Dying to pay taxes

Recently, I got into a conversation with some older guys I was playing golf with about taxes - and more specifically, death taxes. It was explained to me that when you die, you (your estate) is on the hook for a percentage to be paid to the state, called probate. It was explained also that such a tax was integral to the British Crown's accumulation of so much land and property - in particular, large estates. This made sense (not the part about taxing the dead), since if you were an asset-rich multi-generational Brit born into old money, and you died with barely a penny in your pocket, but the owner of a multi-million pound estate in the British country-side, your estate would essentially have to forfeit this property to the Crown in order to settle the debt. Fucked up, but not entirely true.

In disbelief that my naivety had shielded me from the existence of 'death taxes', I did a little reading, and it turns out that my playing partners were likely unsure of the exact laws themselves. From what I can gather, 'probate' is entirely different from a death tax, and in Australia simply refers to the fee that the executor of a deceased's estate must pay to the courts in order to be authorised - legally - to execute the estate. In NSW, this ranges from no fee on very small estates, up to ~$5800 for estates valued at over $5m. It's a complex system that varies from state to state, but the nuts-and-bolts of the matter is that whilst technically not collecting an estate or inheritance tax (discussed below), the government still gets it's hands on a little piece of the deceased's pie.

Now onto estate and inheritance taxes: These are the taxes my playing partners were alluding to, which would be represented as a percentage of either the estate or the inheritance, and paid to the government out of either the estate, or by the beneficiary. As of right now, Australia doesn't have either of these taxes, and it's been a number of years since they did. Estate taxes have existed in the past with the predominant purpose of funding wars. From the late-1700's waging war against Napoleon Boneparte, right through to the early 1900's in Australia to fund the WWI effort - death taxes have had their place.

Since the last Australian states abolished death taxes in the 80's, they've kinda gone out of vogue (if you could argue a death tax was ever in vogue), and have become a bit of a self-sabotaging policy for any would-be federal pollie. Regardless of whether a government favours an estate tax, whereby the estate is bound to stump up the taxes, or an inheritance tax that leaves the beneficiaries with only a percentage of their inheritance - the death tax pretty much represents a death sentence for that political party's ambitions. Despite being one of the very few developed countries not to impose estate taxes, and many economists recommending them - the stigma still remains.

Technically, there is a death-duty, but it only applies to the taxable portion of your superannuation left to a non-dependant. Aside from that, it appears my playing partners weren't entirely factually correct when explaining that my meagre savings account would have the arse taxed out of it before my dog could inherit it.

That's what I learned today.