One Comment About Taxation – Canada’s Process of Developing Tax Policy Needs Massive Change

Every time I drive across a bridge, I quietly thank the engineers who designed it. They respect the laws of physics because they know gravity doesn’t compromise. Tax policy should be no different. Ignore economic gravity long enough, and reality will eventually demand its due.

 

Canada keeps testing that principle. Not with one bad idea, but with a recurring pattern of tax measures built for a headline, drafted without regard for how people and capital actually move, followed by the inevitable correction or elimination once gravity reasserts itself.

 

Start with some recent examples of ideas that were never going to hold weight. The short-term rental expense denial rule strips a landlord of the ability to deduct legitimate expenses against rental income if the property runs afoul of provincial or municipal licensing rules. It uses the tax system to punish a licensing violation, with consequences wildly disproportionate to the offence since these landlords are, for sure, the cause of Canada’s housing problems. A tax-compliant drug dealer can deduct their business expenses but these landlords cannot. It isn’t just poor policy – it’s upside-down logic.

 

The luxury tax on aircraft and vessels is the cleanest example of gravity winning outright. Introduced in 2022 to tax the portion of a private aircraft or vessel’s price above a set threshold, aimed at the ultra-wealthy, it was repealed effective November 5, 2025, once it became clear it was mostly succeeding at pushing Canadian aircraft and yacht sales across the border. The tax on luxury vehicles, harder to avoid and easier to defend politically, survived untouched. Capital doesn’t negotiate. It simply goes where the drag is lowest. Economic gravity eventually won.

 

Then there are the measures where the warnings existed and were overridden anyway. The July 18, 2017 private corporation tax proposals tackled three things at once: income splitting, converting income into capital gains, and passive investment income held inside private corporations. The timing gave away the intent: released in the dead of summer, with comments due a mere 76 days later, on October 2, 2017. It was not a genuine consultation. It was a box checked to minimize scrutiny. The income splitting rules were sold as a crackdown on the wealthy, but the wealthy have never needed income splitting. The rules actually landed on the average small business owner. The result was a genuine firestorm because the proposals were never built to survive contact with the people they affected.

 

The Underused Housing Tax (“UHT”) told the same story. Aimed at non-resident, non-Canadian owners of vacant housing – another politically attractive housing villain – the tax was drafted so broadly that average Canadians who owed no tax at all still faced filing requirements and large penalties just to prove an exemption they were entitled to. The UHT was mercifully scrapped in Budget 2025 after a three-year run.

 

The bare trust reporting rules follow this exact same arc. Despite years of warnings from the tax community and a series of recent amendments, the upcoming filing season is setting up to be yet another preventable gong show.

 

The third category is the most telling, because here gravity wasn’t even allowed to do the correcting. Politics did it first. The Digital Services Tax was rescinded in 2025 within days of becoming collectible, under direct U.S. trade pressure. And last week, it was revealed that the CRTC’s streaming-services levy, the so-called Netflix tax, is being scrapped after similar U.S. trade pressure, with the foregone revenue replaced by taxpayer-funded federal spending. The 2024 capital gains inclusion rate increase was eliminated after poor consultation and a lot of political fury. None of these examples reflect a government that reconsidered the merits. They reflect one that discovered the political cost first.

 

Good engineers don’t wait for the bridge to fail before respecting the load calculations. New Zealand recognized decades ago that tax policy works best when taxpayers, practitioners, business leaders and government all stress-test ideas before they become political announcements. New Zealand’s Generic Tax Policy Process, running since 1995, builds genuine consultation into the earliest stage of policy development rather than bolting it on after an announcement.

 

Canada has drifted in the opposite direction. Consultation typically begins only after the government has already announced its preferred outcome, when it’s too late to test whether an idea should proceed, and lip service to feedback is all that’s left.

 

The UK once had its own rigorous tax policy design process – a formal five-stage Tax Consultation Framework that became an international benchmark for disciplined tax policy development – but replaced it in June 2025 with looser Tax Policy Making Principles that trade staged rigour for government “flexibility,” a shift some UK tax professionals are already warning could mean less consultation, not more. Canada should view this as a cautionary tale.

 

Recognizing that our tax system is failing, the Liberals promised an expert review of the corporate tax system during the 2025 election campaign. However, Finance Minister François-Philippe Champagne now says he doesn’t need one. Instead, the government will once again rely on pre-budget consultations – a charade that is long on submissions but short on meaningful influence. To date, the Budget 2026 consultations have collected 1,300 submissions, with virtually all of those submissions to be ignored.

 

We don’t simply have bad tax policies. We have a broken process for creating them – and both need reform.

 

Engineers don’t ask the public for input and then build whatever they’d already decided to build. That’s the difference between consultation and theatre. Our government has spent over a decade proving it can’t tell them apart.

 

Gravity doesn’t reward the appearance of listening. It rewards the load-bearing work of doing it. Canada hasn’t reviewed or rebuilt its tax system from first principles since the Royal Commission on Taxation sixty years ago. Our government keeps choosing theatre over that work.

 

I’ll keep thanking the engineers who respect gravity. I’m still waiting for a government that does the same.

 

One Comment About Leadership – Leaders, Work With Reality – Not Fantasies

 

Good leaders understand that reality – not wishful thinking or ideologies – always gets the final vote. Leaders who surround themselves with people willing to challenge assumptions, test ideas, and identify unintended consequences build organizations that endure. Those who mistake applause for honest feedback usually discover the flaws only after the bridge has already cracked.

 

One Comment About Economics / Politics  – Markets Respect The Environment They Are Given

 

Markets, like gravity, are indifferent to political slogans. Governments can ignore economic incentives for a while, but investment, talent and capital will ultimately respond to the environment they are given – not the narrative politicians wish were true.

 

Bonus Comment – From Aldous Huxley – British Author and Essayist – About Leaders Sending the Right Signal

 

“Facts do not cease to exist because they are ignored.”

 

Whether in taxation, leadership or economic policy, reality has a remarkable way of asserting itself. The wise respect facts before facts force the lesson upon them.

 

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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