giving the lad

ixicket money each week, but I felt he was old enough to have a small regular income of his own. So I agreed to pay him a stated monthly allowance, out of which he is required to buy his clothes and provide his own maintenance, exclusive of his food and room, which, of course, he gets at home. He is attending college, and during his vacation he works if he can find something to do, managing his earnings and his allowance according to his needs and his best judgment. For over a year I paid his allowance by a cheque on the first of each month. But, when I heard talk of some of the things being done under the present administration of the Succession Duty Act, I changed that. Now I pay him cash. No record, thanks. Do you realize that, in the event of my death, my estate

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might be liable for succession duty on the money I had allowed him during my lifetime to support himself while he was getting an education? If the tax officials decided that these sums were taxable gifts, that's all there’d be to it.’'

Nothing, one sees, is settled. No $500,000 estate probated since January 1, 1916, is ever closed. Adjustments now being made, are, under the interpretation of the Act now in force, subject to review any time the tax detectives feel like returning to them. No decision made by tax officials employed by previous Ontario Governments for the past twenty-two years is final, even though it was made by representatives of the Crown, under the authority of a parliament duly elected by the people of Ontario.

It is not sufficient to say that estates are only reopened when there is evidence of fraud. That argument merely completes the circle, returning us to the question of what is fraud, and the conclusion that, as the Succession Duty Act is now administered, fraud is anything the tax investigators say is fraud. It is on the records of the provincial treasurer’s office that estates against which fraud has been charged and heavy penalties imposed, have been found upon review to be, in fact, not fraudulent at all. To the extent of a $71,000 error in the case quoted earlier in this article.

Tax officials have declared, and have been so quoted in newspapers, that of fifty estates reopened, there was fraud in forty-nine. Can that statement be wholly accepted, or do they not rather mean that they themselves have decided that there was fraud? Are forty-nine out of every fifty wealthy Ontarians crooks, scheming with deliberate cunning to cheat their own Government?

A Threat of Fascism?

r"PHIS LEADS to a wonderment about -*• the future. What is being done with the huge sums collected by the tax probers under the Succession Duty Act? Mr. Hepburn has stated that there is still $50,000,000 to be collected through the provisions of the Act, and that his Government has gathered in $28,000,000 in two years, or at the rate of $14,000,000 a year. On that basis, it will take three or four years to get the remaining balance of $50,000,OCX) into the provincial treasury.

Other Queen’s Park estimates are more optimistic even than Mr. Hepburn’s, claiming that the amount outstanding will reach the staggering total of between $70,000.000 and $100,000,000, and that it will take ten years to complete collections.

Consider this: After four years, or after ten years, in 1942 or in 1948, the Government will have reached the bottom of that pot of gold. The last possible penny will have been squeezed out of the reluctant heirs. There will be no more income for Old Man Ontario from that source.

What happens then? If this huge income in excess of normal revenue is being put away in a reserve fund, in a sinking fund, or for debt reduction, all well and good; but there is no evidence that it is being so conserved. All the evidence there is points in the opposite direction, to the strong probability that it is being treated as a part of the normal income of the province, that, in fact, it is because of this extra money that Mr. Hepburn’s administration has been able to stage such dramatic and vote-inspiring performances as the reduction in the cost of automobile licenses, and the abolition of the amusement tax. In that case, what is going to happen to the Government four years, or ten years from now. with this hom of plenty exhausted? The Succession Duty Act is expected to bring in around $17,000.000 this year, and the greater part of that sum will come from

taxes and penalties imposed upon reopened estates. In a normal year the expectation of revenue from this source is about one third of that amount. When tax collections from succession duty return to normal— what comes next?

Some thoughtful citizens are afraid that the current high-handed and, they claim, ultra vires administration of the Succession Duty Act. portends an attempt to make fundamental changes in our system of government, changes diametrically opposed to the British method of government by law, through the due processes of the law. Changes which would deliver the law into the hands of governmental bureaus, or commissions, or individuals appointed by the government to interpret and enforce the law, not with the detached and unbiased approach of a court of law, but according to the requirements and wishes, even with regard to the prejudices of the party in power. They see evidences of this changing attitude toward law enforcement on the part of government in other procedures of the Ontario administration, as well as in other Canadian provinces, in Alberta, and in Quebec.

Greater Than the Courts

T)REMIER Mitchell Hepburn does not

allow such considerations to disturb him. He has, he says, a mandate to collect inheritance taxes according to the Succession Duty Act, and he is going to collect them. In a sense he is right. He is right in the sense that, after a vigorous campaign during which he lauded his Succession Duty Act in almost every speech he made, he and his followers were elected with a majority which gives them complete control of the destinies of their province for years to come. Perhaps that constitutes a mandate.

But, because the language of the hustings is too seldom the language of all the truth, there is reason to question the full authority of such a mandate. Mr. Hepburn told the people of Ontario: “We have

collected $28,000,000 in succession duty during the past two years. We can still collect $50.000,000 more from this source, through continuing to reopen estates settled as far hack as twenty-two years ago, if you return us to power;” and on that platform he was returned to power.

Suppose that Mr. Hepburn, instead of putting it in those words, had said:

“Return us to power, and we will continue and intensify the system which denies to the courts of law the right of adjudication in matters affecting disputes concerning succession duties. We will continue and intensify the system which makes our succession tax department the sole authority in such matters, which bestows upon the agents of that department the right, without search warrants, to enter any home or any business premises, and demand immediate delivery of all private account books and other documentary evidence they may think necessary to assist their case. We will continue and intensify the system through which those agents and their superior officers alone are authorized to decide where there has been fraud, undervaluation, or concealment of assets, and to state what is or what is not fraud, regardless of the Criminal Code of Canada, and to compromise to any extent in cases where they find it politic so to do; and to threaten with dire penalties those who dare to protest against their rulings. We will do all this, and, by these means, we will collect the $50,000,000 we think due to the Provincial Government from succession duties on reopened estates.”

Had Mr. Hepburn said that, would he have been given so definite a mandate?

But, of course. Mitchell Hepburn would never say anything so foolish.