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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?

Wow this is a great question. How does this work? +1

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.

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.

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.

yeah it's not perfect, but there's absolutely well enough data for the ballpark appraisal. Onus is not on the government to do any of this. So keep records folks.

I think the government now actually does keep tax records of buying and selling homes (became a bit of a question during the foreign buying debate) so going forward it's going to be no concern.

The question is not whether the alternative is perfect, the question is can it be made better than the status quo. It’s not that hard to come up with potential mitigations for the problems you state.

- A taxable threshold, so people who can’t afford lawyers and accountants don’t need to deal with it. Works well for family gifting.

- You don’t need to tax immediately, tax it when it the profit is realized, eg. When you sell that art.

- Taking out a loan against an asset at an increased valuation should trigger a taxable event. (Eg. Stocks go from 1b to 2b valuation and you take out a 500m loan. You are realizing 250k of gains and should pay tax on that gain.)

- Eliminate stepped up cost basis. This is a ridiculous give away.

This seems like the key.

You don’t suddenly owe taxes you maybe can’t afford when inheriting the family house.

You can afford those taxes when selling it for a massive profit so you should owe then. Likewise for realizing gains by taking a loan

This year, the first $15,000,000 of an estate is exempt from federal taxes, so unless it is on top of a different $14,000,001 in estate net assets, the estate tax (a tax on the estate) on that $1,000,000 house is $0. [0]

Some U.S. states have an additional inheritance tax (payable by the inheritors). Those rules vary. [1]

[0] https://www.irs.gov/businesses/small-businesses-self-employe... [1] https://www.investopedia.com/terms/i/inheritancetax.asp

This fact has me foaming at the mouth rn.

Why? Inheritance taxes are kinda stupid anyway, you already taxed it when it went to the parents, taxing again when moving those assets to next of kin is double dipping.

I can understand step up being considered unfair but the alternative is someone inheriting their family's stuff and getting slapped with a potentially huge tax bill they don't have the cash to afford.

Well I think the idea is it wasn't already taxed in many cases. If you have assets that have greatly appreciated then that appreciation was never taxed.

This seems trivial? Just like any other asset when you are alive, if you cannot establish a cost basis it’s assumed at $0.

Easy stuff. If your benefactors care about taxes on their estate they will properly document capital assets. If not? Oh well. It was a windfall gain either way.

This is such a non-issue given the inheritance/gift tax limit being so high I don’t understand why it’s ever talked about.

It’s also not as onerous as people assume. I’ve established cost basis 15 years later on an asset I had no paperwork for by simply looking up the daily average price for said asset when I knew I acquired it. This can even be used for stuff like buying an expensive retail purchase - just use advertised retail cost. The IRS allows broad leeway so long as you are consistent and can explain your reasoning.

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?

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.

To prevent royalty. That is literally the reason. To prevent family dynasties.

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.

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.)

Why?

Because their parents already bought and paid the taxes.

How do you feel about gift taxes?

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

Why is the Canadian approach fairer?

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.

Yes but why is the Canadian approach more fair than the US approach?

Because wealthy people can perform buy borrow die and poor people can't, artificially amplifying generational wealth differences.

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.

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.

How are income taxes a serious burden on “people who likely need it the most”?

Those who truly need it the most are typically well into the plus column on government transfer payments: On net, the government is paying them far more than they’re paying it.

Talking about homes: if a wealthy person see a depreciation of the equity they have a parachute (more homes, stocks, etc), if middle class sees a depreciation of the equity they're on the street. The risk profile is absolutely not the same.

In the Canadian approach, as I understand it, all capital gains taxes are assessed upon disposition; including disposition at death.

In the US approach, capital gains disposed at death avoid capital gains taxes.

Here are two similar scenarios where the difference in actions is small, but the difference in net estate distributed to heirs is large.

Both scenarios: Parent P buys (split adjusted) 100,000 shares AMZN on Jan 3, 2000 at close for $4.47. Parent P has no other assets.

Scenario 1: Parent P sells March 9, 2026 at close for $213.49 per share; realizing $209.02 in capital gains per share, ~ $20.9M capital gains, $21.4M proceeds. Parent P dies March 10, 2026. If cap gains tax is 20% uniformly (which it isn't), ~ $4.2M goes to income tax, the estate at time of death is $17.2M. If estate tax is uniformly 40% of amounts over $15M (which it isn't), the estate tax is about ~ $0.9M, and the net estate is $16.3M

Scenario 2: Parent P dies March 10, 2026, without selling. The estate promptly sells at close for $214.33. $21.4M proceeds, ~ $20.9M capital gains, but no capital gains tax is due. Again assuming 40% estate tax over $15M, estate tax is $2.6M and the net estate is $18.8M

How is it fair for the heirs of Parent P in scenario 2 to get so much more than in scenario 1 when the circumstances are so similar?

If you use actual tax brackets, you could make the example numbers more accurate, but I don't think it will change the results significantly.

Have you considered these factors when considering fairness..?

  1) Many estates contain illiquid assets- family farms, small businesses, etc. Forcing a deemed disposition at death can force heirs to sell just to pay the tax bill

  2) Death isn't a voluntary transaction, and cannot be forecast well, so we are essentially creating an arbitrary tax event/hardship

  3) Determining original cost basis across decades of an ancestor's holdings can create an enormous administrative burden for heirs

  4) Bunching all accumulated gains in a single year at death will push the estate into an artificially high marginal tax bracket

  5) Taxing gains at death discourages long-term wealth building and pushes people toward consumption instead of investment

IMHO, these are reasonable things to consider, and I acknowledge the hardships. However, my opinion is that similar circumstances leading the similar outcomes is the most fair, and wiping out unrealized capital gains at death can easily result in similar circumstances having unsimilar outcomes.

Specific suggestions or responses to your list:

1) Reasonable alternatives to assessing capital gains tax, due immediately exist. The cost basis could be transfered, as in a gift while living (point 3 applies however); or the tax could be assessed and recorded as a lien on the property, possibly with payment over several years.

2) Death isn't generally voluntary or scheduled or easy to predict a specific date. However, it is easy to forecast that everyone alive today will die at some point. No specific advice other than planning for your estate is something people should probably do once a decade or so.

3) I agree. Especially with assets like homes where cost basis isn't simply the purchase price but also includes improvements. At least for stocks and mutual funds, record keeping requirements for brokerages changed so they have to keep cost basis information in most cases, which helps a lot; but doesn't help for real estate or other capital assets. This is a hard one, and I recognize the value that a step up in basis provides, but I still find it unfair.

4) Yes. It would be nice if there was a way to spread capital gains over many years; not just for the deceased. Perhaps a carryback or carryforward. Or an enhanced 0% capital gains bracket for the deceased or for property disposed upon death; possibly with a carryback to help those who sold capital assets to pay for multi-year end-of-life care and etc.

5) Certainly, avoiding capital gains tax by dieing with unrealized capital gains is an incentive to not sell capital investments. I don't know that it encourages wealth building. Incentivising people to not sell things with unrealized capital gains at end of life causes problems for people too: waiting to sell someone's house, even though they moved into a care home and will never move back distorts the housing market; many people refuse to spend their savings, even when adequate, and instead rely on financial help from relatives or suffer hardships from lack of spending.

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

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