One Comment About Taxation – So Why Are Hutterite Colonies Able to Split Their Income But Private Business Owners Have TOSI? Mismatched Socks Tax Policy

Last week, a young relative showed up at a family gathering in flip-flops with one white sock and one black. When I pointed it out, she shrugged – she’d been rushing and hadn’t noticed. I was the first person all day to say anything.

 

Forty years ago, a kid in my high school class did the same thing on purpose. Everyone thought he was strange. Today, nobody bats an eye until someone who still notices points it out.

 

The Income Tax Act has many pairs of mismatched socks. Legislators are often more comfortable with a provision’s politics than with how it clashes with the rest of the Act, or with the “unintended consequences” that follow.

 

One example that has bothered me since 2017 is section 143 – the so-called Hutterite rule. If a religious congregation – as the Act defines it – runs a business communally, like a Hutterite colony’s farm, the Act deems a trust to exist. Broadly speaking, the trust can elect to split income each year among adult members by formula: one per family gets a full share, others a half share. No one has to prove hours worked or capital contributed.

 

This wasn’t an accident. It traces to Wipf v. The Queen in 1975: the Court found that a Hutterite colony wasn’t a commercial enterprise generating individual profits – no personal property interest, income shared by need. Parliament wrote that into section 143 in 1977, aiming to tax colonies “in the same manner as their non-Hutterian neighbours” – favourably, but not more favourably. The Federal Court of Appeal reaffirmed it in 1979. Call this the “white sock”.

 

Now the other foot. On July 18, 2017, then-Finance Minister Bill Morneau unveiled a package aimed at private businesses, framed as closing loopholes for wealthy Canadians trying to avoid higher tax rates, singling out income sprinkling among family members.

 

That was the pitch: measures that targeted high-income business owners gaming the system. What followed, after significant backlash, was sweeping amendments to the “tax on split income” (“TOSI”) rules – applying to various private interests, any income level, any family. Professional groups warned the real target would be middle-class owners, not the wealthy Morneau pitched.

 

Take a hypothetical Ontario couple who each own half the economic value of BakeryCo, a business they started together. Mom drives the company and owns all of the voting shares; dad stays home raising their two young kids and isn’t active in it – he owns all of the non-voting shares. Ignoring government benefits, BakeryCo is their only family income.

 

Say BakeryCo earns $100,000 in profits. At the small business rate, combined federal and Ontario corporate tax takes roughly $12,000, leaving about $88,000 to pay out as dividends, split evenly at $44,000 each. If TOSI didn’t apply, and that $44,000 were his only income, his tax bill – after the basic personal amount and dividend tax credit – would land around $1,100. With TOSI, the benefit of those ordinary graduated rates and personal credits disappears, and the dividend is effectively taxed at the top rate: roughly $21,000 – about nineteen times higher, purely because of who he married and what he didn’t do at the bakery that year.

 

There’s an irony in Parliament’s reasoning for section 143: it enables income splitting because members own no personal property at all – no individual claim, no individual profit to tax. Flip that onto the Apples and it points the opposite way. Mr. Apple isn’t propertyless: Ontario’s Family Law Act already treats marriage as an economic partnership, entitling a spouse to an equalization of net family property – including growth in a business like BakeryCo – regardless of who ran it. But tax law treats his dividend as abusive income splitting, taxable at the top rate, regardless of what family law says about his stake in the business.

 

And through it all, the Hutterite rule was written into TOSI’s own exclusions on purpose. Buried in the split-income definition Parliament carved out any trust “deemed to be in existence by subsection 143(1)” and let colonies stay exempt, even before the 2018 amendments. Call this the “black sock”.

 

Our federal government also lets spouses split pension income with no test of the recipient’s own effort – nobody asks a retired teacher’s spouse to prove she was “actively engaged” first. Add that to the colony rule and matrimonial property law, and a pattern emerges: Parliament has repeatedly recognized that income earned inside a shared economic unit doesn’t always belong to whoever’s name is on the cheque. A colony is a shared economic unit. So is a pension-splitting couple. So is a small business run by two spouses, one active and one not.

 

Yet one group gets formula-driven splitting with no strings attached. The other – risking the family’s capital – gets the harshest treatment via TOSI.

 

That’s not principled tax policy. That’s a sock drawer nobody’s checked in decades – one deliberate quirky sock from 1977, and one rushed, mismatched sock from 2018, sitting side by side, nobody bothering to look down.

 

Being deliberately quirky, like my old classmate, meant someone thought about it. Being accidentally mismatched, like my young relative, just means you were in a hurry and nobody caught it. Forty years on, our tax system is still getting dressed in the dark.

 

A proper review and reform of the Act – one that looks at all the socks at once, not just whichever foot is cold that year – would restore fairness.

 

I love Hutterite vegetables and other farm-fresh goodies as much as the next person. I feel the same about my neighbourhood family bakery. I just wish I could buy the Apples’ bread and pastries knowing their family got the same tax treatment as the colony gets for its carrots and meat sales.

 

It’s time to get dressed with the lights on.

 

One Comment About Leadership – Leaders, Are Your Messages Inconsistent?

 

Unfortunately, I’ve often dealt with leaders throughout my life who say one thing but their actions are completely inconsistent. 

 

I recall a specific “leader” who preached honesty and kindness at every opportunity – it was practically his personal brand. However, behind the scenes, he was ruthless and, as I eventually learned, dishonest. I caught him in a blatant lie. When I called him on it directly, there was a long silence on the phone – the unmistakable sound of someone realizing he’d been caught. Then, instead of owning it, he kept lying, layering on excuses that made things worse, not better. The cover-up told me more about his character than the original lie ever could.

 

That’s the pattern worth naming: leaders whose words and actions don’t match. They say “honesty matters” and then lie the moment it’s inconvenient. They say “I value my people” and then throw them under the bus the moment it’s politically useful. The words cost nothing to say. The actions are the only real evidence of character, and eventually the two get compared – usually by the people who trusted the words most.

 

The lie itself often isn’t the worst part. It’s what happens in the moment right after you’re caught. A leader with real character says, “You’re right, I wasn’t straight with you, here’s why, and I’m sorry.” A leader without it doubles down, deflects, and manufactures a story on the spot – and in doing so, reveals exactly who they are.

 

We don’t need more leaders who are polished in what they say. We need leaders whose actions match their words, consistently, especially when nobody’s checking and especially when they think they can get away with it.

 

That’s not a soft skill. It’s the entire foundation of whether anyone should follow you at all.

 

One Comment About Economics / Politics  – Public Debt Charges Calculator

 

On July 20, 2026, the Parliamentary Budget Officer released an update to a simple tool that it has provided since 2022 to help calculate public debt charges whenever the federal government proposes new revenue or spending measures. There are two inputs into the calculator: how much is the measure expected to increase taxation revenues? And how much is the measure expected to increase spending? Once those two inputs are completed, it calculates what the increase or decrease will be in public debt charges using a bunch of assumptions that are displayed for the user’s benefit.

 

Tools like this can be very useful to help a person understand how government programs are financed along with its related debt costs. In other words, government programs come with real costs – they aren’t simply provided using pixel dust.

 

I’d encourage you to review this tool and share it with your friends. The more Canadians understand basic financial concepts and can increase their financial literacy, the more informed they will become which can assist them in making better personal decisions and those at the ballot box.

 

Bonus Comment – From Ralph Waldo Emerson – American Author and Essayist – About Leaders’ Actions Speaking Much Louder Than Their Words

 

“What you are stands over you the while, and thunders so that I cannot hear what you say to the contrary.”

 

Exactly. Your actions will eventually drown out your words – for better or worse.

 

I hope today’s newsletter has been thought-provoking for you.

 

As many of you know, I’m passionate about helping people make better decisions – whether in tax, leadership, or business. If you’d like to go deeper on those topics, my recently released book, Making Life Less Taxing (Version 2), is now available and expands on many of the practical ideas I’ve written about over the years.

 

I’m also putting the finishing touches on my next book, Leadership Compounds: How Small Decisions Build Culture, Credibility, and Legacy. It explores a simple but powerful idea: leadership isn’t about grand gestures – it’s about the small, consistent decisions that compound over time.

 

For those interested in a more hands-on approach, I’ll soon be announcing a bespoke consulting initiative – The Acorn Growth Program – designed to help leaders and organizations grow intentionally, one small (but important) decision at a time. Feel free to reach out to me directly for more information.

 

And if you’re not already on my mailing list, feel free to sign up for my In the Mood Network newsletters to receive more content. No fluff – just practical insights on tax, leadership, and economic policy.

 

Thanks for reading. As always, I welcome your thoughts and feedback.

 

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