Canada was one of those countries who used to have an inheritance tax. It failed because the rich had ways to dodge it, and the tax became a big headache for Canadians trying to settle average estates.

When rich grandpa passes away and his fortune goes to his 10 grandkids, here is what happens.

It is unlikely that the yacht was owned directly by grandpa. Rather it was owned by a company which was then owned by another company. THere could be five to ten companies involved, all effectively owned by Grandpa. So the grandkids get shares of companies that owned the yacht. This creates a very convoluted path for tax auditors to follow to determine how much of the yacht each grandkid owns. It gets more convoluted if there are other assets and if some of these companies are partially owed by an uncle or Grandpa's friend.

When the tax auditors tries to assess the value of the yacht for $5,000,000, the grandkids sell the yacht to another company for $500,000. Of course, that second company was recently just set up by the grandkids for the purpose of buying the yacht from the estate. The grandkids can argue that $500,000 is the market value for a second-hand yacht because that is what "someone else" paid for it. And this leaves a big loss in the first company that owned the yacht, therey reducing its taxable income. If this company now folds, its- losses will reverberate through the other companies so they too will not pay taxes.

I don't think we can write enough tax laws to discourage this behaviour. The rich just have too much resources to create and manipulate these shells for tax avoidance purposes.

Wealth and inheritance taxes just do not work. The better solution is to just let the heirs slowly release their wealth into the real economy. There's pretty good evidence that family wealth is substantially reduced by two generations. The heirs are not as smart or as hardworking as the founder.

As much as we may deplore the heirs for having lots of money and not working hard, it just takes too much of society's resources to get them to pay their "fair share."


I will say that there can be legal mechanisms to handle offshore/tax haven accounts. Laws can be set up such that auditors can deem an invoice to originate from a company to be within "arm's-length" of the audited company, and thereby nullifed as a legitimate expense. Let the business owner prove otherwise in a court of law.

BTW, I returned to my computer and found that Economist podcast had downloaded. I played it while I was doing some other things. I found it to be naive on understanding how tax laws really work.

I recommend that you find an international tax lawyer or accountant who is willing to spill the beans--for something much less that $500 an hour. Then effective solutions might come forth that make sense and might even work.

Dave Volek is the inventor of “Tiered Democratic Governance”. Let’s get rid of all political parties! Visit

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