TaxTips.ca

Canada’s personal tax rates at the top end are egregious. And if Canada ever undergoes tax reform, this needs to be a priority. My @financialpost article this week tackles that topic: “My wife and I have some long-term friends who we get along with swimmingly, but we sometimes disagree, like most friendships. We work through it maturely because we value the history and the relationship. We don’t use disagreements as an excuse to rupture something built over decades. That's how I feel about Canada and the United States right now. Donald Trump's approach — the tariffs, the 51st state rhetoric, his claim that the U.S. doesn't need anything from us — is genuinely corrosive. Many Canadians' response — vacuous slogans, boycotting U.S. booze, cancelling trips, refusing U.S. products on principle. It feels like solidarity — is just therapy, not strategy. What that reaction misses is how lopsided the economic relationship is…This isn’t a fight between equals and pretending otherwise doesn’t change the math…. If symbolic retaliation isn't real leverage, what is? Making Canada an attractive place to invest, build a business and take risks with capital is entirely within our control. And one of the biggest levers we've refused to pull is changes to our personal tax system. Canada's top federal bracket — 33 per cent — kicks in at $258,482 of taxable income for 2026. That top bracket and four percentage point tax increase was introduced as one of Justin Trudeau's first measures after getting elected in the fall of 2015… In the U.S., the top federal bracket of 37 per cent doesn’t start until US$640,600 for a single filer and US$768,700 for a married couple filing jointly. Canada’s taxes look even worse when you add in the provincial rates. Ontario, British Columbia, Quebec and some of the Atlantic provinces impose a combined top marginal rate above 53 per cent, topping out at 54.8 per cent in Newfoundland… The U.S. range when including state taxes runs lower at the bottom, but isn’t uniformly so at the top. Nine states don't levy a broad-based income tax on wages, leaving a high earner’s total federal burden at 37 per cent, while New York City and California both push combined marginal rates just past 51 per cent… The floor is where the real gap lives, not the ceiling. Alberta, one of Canada’s lowest-taxing provinces, still charges 48 per cent at the top, which is at or above almost every U.S. jurisdiction outside New York City and California… Alberta is proof that competing with the U.S. is possible. From 2001 to 2015, the province ran a flat 10 per cent provincial rate — paired with a generous exemption to reduce regressiveness — for a combined 39 per cent top tax rate that was genuinely competitive with much of the U.S. However, Rachel Notley's NDP provincial government scrapped it in 2015… Premier Danielle Smith would be right to restore the old rate. Then there's what happens when an entrepreneur tries to grow or exit a business. Canada's lifetime capital gains exemption — $1.275 million for 2026…The U.S. equivalent…can shelter up to US$15 million of gains per company after five years... The rules for deferring gains on reinvestment tell the same story, only more starkly. In the U.S., section 1031 of…lets an investor or business owner exchange qualifying business or investment real estate for other qualifying business or investment real estate while deferring the gain... …Canada’s equivalent — section 44 of the Income Tax Act — is far narrower… Fixing this does not require U.S. cooperation like a trade deal does. It requires deciding that comprehensive tax reform is a critical piece of improving our economic sovereignty and is an urgent national priority. …Canada, so far, has reached for boycotts and bumper stickers that say Canada Strong or Elbows Up. Strong is a tax system that competes. Ours doesn’t, and pretending otherwise is the actual rupture. That’s the fix within our control.” financialpost.com/personal-f…

My latest @financialpost article explains the new “capital budgeting framework” from the context of a magic trick performed by a magician. It’s deceptive magic: “In his 1890 anthropological classic The Golden Bough, Sir James Frazer observed that magic rests on the mistaken belief that human ritual can compel nature to obey. That belief was part of my childhood since I was fascinated by magic tricks. As an adult, I still enjoy it. One of my sons took a fascination to magic while growing up and started to learn how to perform. But like most good magicians, he wouldn’t reveal his “secrets.” Watching him work reminded me how easily the eye can be fooled and how a well-timed distraction can make something ordinary look extraordinary. The trick is confidence; the audience must believe what they see. Mark Carney’s new “capital budgeting framework” released by the Department of Finance last week relies on the same principles and was released under the guise of “modernizing” the approach.… Why is the new approach a trick or a sleight of hand? It’s a blatant attempt to baffle those with low financial literacy to transfer certain expenditures from the overall budget to a capital budget and crow that you are “investing.” To reduce the impacts of the overall deficit — which some are predicting will be upwards of $100 billion, an unbelievably high number that threatens our country’s future prosperity — he's trying to focus us on the reduced “operational budget.” There are two keys to this trick. The first is to define what “capital” is and to do so in a very broad fashion in order to easily justify the transfer of an expenditure to the capital budget. The second, like good magicians, is to do so with confidence by pretending to be the smartest person in the room. A classic definition of capital assets is property of a lasting nature that is acquired for use in the production of income or for investment, rather than for sale in the ordinary course of business. But for government, this is modified by section 3150.05 of the Public Sector Accounting Standard (PSAB) — the authoritative source of accounting standards used by governments in Canada — which defines tangible capital assets (there are limited circumstances where governments are able to recognize intangible assets as well) as non-financial assets having physical substance that: ● Are held for use in the production or supply of goods and services, rental to others, administrative purposes or the development, construction, maintenance or repair of other tangible capital assets; ● Have useful lives extending beyond one fiscal year; ● Are to be used on a continuing basis; ● Are not for sale in the ordinary course of operations. Now, compare those classic and formal definitions with the new definition of capital for budgeting purposes as follows: "capital investment is defined broadly as any government expense or tax expenditure that contributes to public or private sector capital formation, held directly on the government’s balance sheet or on that of a private sector entity, Indigenous community or another level of government. Within this broad definition, the intent is to focus on capital investments that meet the following criteria: ● Conditionality — whether the funding recipient is required to invest in capital formation to receive the benefit. ● Clear linkage — whether the spending encourages or enables capital investment in identifiable sectors or projects.” First, I challenge any reader — financially literate or not — to make sense of the above. It is truly magical and extremely broad and not reconcilable to the classic or PSAB definitions. The Parliamentary Budget Officer also agrees that it is overly broad. To include “tax expenditures” in this definition of capital is laughable and misleading. Tax expenditures are foregone taxation revenues of government used to advance policy objectives, not investments that create government-owned assets or enduring service capacity. For example, if the government introduces a new tax incentive — say, a tax credit for the latest green initiative — estimates will be made as to how much forgone taxation revenues it would annually cost, known as a “tax expenditure.” Under the new capital budgeting approach, if the government feels the new tax expenditure contributes to “capital formation," then it will take that estimated cost and put it into the new “capital budget,” away from the “operating budget.” This is blatantly misleading. This simple accounting trick has a long history. Alberta’s government attempted this kind of budgeting exercise in 2013. Former premier Allison Redford was rightfully roasted for that lame attempt to make the numbers look better... Frazer said magic rests on the mistaken belief that ritual can compel nature to obey. Our modern fiscal magicians believe much the same, that by relabeling government spending as “capital,” they can make deficits disappear. But like any magic act, the trick depends on confidence and distraction. Eventually, the smoke clears, the illusion fades and Canadians are left with the same old out-of-control deficit, only now hidden behind new labels. It’s a clever performance, but, at its core, it’s a deceptive trick, one that trades transparency for theatrics and leaves Canadians poorer for having believed it. Government spending — capital or operating — increases government debt in the same way. Period. Like Albertans in 2013, Canadians should speak loudly against this tired illusion. There’s nothing modern about deception; only the costumes change.” financialpost.com/personal-f…

It’s Wednesday, April 9, 2025!!! It’s National Winston Churchill day in the U.S. (one of the all time great leaders who I greatly admire). It’s also National Unicorn Day….reminds me that I have to go feed my pet unicorn later today….poor guy must be getting hungry. But bigger than those days, Wednesday is the day my 1-1-1 Newsletter is released!!! Every Wednesday, I provide 1 comment on taxation, 1 comment on leadership and 1 comment on economics. Today, the April 9, 2025 edition, I comment as follows: - 1 comment on Taxation: So the Liberals Think That Recycling the 1970s MURB Tax Shelter Idea is a Good One, Eh? - 1 comment on Leadership: Are You a Leader That Is “Insincere in Heart”? - 1 comment on Economics: The Canadian Election Promises to Cut “Red Tape”. Happy reading! If you’d like more of my content, please join my In the Mood Network where I’m on a mission to plant acorns in the field of tax and financial literacy….link here kimgcmoody.com/connect/ And please join my In the Mood webinars next week! On April 17, 2025, I’ll presenting two 45 mins webinars: - In the Mood for Entrepreneurship - I’ll be chatting with Human Resource guru, Catherine R Bell of The Awakened Company about how entrepreneurs can build and retain great teams - registration link here kimgcmoody.com/webinars/inmf… - In the Mood for Tax - in this webinar, I’ll be chatting about all the latest and greatest in the world of tax with a particular emphasis on the election policies announced by the Conservatives and the Liberals - registration link here kimgcmoody.com/webinars/inmf… And, speaking of elections, please take a peek at my election tax policy tracker, updated as soon as a tax policy / promise is announced - kimgcmoody.com/canadian-tax-… More info about National Winston Churchill Day - daysoftheyear.com/days/winst… More info about National Unicorn Day - daysoftheyear.com/days/unico… kimgcmoody.com/kim-g-c-moody…

Brilliant as always by Jack Mintz: “The federal election that’s coming will give Canadians an opportunity to make important, even critical choices. Whatever Donald Trump finally does with tariffs, we need to decide which of the two major parties offers the country the best economic plan. As I wrote here last November, Canada is not broken, but it has been badly mismanaged. Our economy has been stagnant with virtually no growth in real per capita GDP in 10 years. Our productivity, as measured by GDP per working hour, is 11th-lowest among 36 OECD countries... Non-residential business investment has fallen so much that we now lag most of the world’s rich countries… Our historically successful immigration policy has been badly mismanaged... …inflation caused by deficit spending and monetary expansion has hit the pocketbooks of less well-off Canadians... The combined spending and revenue of all our levels of government is now more than two-fifths of our economy, without any real improvement in public services... Tariffs are a serious threat but, tariffs or no tariffs, we cannot repeat a lost decade of prosperity. So, what economic strategies do the two main parties propose? Carney banks on public-private partnerships to build Canada’s economy. Still pushing decarbonization, he wants us to become a clean energy superpower — though since we don’t make solar panels or windmills it’s hard to see how. He says he will drop the so-called consumer carbon tax but promises to increase the carbon tax on big emitters and introduce new mandates. With his environment buddies, Steven Guilbeault and Jonathan Wilkinson running again, will Carney continue to try to suppress oil and gas investment with tanker bans, emission caps and financial regulation? His idea of introducing a carbon tariff into the current tariff war surely is unwise so long as Donald Trump is president. So far, Carney has served up bromides, not details. Like Justin Trudeau, he promises a “middle class” tax cut. But the Liberals’ last such tax cut was accompanied by a soak-the-rich tax increase. He will balance the “operating budget” but increase debt to fund “capital” — which could be redefined to include slush funds.… Pierre Poilievre’s vision is to unleash the private sector to invest. He will forgo the capital gains tax hike (as Carney will, too) and eliminate the GST on new homes costing up to one million dollars. He will penalize cities (rather than give grants) that block housing development. He will reduce the federal bureaucracy…including defunding the CBC (whose budget the Liberals will instead double)…and speed up infrastructure and energy approvals… But whether or not the U.S. turns inward, we simply cannot afford another decade of bad economic policy.” Brilliant. From a tax perspective, I totally agree with @PierrePoilievre plans to unleash the private sector to invest and of course I love his committment to tax reform. “Elbows up”? Nope. Real leadership please. financialpost.com/opinion/ja…

My latest @financialpost article discusses @MarkJCarney’s proposed budgeting / accounting trick: “The father of double-entry accounting, Luca Pacioli, was onto something when he contributed his wisdom in the 15th century to create what we now know is a basic accounting equation: assets = liabilities + equity. …The equation ensures that every financial transaction maintains balance in an organization’s books. …However, accounting principles can be malleable and flexible. One of the most common manipulations is the classification of assets versus expenses. The general rule of thumb is that if an economic outlay has a lingering benefit…then such an outlay is likely an asset or capital outlay. …Accordingly, there is often gamesmanship with capital versus expenses since if it is capital, the income statement is not as adversely affected. Given this background, my ears perked up when Liberal leadership frontrunner Mark Carney announced a proposed new approach to government budgeting. “A government led by Mark Carney will separate the federal government’s operating and capital budgets, and make major changes to each," he said on his website. "It will balance the federal operating budget over the next three years, creating room for personal tax cuts…” …you can easily see the trick being attempted here. Carney and his cohorts will attempt to classify expense spending…as capital items so as to remove such spending from the operational deficit calculation. What counts as capital? Good question. Without details, it’s a blank cheque to reclassify spending — say, public-sector wages, pet projects or green energy subsidies — as assets or investments. The result? A rosy deficit picture that hides borrowing reality. Alberta…attempted this kind of budgeting exercise in 2013 and then-disastrous premier Allison Redford was thoroughly and rightfully roasted for this lame attempt to make the numbers look better. …Former United Kingdom chancellor…Gordon Brown deployed this trick with his version of the Golden Rule from 1997 to 2009, hiding massive overspending…from the operational budget... What about Carney’s claims that such an approach would lead to personal tax cuts? Well, keep dreaming. Any Canadian who falls for this promise should do themselves a favour and take a basic accounting course. Again, if you move expenditures off the budget into a capital budget, that does not reduce cash outlays. For governments, it means piling up debt. …Reduced personal taxes? I’ll believe that when Pacioli comes back from the dead and develops a new accounting equation. …By separating budgets, governments aren’t balancing finances; they’re hiding spending in plain sight. The bastardization of Pacioli’s basic principles is usually ridiculous and debatable. Carney’s proposals are simply nutty and there's a long history of others trying this trick. Canadians need to reject this kind of manipulation. It certainly won’t help them pay less tax.” financialpost.com/personal-f…

My latest Financial Post article discusses all the taxes, "fees" and levies that quietly drain your wallet and wealth: "People automatically assume you mean income tax when you talk to them about paying taxes, but have you ever thought about all the other types of taxes and government fees and levies that erode your income and wealth? Here’s a quick list of some of the more obvious tax and fees and levies that Canadian families will pay in a year: 1. Federal and provincial income taxes... 2. Canada Pension Plan, Québec Pension Plan and Employment Insurance... 3. GST/HST... 4. Provincial sales tax (PST): British Columbia, Manitoba, Quebec and Saskatchewan also charge a separate provincial sales tax... 5. Federal and provincial excise taxes on gasoline and other fuels with additional carbon taxes. 6. Federal and provincial excise taxes on alcohol. 7. Federal customs duties and tariffs on certain imported goods. 8. Federal luxury taxes on certain automobiles, airplanes and boats. 9. Air travellers security charge: This is levied on a per-passenger basis depending on the type of flight. 10. Provincial vehicle registration and driver’s licence fees... 11. Municipal property taxes... 12. Property transfer tax... 13. Life insurance premium tax: If you own a life insurance policy in Canada, well, you’re indirectly paying a provincial premium tax that the life insurance carriers pay. 15. Municipal landfill fees... 16. Municipal parking fees and fines... 17. Toll roads and bridges... 18. Short-term rental fees... 20. Building permit fees... 21. Emergency services fees.. 22. Vacancy taxes... 23. Passport fees... 24. Firearm fees... 25. Ontario health premium.. I could go on and on... The Fraser Institute’s eye-popping annual survey of the tax load for an average Canadian family of four (married couple with two young children) said the taxation load in 2023 was 43 per cent of the family’s cash income. This percentage does not include some of the fees and levies listed above, and it’s also significantly higher than the costs for food, clothing and shelter combined. ...Some of these charges are obvious, but many are buried in the fine print of daily life, quietly draining wallets. [This]...should be a wake-up call to take a hard look at what you’re paying and ask whether you’re getting good value in return. The answer is an emphatic no. We should be expecting more for our hard-earned contributions and that starts with demanding balanced budgets (not playing accounting games to get to balanced budgets or reduced deficits such as Mark Carney is proposing to do) and respect for taxpayer dollars from our politicians. “The best way to teach your kids about taxes is by eating 30 per cent of their ice cream,” the famous actor Bill Murray once said. Except in Canada, the ice cream-eating percentage is far more than 43 per cent. I’m confident your kids won’t feel like they got good value in return for you eating that 43 per cent." financialpost.com/personal-f… 📷

My latest @financialpost article discusses the importance of understanding history when looking at our country’s tax system and learning from it: “Arnold Sherman, one of Canada’s first international tax practitioners starting in the 1950s, built one of the most impressive taxation libraries in Canada, a collection I was fortunate to inherit upon his retirement only a few years ago. This past weekend, as I often do and with a nice glass of wine, I pulled one of the books off a shelf from Sherman's library: A History of Taxation and Expenditure in the Western World by Carolyn Webber and Aaron Wildavsky. It contains an impressive historical account of taxation, budgeting and finance from ancient times up to 1986, the year it was published. “Archaeological evidence from Mesopotamia reveals that the earliest compulsory taxes were tithes, levies assessed on a fixed proportion of the total crop, based on some official’s estimate of what a man had harvested," the authors say. "A man who took gifts to the temple gave only what he could spare; but when the king demanded regular payments of a specified amount, a reluctant subject’s compliance could be achieved only by coercion. Thus a compulsory tax policy demanded multiplication of officials to assess and collect the crop.” …Not much has changed since the ancient times, eh? Today, tax systems in most countries remain reluctantly paid and are enforced by a multitude of officials. Canadians celebrated the 60th anniversary of the introduction of Canada’s first official flag on Feb. 15, but many forget the introduction of the flag was quite controversial. I don’t remember that since I was not yet born. However, one of the records from my parents’ collection that my siblings and I used to often play while growing up contained a catchy tune, Rally Around the New Flag, by the Brothers-In-Law. The lyrics captured the flag controversy at the time, including this line in the chorus, “Rally around the new flag. It’s more than a mere piece of rag.” Coincidentally, that song was released in 1965, one year before the release of the Report of the Royal Commission on Taxation in 1966, which was the first and only time in our country’s history that we have had comprehensive taxation review. That’s exactly what we need with respect to our tax system today. We need to rally around tax reform; it’s more than a conceptual rag and long overdue. Like our country’s flag, it won’t be without controversy, but, again, it’s an important next step. ..Like the lessons found in Sherman's old taxation library, history reminds us that taxation, like governance itself, is always a balancing act, one that Canada has lost sight of. ..As we reflect on 60 years of our national flag, it’s time to rally not just around a symbol, but around a tax system that fosters growth, rewards hard work and respects taxpayers’ contributions. Tax reform, as proposed by the Conservative[s]…would be a positive step in that direction.” financialpost.com/personal-f…

It’s Wednesday!!! My favorite day of the week!! Why?? Well, every Wednesday I release my 1-1-1 Newsletter where I provide 1 comment on taxation, 1 comment on leadership and 1 comment on economics! In today’s February 12, 2025 edition, I comment as follows: - 1 comment on Taxation: Canadians Need to Significantly Improve Their Financial Literacy; - 1 comment on Leadership: Leaders, You DO Make a Difference! ; and - 1 comment on Economics: My Early Observations of the U.S. DOGE Reviews. If you like my content, please sign-up to my In the Mood Network for early access to my content! Link in the thread below. Happy reading! kimgcmoody.com/kim-g-c-moody…

Well, I think the majority of Canadians have waited for this day for years. I'll have much more to say about @JustinTrudeau's legacy throughout the year, but suffice it to say that I think his legacy as one of the worst Canadian PM's in our country's history is cemented. I will be interested for the rest of my life to see if historians are able to rescue anything significant. His government's taxation and economic policies have been horribly destructive over the last 9+ years. With respect to today's announcement here's my short comments: - instead of calling a general election, which would be in the best in interest of ALL Canadians, he chose what is in the best interest of the Liberal Party by proroguing Parliament until 3/24/25; - JT is not disappearing as PM nor leader of the Liberal Party until a new leader is chosen. Classic narcissism. How long will that be? Will a new leader be in place before 3/24/25?; - Again, instead of calling an immediate election, we will have non-functioning and lame duck PM / government during a time when Canada needs strong leadership with the new incoming President of the U.S. Not good.... - Lastly, the capital gains inclusion rate proposals were on life support before the PM's "resignation". The prorogation of Parliament confirms this. While the PM announced during his press conference that he intends to get the budget passed when Parliament convenes, I'd say that is a tall order. Especially the capital gains proposals which have not even been put into a bill. But I guess you never know.... Canada, this kind of "leadership" is disappointing. We need a general election....not an election of a new Liberal Party leader. Disappointing to say the least. nationalpost.com/news/politi…