One Comment About Taxation – Canada Doesn’t Need to Build Traps to Keep its Successful People and its Youth in Canada

 

I’m not claustrophobic but put me somewhere with no exit route or way back and something shifts. In my youth, if the job I had was a dead end, I left it. Underwater cave diving is not for me. Skydiving fits into that category for me as well. Most people don’t like being trapped.

 

Policymakers would do well to understand that instinct. For most, the moment they sense a door closing behind them, the entire relationship with the room changes.

 

At the Liberal Party convention in Montreal this past weekend, former Google CFO Patrick Pichette offered his solution to Canada’s brain-drain problem. “You want to go to the U.S.? Give me back my money” he said, arguing that graduates educated in Canadian post-secondary institutions should repay his wild estimate of $500,000 in partially taxpayer subsidized education they received. He also called for shutting down the TN visa program to keep Canadian graduates at home – apparently unaware, or unconcerned – that the TN is a U.S. program under USMCA that Canada has no authority to cancel. He also claimed the cost of obtaining a TN is $30, conveniently ignoring the significant legal fees many applicants directly or indirectly incur.

 

One small biographical detail worth mentioning: Pichette spent years working in the U.S. and he appears to currently live in the U.K. Draw your own conclusions – some might call that hypocrisy but I’ll simply call it instructive.

 

I have written many times about the growing number of successful Canadians who are leaving Canada or exploring the idea. In my practice, the trend is not theoretical and the capital attached to those departures is measured in the tens of billions. It’s a real problem. Proposals like Pichette’s don’t solve the talent and capital exodus – they concede it.

 

That instinct – if people won’t stay voluntarily then make leaving expensive – has appeared before under a different name. In 2023, Australia consulted on changes to its tax residency rules that would have made it easier to enter the system and considerably harder to leave. Critics called it “adhesive residency” and I think that’s apropos. Canada would do well to learn from that near-miss rather than volunteer for the experiment.

 

Many incorrectly assume those who leave Canada do so with no financial cost. However, paragraph 128.1(4)(b) of the Income Tax Act deems individuals who cease to be Canadian residents to have disposed of their worldwide assets at fair market value. There are important exceptions. Canadian real estate owned personally and registered assets like RRSPs are excluded from the deemed disposition because Canada will ultimately tax those assets when they are sold, withdrawn or deemed disposed of. For most other assets, however, any accrued gains are taxed immediately. Such a rule can be troublesome for people who hold illiquid assets – like private company interests – and possible long-term double taxation needs to be properly planned. Given such rules, Canada indeed participates aggressively in the success of those who leave.

 

Some also suggest that successful Canadians have a moral duty to Canada for all that Canada provided them. Framing departures as a moral failure gets the causality exactly backwards. Entrepreneurs don’t leave because they stopped caring about Canada – they leave because Canada stopped making it worthwhile to stay. Fix that, and the conversation about obligation becomes unnecessary. Successful people have already contributed greatly – through taxes, employment and risk-taking. When they leave, Canada taxes them again on unrealized gains. At what point is the debt – including any moral debt – considered paid?

 

With respect to youngsters educated in Canada, what Pichette is proposing is something different and more troubling: not taxing accumulated wealth (since many won’t have much yet) but financially penalizing young people for choosing where to build their careers before they have built anything at all. This form of economic indenture – an “exit penalty” – would have predictable results: earlier departures, offshore education choices and a generation of young professionals who never put down roots in Canada. Trapping people with costly penalties will inevitably cause behavior changes – just not in the way proponents hope.

 

The real issue is why successful Canadians – and the next generation of talented youngsters – are leaving. The answer is not complicated: economic opportunities are greater elsewhere.

 

Canada’s top personal tax rates are among the highest in the world. Recent taxation policies – like the 2024 capital gains inclusion rate proposal – have sent clear messages to investors and entrepreneurs that success will be penalized. The current regulatory environment often discourages risk-taking. There is a constant and persistent “tax the rich” rhetoric that treats wealth creation as a social problem rather than an engine of prosperity. Combine all of this with a political culture that reaches constantly for redistribution before it reaches growth, and one should not be surprised that mobile and talented Canadians are increasingly asking a simple question: would I be better off somewhere else? For many, the honest answer is yes.

 

So, is trapping people the right answer? Of course not. The solution is to ensure economic policies don’t get in the way of success and encourage risk-taking rather than discourage it. From a tax perspective, Canada needs comprehensive tax reform – not a tinkering around the margins but a fundamental rethinking of how our system treats individuals, businesses and investors. That should include “Big Bang” reforms – as Jack Mintz describes it – that meaningfully reduce tax rates, provide targeted capital gains deferral, reduce complexity and provide greater policy stability so that investors and entrepreneurs can plan with confidence.

 

These reforms would make Canada a destination for foreign capital and talent rather than a cautionary tale about what happens when you tax ambition long enough. The competition for talent and capital is global and intensifying. Canada’s answer to that competition cannot be punitive adhesive residency. It has to make staying the obvious choice.

 

I don’t need to go underwater cave diving to understand why. Traps don’t inspire loyalty. They inspire escape – and public policy built on them will too.

 

One Comment About Leadership – Leaders, Build an Environment to Challenge You

 

Leadership is not about having the answers – it’s about creating an environment where the best answers can surface. If your team is hesitant to challenge you, you don’t have alignment…you have compliance, and that’s not a great place to lead from. In fact, it’s dangerous. Change it. Now.

 

One Comment About Economics  – Government Incentives

 

The eminent economist – Thomas Sowell – has written a lot over the years. He’s a quote machine. Recently, I was skimming through his 2015 Fifth Edition textbook “Basic Economics”. On page 414 is a quote that is worthy of review for the average person:

 

Government is of course inseparable from politics, especially in a democratic country, so a distinction must be made and constantly kept in mind between what a government can do to make things better than they would be in a free market and what it is in fact likely to do under the influence of political incentives and constraints. The distinction between what the government can do and what it is likely to do cannot be lost when we think of the government as simply an agent of society or even as one integral performer. In reality, the many individuals and agencies within a national government have their own separate interests, incentives, and agendas, to which they may respond far more often than they respond to either the public interest or to the policy agendas set by political leaders.

 

Exactly.

 

Sowell’s point is simple but often ignored: governments don’t operate in a vacuum of pure policy – they operate in a world of incentives. And those incentives are not always aligned with sound economics or good long-term policy.

 

If you really want to understand a new government policy, don’t start with the press release or the stated objective. Instead, follow the incentives. Who benefits politically? Which voting bloc is being targeted? Which voices inside the governing caucus need to be appeased?

 

Too often, what governments can do in theory is overshadowed by what they are likely to do to win the next election.

 

So, before you cheer on a shiny new policy or genuflect at the altar of your political leader because he or she “is so smart” – or mark your ballot – pause and ask a simple question: what incentives are actually driving this?

 

If you can answer that, you’ll be far better equipped to separate good policy from good politics. And make better-informed decisions.

 

Bonus Comment – By Ray Dalio – American  Founder of Investment Firm Bridgewater Associates – About Having an Environment  to Get Great Ideas

 

“An idea meritocracy requires thoughtful disagreement.”

 

Totally agree. Leaders, ensure that your environment encourages thoughtful disagreement!

 

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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