One Comment About Taxation – Canada Needs to Resist Building “Fences”

 

My bichon Shih Tzu – Enzo – loves to wander. He’ll find any opportunity to take off, requiring me to chase after him.  We’ve had to install a GPS-enabled wireless fence. It works – the fence keeps Enzo in but not because he wants to.

 

I think many governments are increasingly taking a similar approach to their tax systems.  In a world where capital and people are more mobile than ever, the instinctive response is to build fences – making it harder for taxpayers to leave once they’re in the system.

 

Australia offers a good example. In 2023, it consulted on changes to its tax residency rules, including a more mechanical 183-day test and additional tests based on family ties, accommodation and economic connections.

 

At the same time, the proposals would make it more difficult to cease residency – including shorter day-count thresholds and multi-year tests required before a taxpayer can fully exit the system. This policy direction has been described by some as creating a more “adhesive residency” – easier to enter the tax net than to leave it.  Or as I often say, it’s much easier to get married than divorced.

 

The Australia proposals appear to have stalled, but they are revealing. The instinct to trap rather than attract is misguided. Good tax policy should not be about building residency fences. Rather, it should be about giving people reasons to stay.

 

That brings us to Canada. I’ve seen a dramatic increase in successful Canadians exploring or leaving the country over the past decade. The exits are quiet, with the wealth attached to those departures measured in the tens of billions of dollars. The result is a steady outflow of capital, talent and future tax revenues.

 

Some argue that those who leave somehow owe more to Canada because of the opportunities they benefited from. That thinking confuses gratitude with obligation. The reality is those individuals have already paid dearly through taxes, risk and contribution – and when they leave, it’s not a moral failure; it’s a response to incentives.

 

Few leave Canada lightly. Lifestyle and family come first, but tax still matters – pretending otherwise is naïve.

 

Canada’s high tax rates, complexity, policy uncertainty, persistent rhetoric about “taxing the rich” and other redistributive policies all contribute to an environment where successful and mobile individuals begin to ask a simple question: would I be better off elsewhere? This same mindset – seeing prosperity as a source to be tapped rather than cultivated – is creeping into other parts of our fiscal conversation, including Old Age Security (OAS).

 

That’s why some of the recent commentary about “reforming” OAS should be approached with caution.  A recent poll commissioned by the activist group Generation Squeeze (the same group that thinks a home equity tax is a good idea) suggests that roughly three-quarters of Canadians support cutting OAS for seniors earning more than $100,000 per year with purported annual savings to Canada of roughly $7 billion. They use an example of a senior couple collectively earning $180,000 still receiving OAS to suggest that is inappropriate.

 

On its face, that sounds compelling. It isn’t. Polling results like this are highly sensitive to how questions are framed.  Ask whether benefits should go to those who “need them most” and you’ll always get strong support.  But that’s not the real question. The issue is whether Canada should further penalize individuals who spent decades saving for their retirement.

 

Some other details get glossed over. First, the current system already includes a meaningful clawback. For the current recovery period, OAS begins to be reduced at a 15% rate for net income that exceeds $90,997 and is fully eliminated at $148,451 for seniors aged 65 to 74, and slightly higher for those 75 and over. In other words, some seniors are already receiving reduced – or no – benefits. The $180,000 example cited by Generation Squeeze is not coincidental – they suggest that the current clawback threshold (approximately $90,000 x 2) is too high while offering little support for why $100,000 is better.

 

Second, $100,000 of income – particularly for a household – is not “rich” in much of Canada. For many retirees, that level of income reflects discipline and long-term planning, not excess. Many seniors also support children and grandchildren facing serious affordability challenges.

 

Third, OAS was never intended to be narrowly targeted but to be broadly available.  While it includes clawbacks, turning it into an ever more aggressive means-tested program would fundamentally change its nature while increasing effective tax rates on those who did exactly what public policy has long encouraged: save.

 

Fourth, the supposed billions in savings rely heavily on static assumptions. In reality, behavior changes will happen.  Income can be deferred, split or restructured. Serious policy changes need to account for that.

 

To be clear, I am not opposed to sensible OAS reform. It is an incredibly expensive program and will continue to grow as Canada’s population ages. Measures to improve its fiscal sustainability should absolutely be considered.

 

There is precedent for thoughtful reform. The Mulroney government’s 1985 attempt to erode benefits through de-indexing was derailed by a fierce grassroots backlash. But they did implement clawbacks in 1989. In the 2012 budget, the Harper government proposed increasing the eligibility age from 65 to 67  – but it was never implemented when the Liberals took office in 2015. Thoughtful reform should happen – but not through simplistic, redistribution-driven proposals built on questionable assumptions.

 

Broadly, this kind of thinking reflects a growing tendency to focus on how to extract more from those who are perceived to “have enough” rather than how to create an environment where more people can succeed.

 

Capital is remarkably agnostic. It goes where it is treated well and is welcome. For Canada, the better approach is obvious, even if politically difficult: competitive tax policy, a strive for simplicity, stability, and a genuine focus on growth. Make people want to stay.

 

Putting up fences might keep Enzo in, but it doesn’t make him want to stay. Tax and economic policy should aim for the latter.

 

One Comment About Leadership – Leaders, Don’t Avoid the Tough Conversations

 

Avoiding a tough conversation doesn’t make you kind – it makes you ineffective.

 

Short-term discomfort is usually the price of long-term respect.

 

One Comment About Economics  – Has the Tipping Culture Gone Too Far?

 

Tipping used to be simple: reward good service. Today, it often feels more like a forced social transaction.

 

The Financial Post recently reported on an H&R Block poll (yes, the tax preparation firm) about tipping in Canada. The results were striking: about two-thirds of Canadians think tipping has gone too far, and an overwhelming majority feel annoyed when prompted to tip in situations where it was never expected before. Despite that, more than half still leave a tip – largely out of social pressure.

 

I’m a generous tipper for good service. But I can certainly relate to those sentiments.

 

There have been numerous times in recent years where I’ve questioned why I’m being prompted for a tip at all. I recall being at a sporting event and using a self-serve food kiosk. I grabbed a sandwich, walked it to the checkout, and then – prompted for a tip. I was stunned. For what??

 

And it’s not just isolated situations. At some restaurants, the default tipping options now start at 20% and climb to 35% or more unless you hunt around for a “custom” option. The subtle (and sometimes not-so-subtle) pressure is real.

 

From an economic perspective, this is where things get interesting. Tipping increasingly resembles a form of opaque pricing – where businesses shift compensation responsibility to customers while avoiding higher headline prices. Add in a layer of behavioural economics – where guilt or social awkwardness nudges people to pay more than they otherwise would – and it’s not surprising that many Canadians feel frustrated.

 

I have mixed feelings about tipping. On the one hand, I don’t mind paying for good service and I recognize that many service workers rely on tips as a meaningful part of their income. On the other hand, being constantly prompted to tip – especially in situations involving little or no actual service – feels excessive.

 

When I travel to Europe, for example, the expectation to tip is minimal to non-existent. And interestingly, the service doesn’t seem worse. I often find that refreshing.

 

Personally, I’d like to see some balance return. Whether that comes from businesses resetting expectations or consumers finally pushing back remains to be seen.

 

And, as a final wrinkle, remember that in Canada tips are fully taxable to the recipient, while in the U.S. some tips are now tax-free. That’s a policy divergence that, in my view, makes little sense.

 

How do you feel about tipping?

 

Bonus Comment – By Brene Brown – Research Professor and Leadership Guru – About the Importance of Being Clear

 

“Clear is kind. Unclear is unkind.”

 

Exactly. Leaders, again, be  clear and kind by not avoiding the hard conversations.

 

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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