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Kim G C Moody’s Musings – 1-1-1 Newsletter For August 30, 2023

One Comment About Taxation – Tax on Split Income (“TOSI”) Exception For Communal Organizations

When the TOSI rules were dramatically expanded as part of the July 18, 2017 private corporation tax proposals, one “under-the-radar” exception to the expanded rules was that the TOSI rules do not apply to communal organizations like Hutterite colonies.  This is because of the exception as provided for in paragraph (c) of the definition “split income” in subsection 120.4(1) of the Income Tax Act (the “Act”).

In 1976, section 143 of the Act was enacted to deal with Hutterite colonies and to specifically overrule a court decision that was not favourable to the colonies.  Hutterites live communally and do not personally own property. Accordingly, subsection 143(1) of the Act deems a trust to operate the community’s business, and the community members to be its beneficiaries. The trust can deduct income it distributes to its adult members only if a specific election is in place and pursuant to a formula set out in section 143.  The underlying policy appears to be that since the communal members do not own property then the overall community pays the tax. Overall, this is an income splitting exercise in that the more adult communal members there are, and income allocated to them, the less tax each individual pays.

So here’s an obvious question:  Why are communal organizations allowed to split income without TOSI applying but small business and / or private corporation owner(s) must deal with the draconian impacts of TOSI?  The answer appears rooted in the argument that communal members do not own property whereas small business owners / private corporations do.  In my opinion, assuming I am correct, this policy should be revisited and reconciled to the various provincial marital property laws (and other various provincial legislation that confers rights on common-law partners).  For example, spouse # 1 may not legally own spouse #2’s property but may have a beneficial interest in such property that would ultimately be recognized upon a divorce. So, arguably, from that perspective, there is a comparable standard between Hutterites and non-Hutterites.

While there may be compelling policy reasons to exempt Hutterite colonies from the implications of TOSI, it is not obvious on its face why private business owners are comparatively at a distinct disadvantage.

I think it’s time to review this again.


One Comment About Leadership – The Authentic Leader

There is no shortage of articles on being an “authentic leader”.  Go ahead….ask Google to find you some.  If you do, you’ll find there are many descriptions about what an authentic leader is, the pros vs cons of being one, how to become one, etc, etc.

What does being an authentic leader mean to me?  For me, it is tied to one of my “leadership styles”-   “transparent honesty in everything I do” (I shared my leadership style in a previous newsletter).  I think being an authentic leader goes hand-in glove with “transparent honesty”.  Being an authentic leader means that the “real me” shows up every day.  What you see is what you get.  No games.  For example, if I don’t know the answer to an issue and / or question, I’ll be the first to admit it to the people that I’m leading.  But I’ll commit to finding out the answers or explore the best alternatives to deal with the issue and commit to a timeline.  If I’m upset about a result or issue, I’ll usually be politely transparent about that too.  Conversely, if I’m happy, optimistic and / or grateful, I try hard to be transparent and vocal about that too.

The above is not easy and involves being vulnerable.  A 2010 TED talk by Dr. Brene Brown about The Power of Vulnerability is an excellent short discussion on how vulnerability is key to being empathetic (and other traits) which is an essential attribute for me being an authentic leader.  It’s hard to be vulnerable but I’m still learning.  I’d encourage you to watch the TED talk and absorb the message.

Leaders, take the time to figure out what being an authentic leader means for you.  It is worthwhile.  And important.


One Comment About Economics – “You Get a Car!, You Get a Car!…”

 One of the most iconic moments in television history, was Oprah Winfrey’s 2004 “You Get a Car!” episode.  No doubt the episode was intended to be a feel-good moment by Oprah and her sponsors by giving away vehicles to needy audience members.  She shouted and repeated the phrase “You Get a Car!” numerous times as 276 audience members realized they had just been given a car.  Notwithstanding, the moment has also become known for more than that and was – rightly or wrongly – turned into an example of situations that describe excessive gifts or contributions or not respecting the value of money.

For example, during the COVID pandemic, the wide accessibility of government benefits like the Canada Emergency Response Benefit (“CERB”) turned into a “You Get a Car!” moment.  Combine that with the fact that the government of Canada has recently stated in a briefing memo (disclosed by Blacklock Reporter and accessible to subscribers here) that “…[m]ore than 190,000 claimants quit work to take a “CERB vacation” and “Due to the subjective nature of the criteria, the difficulty of proving eligibility after the fact and undue burden that investigation would create, Service Canada will apply a risk managed approach to these cases,” the Department of Employment wrote in a February 7 memo Briefing Binder. It did not elaborate on how much it intended to recover. Payments to quitters totaled $1.6 billion, said Briefing Binder.”

 That is a lot of “free cars” given away to people who arguably should not have received CERB with minimal effort to recover such paid amounts.  Disgusting.

 Another “free car” analogy has been the recent growth of the Canadian public sector.  Eminent economist, Dr. Jack Mintz, discusses this growth in an eye-popping National Post article that can be viewed here.  As Dr. Mintz describes in his article, the number of federal, provincial and local employees has grown by 18.5 per cent since 2015, “…twice as fast as in the private sector, where employment growth was 9.0 per cent. What is less appreciated is the over-the-top employment growth in federal departments and agencies. There were 336,000 federal government employees in 2022, up from 257,000 in 2015 — a 30.7 per cent increase… That bigger-than-ever federal bureaucracy is costing Canadians a bundle. Federal employee compensation rose from $38 billion in 2015 to $58 billion in 2021 (the latest year for which data are available) — a whopping 52 per cent increase. Yet this growth has not led to a higher standard of living: Canada’s per capita economic growth has been among the weakest among OECD countries since 2015.”

 Are Canadians getting value for the massive increase in public sector employment and costs?  Similar to Dr. Mintz, my answer is a resounding NO.

It’s time to stop the “You Get a Car!” out of control spending and public sector growth in Canada.

Reducing the size of government and spending would be a good start.


Bonus Comment – Quote From Arthur Laffer (The Famous Economist Well Known For the “Laffer Curve”) About Government Spending

“…not all government spending is bad…far, far from it, but there is no free lunch, as a former colleague of mine used to say.  There is no public tooth fairy.  Father Christmas does not work on the Treasury staff this year.  You can never bail someone out of trouble without putting someone else into trouble.”

Yep…totally agree!

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