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Kim G C Moody’s Musings – 1-1-1 Newsletter For August 20, 2025
One Comment About Taxation – It’s Time to Codify How Proposed Tax Legislation is Administered Before it Becomes Law
In recent years, we’ve seen a lot of issues regarding the Canada Revenue Agency (CRA)’s administrative policy that enables them to administer proposed tax law retroactive to the proposed effective date. The most egregious example was the 2024 proposed capital gains inclusion rate increase. A bill was never presented to Parliament – only a Notice of Ways and Means motion (NWMM). Given the CRA’s longstanding position on administering proposed tax changes, it had the ammunition to do so.
The CRA’s position, which is consistent with parliamentary convention, is that it will wait for Royal Assent of any proposed legislation before issuing refunds or making payments of public funds. In cases other than payments or refunds, the CRA will administer a proposed tax measure upon announcement if the legislative amendments are publicly available in final form and presented to Parliament by way of a NWMM or a bill.
Draft legislation that is released to the public for consultation – such as the massive batch of technical amendments released by Finance on August 15, 2025 – do not fit within the CRA’s administrative practice since such proposals have not yet been presented to Parliament despite the retroactive intended application dates contained within many of those proposed amendments.
Despite the CRA’s position, administering tax law that is proposed is a provisional application of that proposal which asks for voluntary compliance by the public. In other words, there is no need for the public to comply with CRA’s administrative practice until such time the proposals are law. There are also many situations that don’t fit neatly within CRA’s practice. For example, what happens if the proposal is abandoned and never becomes law? Or the proposal before Parliament is by a minority government and is very controversial with high likelihood of not passing?
Again, the 2024 capital gains proposals are a good example of this. They were a political hot potato – especially with all of the rhetoric used to try to defend the flawed policies. They were ultimately dropped earlier this year but not after the CRA spent significant resources administering the proposals. Worse, many taxpayers triggered non-reversible transactions in an attempt to get ahead of the proposed tax increase but ultimately such planning was not necessary. The Canadian Taxpayers Federation has challenged the CRA’s practice on this. Last week, the Federal Court cleared the way for this challenge to continue. It will be interesting to see how the Court ultimately handles this case.
Less controversial, the “new” Carney government proposed a 1% personal tax decrease for the lowest tax bracket effective July 1, 2025. The bill presented to Parliament passed second reading in the House of Commons but ultimately died as a result of the summer recess. In order to make this proposal effective law, it will need to be brought before Parliament again to ultimately receive Royal Assent with that retroactive effective date.
Despite that “technicality”, the Liberal Party MPs – including the PM – have been crowing hard on their social media accounts about how great the tax decrease is and acting as if it’s effective law. It’s not, despite the fact that the CRA is administering such proposals as if it is. I find it offensive when such proposals are trumpeted as effective law and used for political purposes, with the CRA indirectly facilitating it because of their administrative practice.
Given the above, many people advocate having the CRA only administer tax laws that are effective law. Some go further and suggest that tax proposals should never have retroactive effective dates. While those suggestions are conceptually simple and would certainly avoid the chaos that we have seen over the years, there would be other consequences if that was adopted.
In a 1985 government document entitled The Canadian Budgetary Process Proposals for Improvement, the government recognized the problems that can exist with administering tax proposals. It also rightly laid out the need for some tax proposals to have retroactive effect. It’s a compelling read and I’d encourage Canadians to read it. (As a side note, the document also laid out the need for fixed budget dates as opposed to floating dates; I’d encourage PM Carney to read that section so as to ensure that budgets are not long delayed ever again).
In order to deal with the problems of administering proposed tax legislation, the 1985 document stated the following:
“The government believes that the need for provisional implementation and collection of taxes prior to their enactment can be more effectively met if specific authorizing legislation is put in place. Therefore, a statute along the lines of the provisional collection of taxes legislation in force in the United Kingdom will be proposed to Parliament. A draft bill entitled the Provisional Implementation of Taxation Measures Act is appended to this paper.”
At its core, the proposed legislation would have imposed time limits – “nine months of House of Commons time”- whereby proposed tax legislation could be provisionally administered before it either had to be formally enacted into law or abandoned. As the paper states, other countries – like the U.K. – have such laws.
Unfortunately, after debate and further recommendations made by the House of Commons Standing Committee on Procedure and Organization, the proposals never proceeded. The C.D. Howe Institute wrote about this history earlier this year in an excellent paper. In addition, The Joint Committee on Taxation of the Canadian Bar Association and CPA Canada recommended, in a January 2025 submission to Finance, that the Government take active steps to introduce legislation which would govern the administration of proposed legislation.
Forty years ago, the government recognized the problems of administering proposed tax legislation. When situations arise that don’t neatly fit within the CRA’s policy of administering tax proposals (which are thankfully minimal), the damage and uncertainty can be great, which can lead to an erosion of trust in our tax system.
It’s time to try again. Provisional administration is often necessary, but it should be tightly constrained by law to protect both taxpayers and trust in the system.
One Comment About Leadership – What the Movie Slap Shot Teaches Us About Desperate Leadership
If you haven’t watched the 1977 cult hockey
Reggie Dunlop (Newman) is a player-coach on the edge. His team, the Charlestown Chiefs, are losing, the league is dying, and he’s out of ideas. And to top things off, his marriage is basically over. So, what does he do? He invents a fake story about the team being sold so as to pivot the worries of the team that they might fold. He lets the Hanson brothers – three sentient wrecking balls – loose on the ice.
The result? Wins, fans, and chaos. But Reggie’s playbook is all emotion and no strategy. It’s basically a version of the recent stuff we saw during the federal election (and unfortunately some continue to hang onto to it) with the vacuous, embarrassing and low-intellect “Elbows Up!” rallying cry substituting as leadership. Such a rallying cry was and is loud, reactive, and, again, light on substance. It works short-term, but long-term? You’re barely skating and opponents are whizzing by and scoring goals against you.
Reggie even admits it: “They don’t want you to score goals! They want blood!” That line’s a masterclass in knowing your audience but also a cautionary tale about trading strategic vision for spectacle. And when he shouts, “Get that lumber in his teeth! Let ’em know you’re there!”, well, that might have worked for 1970s broad street bully style hockey, but it’s not exactly a sustainable business plan.
Real leadership isn’t about showmanship or sugar-rush slogans. It’s about truth, trust, and clear direction. So, if you’re tempted to crank up the theatrics or embarrassingly continue to yell “Elbows Up!” (or some other vacuous slogan) without a plan, just remember: even Reggie eventually had to come clean.
Being appropriately transparent with a solid underpinning of strategy is a much better leadership style.
One Comment About Economics – Forecasting Federal Capital Expenditures
On August 14, 2025, the Parliamentary Budget Officer (PBO) released a Report on forecasting federal capital expenditures. The highlight summary caught my attention:
The Government has also established a new “Operating Budget” fiscal anchor. At this date, the composition of the “Operating Budget” has not yet been defined.
The Parliamentary Budget Office (PBO) is improving and expanding its modelling of capital spending. These changes are necessary to monitor the new fiscal regime. In addition, understanding non-operating spending is a starting point for measuring the new fiscal anchors.
To this end, the PBO has expanded the capital budget module in its fiscal model. Specifically, the model will now allow us to provide parliamentarians with a five-year projection of federal capital spending, amortization, and the accumulation of assets.
Overall, our new capital budgeting approach better reflects the anticipated increase in federal capital investments. Federal capital amortization expenses are $7.1 billion higher over the next five-years compared to our March 2025 Economic and Fiscal Outlook. This mostly reflects better data shared by National Defence.
For the first time, the PBO is now able to project federal capital spending, on a cash basis, of $128 billion for the next five years. Almost two-thirds ($83 billion) relates to National Defence.
In concert with expansions to the PBO personnel fiscal module, these changes will ensure parliamentarians receive regular updates regarding whether the government is on track to respect its fiscal anchors, as well as the new defence spending targets.
After the April 2025 election (and during the election campaign), the governing Liberal Party announced a fiscal policy shift to ramp up capital investment, particularly for defense-related assets. Alongside this, it introduced its new “Operating Budget” fiscal anchor. The problem? As of today, no one knows exactly what this “Operating Budget” includes. That’s a red flag.
To keep up with this shift, the PBO has enhanced its fiscal model, now offering a five-year projection of capital spending, amortization, and asset accumulation. These updates are designed to improve transparency and allow better monitoring of how the government is tracking against its fiscal commitments.
As stated in the above Highlight, the numbers are big: $128 billion in projected capital spending over five years, with roughly $83 billion earmarked for National Defence. Notably, amortization expenses are projected to be $7.1 billion higher than previously estimated—mostly due to better data from National Defence.
I applaud the PBO’s efforts here. As I’ve written before, Prime Minister Carney’s proposal to separate capital and operating budgets is a classic accounting sleight-of-hand, an old trick used to obscure spending under the guise of balance. There’s nothing wrong with distinguishing capital from operating budgets per se, but when used to make claims like “balancing the operating budget in three years,” the potential for manipulation skyrockets.
What I appreciate about the PBO’s approach is that it appears designed to do the opposite; shine a light, not obscure. By building out its capital budget model, the PBO seems intent on ensuring that large-scale capital expenditures, particularly those in defence, are properly accounted for and amortized, rather than buried in opaque fiscal language.
I’ll be watching closely to see how this evolves. Done properly, this kind of transparency is essential if we want to hold government accountable, regardless of which party is in power.
Bonus Comment – Quote From Yours Truly – Kim G C Moody – About Transparent Leadership
“Blood on the ice might fire up the crowd, but if that’s your whole strategy, you’ve already lost the game. Real leadership isn’t about vacuous noise – it’s about knowing the playbook and having the guts to run it in the open.”
Leaders, be transparent and honest. And drop the vacuous slogans.
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.
