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?

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.

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.

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