One Comment About Taxation – Reducing Tax Complexity Requires a Hard Look at Reducing Redundancy – The T1135 (Foreign Reporting Form) is a Good Example

Building a good tax system is not easy. The Scottish economist, Adam Smith, in his 1776 landmark book, The Wealth of Nations, laid out that a good tax system should have the following tenets:

 

1. Equity – the taxation of persons should be proportional to what they can pay;
2. Certainty – the system should be clear and transparent;
3. Convenience – the timing and system of payment should be convenient; and
4. Economy – the costs to administer and collect taxes should be minimized.

 

Canada has significant work to do in all of the above areas and that’s the reason many, including me, have loudly been calling for comprehensive tax reform for decades.

 

One of the most common responses I get to my articles and speeches is that our tax system is too complex so “let’s just simplify it!”. That deals with the second tenet above, certainty. I wish reducing complexity was easy. Unfortunately, many of our governments look at the tax system as a nail that needs a good hammer to solve issues. And anytime a nail is pounded by the hammer – the addition of new tax measures – it adds complexity.

 

For example, there are many that believe that there are billions and billions of dollars in unreported income “sitting offshore”. These beliefs are often fueled by ideology more than facts. There is no shortage of “research papers” published by think-tanks, academics and governments that tries to estimate the amount of hidden wealth – and thus lost taxation revenues.

 

A 2018 publication by the Government of Canada titled “International Tax Gap and Compliance Results For the Federal Personal Income Tax System” stated “…the stock of hidden off shore wealth held by Canadians could be between $75.9 billion and $240.5 billion…in 2013.” The report also concluded that “for the 2014 tax year, the estimated range of federal tax revenue loss due to hidden off shore investment income earned by Canadians on their foreign assets was between $0.8 billion to $3.0 billion”.

 

My first reaction when I read that publication in 2018 was that’s a pretty big range the government concluded for the amounts of hidden wealth. That’s like a cook book saying to use 1 cup of sugar in a recipe for cookies but, hey, you can also use 4 cups. The second reaction I had was the amount of estimated lost tax revenue was low compared to the overall compliance burden placed on Canadians to ensure they properly report their foreign income. My overall reaction – despite its disclosed research methodologies – was that these estimates are a bit of a crap shoot.

 

Recent “data leaks” also add to the belief that the rich are hiding their assets. For example, the 2016 “Panama Papers” theft of client information from a Panamanian law firm had the media in a frenzy about this. However, the CRA disclosed in March 2024 that they have completed over 310 taxpayer audits linked to the Panama Papers, resulting in approximately $83 million in federal taxes and penalties. The “Paradise Papers” – $6.8 million and “Pandora Papers” had no disclosed tax recoveries.

 

While $83 million is a lot of money, it is a pittance compared to the amount that the CRA has received in budget allocations from the government to strengthen enforcement in the offshore area. For example, in the 2016 budget, the CRA was allocated $444 million over 5 years. In the 2022 budget, the CRA was allocated an additional $1.2 billion.

 

The underreported offshore income myth has been in existence for decades. For example, the T1135 foreign reporting form, came out of the 1995 federal budget (in response to a 1994 Auditor General recommendation) and became law applicable for the 1998 taxation year and forward. The stated policy objectives for the form:

 

1. to enhance compliance with tax laws that require reporting of foreign-source income
2. to increase taxpayers’ awareness of these laws
3. to provide information to the Canada Revenue Agency (CRA) for the purpose of verifying taxpayers’ compliance
4. to better target international tax evasion and aggressive tax avoidance

 

Sounds good. But practitioner complaints about the form were almost immediate. Foreign assets that required disclosure included publicly traded foreign stocks – like Apple and Microsoft as two obvious examples. Investment houses are required to disclose all forms of investment income to the government so these reporting’s are burdensome and duplicative. Throughout the almost 3 decades that the T1135 has been in existence, it has changed and expanded but the foreign publicly traded stock requirement remains in the legislation. And the CRA has had no problem issuing penalties to taxpayers for various filing foot faults.

 

Over the years, various statistics have been published about the data collected by the CRA.  However, what it actually does with the information is a mystery. But it continues to state that the T1135 form is an important tool to help the CRA identify offshore non-compliance and target audit activities.

 

My two cents: highly unlikely. There are two reasons I say this. The first is that much of the submitted information – as stated above – is already available to the CRA. The second is that people who are purposely hiding their wealth and thus not paying tax on the income generated from that wealth will not voluntarily file a form to help the CRA find that income.  That is akin to requiring a drug dealer or murderer to record their criminal activities in advance before committing their crimes. It simply doesn’t happen.

 

Instead, compliant and diligent Canadians are burdened with more reporting requirements that adds to the overall complexity of the tax system.

 

The T1135 is just one example. There are dozens of others. It’s often stated that complexity is itself a tax. I agree. Every redundant or unnecessary reporting obligation eats away at the certainty Adam Smith saw as a pillar of a good tax system.

 

Adam Smith knew in 1776 what we keep forgetting in 2025: complexity erodes certainty. Canadians don’t need more ideological nails. They need a tax system that actually works.

 

One Comment About Leadership – Leaders Need to Respect Free Speech But Ensure That Doesn’t Include the Glorification of Someone’s Death

 

This past week was a difficult reminder of how fragile the norms of democracy really are. Charlie Kirk was shot and killed while speaking at a public event in Utah.  

 

Free speech is foundational. You may vehemently disagree with someone’s views and that’s ok. It’s part of what makes free discourse powerful.

 

But there is a distinction between disagreement and something far darker: celebrating the death of someone because of their beliefs. Some online post shave explicitly glorified Kirk’s death. That is beyond provocation – it is hate, plain and simple. Normalizing that behavior is dangerous.

 

It’s one thing to celebrate the death of someone who is so obviously evil (like Hitler and Stalin as obvious historical examples) but Charlie Kirk was not that. He was a husband, father, son, and friend of many.

 

Leaders, this is where you have to draw firm lines:

 

• Ensure the culture in your organization allows dissent, debate, and even deeply unpopular views without fear of retribution.
• At the same time, don’t excuse or tolerate speech or behavior that celebrates violence or death. Make clear what is unacceptable and enforce it when necessary. Terminations for violations should be swift.
• Be explicit in your values: free speech does not mean free-from accountability.

 

If we let celebration of such atrocities become tolerable, we erode our moral foundations. Leadership means standing up for and maintaining basic human dignity.

 

One Comment About Economics – Federal Budget Day is November 4, 2025

 

The government of Canada has finally announced that the next federal budget will be presented on November 4, 2025. That’s 567 days after the last federal budget was presented on April 16,2024. I can forgive the first 365 days, obviously, but I cannot forgive the next 202 days. It’s a disgrace. 

 

In addition, Parliament opened for the Fall session on September 15, 2025, and when the budget is presented, 50 days will have passed. Again, that’s a disgrace.

 

And to put the icing on the cake, the government’s fiscal year commences on April 1, 2025.  When the budget is presented on November 4, 2025, 218 days will have passed with only 148 remaining days in the fiscal year to March 31, 2026. Again, that’s a disgrace and an affront to transparency and accountability for taxpayer monies.

 

Canadians should demand this never happen again.

 

Bonus Comment – Quote From Noam Chomsky – American Theoretical Linguist – About Free Speech

 

“If you’re really in favor of free speech, then you’re in favor of freedom of speech for precisely the views you despise. Otherwise, you’re not in favor of free speech.”

 

Absolutely agree.  Leaders, do you agree?

 

Hope you enjoyed this edition of 1-1-1. If you’re not already part of the In the Mood Network, now’s the time. Please sign-up today.  Whether it’s through consulting, coaching, speaking, or writing, my work is about planting acorns: deliberate, principled actions that challenge the status quo and grow into something far bigger. The goal? Bold reform. Stronger foundations. And a country that values hard work and common sense.