One Comment About Taxation – Top 5 “Silly” Tax Provisions That I Would Eliminate If I Had My Way

 

On December 20, 2023, the Department of Finance released, as part of a small legislative package of taxation proposals, the short-term rental draft legislation.  For those that need a reminder, apparently short-term rental owners / operators that are operating in a municipality that prohibits such rentals are evil and need to be punished to the extreme from an income tax perspective.  The legislative proposals confirm the Fall Economic Statement announcement that expense deductions for such operators will be denied.  Such operators, from an income tax perspective, are apparently worse than criminal drug dealers who do not have such an expense deduction prohibition (if they indeed choose to report their taxable criminal receipts).  How this will solve or mitigate Canada’s housing woes is a mystery to me.  Instead, I believe it will encourage some operators to not report their income for tax purposes (which the vast majority of such operators indeed report such receipts into their taxable income).

Sigh….Canada needs a much better way to introduce sound income tax policy rather than knee-jerk political responses that complicate the Income Tax Act and pander to the governing party’s voter base.

It got me thinking, again, if I had my way, what other silly provisions in the Income Tax Act would I eliminate?  Well, there’s too many to document in such a short article.  Ideally, of course, Canada would undergo comprehensive tax review / reform which would make the cherry picking of the elimination / amendment of such provisions unnecessary.  Unfortunately, our current government has no interest in comprehensive tax review / reform notwithstanding it is necessary and overdue.

So, with the above in mind, here are my top-5 Income Tax Act provisions that I would eliminate / amend:

1. The Small Business Deduction – some of my colleagues and peers will likely disagree with me on this one. The small business deduction is the provision that reduces the tax rate for certain Canadian-controlled private corporations that carry on an active business in Canada but it creates unnecessary economic distortions and complexity. I think an overall corporate tax rate reduction to a target federal – provincial rate of approximately 20% would be very competitive with the United States and the U.K. and would certainly reduce income tax complexity.
2. The Anti-Income Splitting Rules – these rules are known as the “tax on split income rules” and were introduced as part of the July 18, 2017 private corporation debacle. They are horrifically complex and unfair.  They need to be eliminated.
3. Many Personal Tax Credits – the proliferation of personal tax credits started years ago with credits like the children’s fitness / arts credits, transit credit, search and rescue credit, etc. The introduction of these credits are simple “feel good” credits that complicate the tax system – both from a legislative and administrative perspective – have low-dollar impacts and are simple political vote pandering.  Thankfully there has been an elimination of many of the silly credits but they keep creeping back in with each federal budget.  An example is the Teacher School Supply Tax Credit.  All of these need to be eliminated.
4. The Alternative Minimum Tax – first introduced in 1986 as a response to the cries that the so-called rich were not paying their fair share, this tax is an alternative regime that calculates income tax in a different way by denying / adjusting certain deductions and credits that are normally allowed. To the extent the AMT way of calculating tax is higher (after applying an exemption), than the excess over the normal way is payable but is refundable in the seven future years to the extent AMT is not payable in those future years. It is a horribly complex and an unnecessary system. With recent amendments that attack high income earners – that will greatly impact charitable giving – it further highlights the need to eliminate this regime.
5. A Hodge-Podge of Other Provisions – the anti-flipping tax – which taxes dispositions of residential properties if they were held for less than a year (with some exceptions for “life events”) needs to go. It is duplicative and unnecessary.  As mentioned above, the silly short-term rental proposals need to be eliminated.  A recent proposal to deny the dividend deduction for financial institutions needs to be eliminated.  There’s a whole bunch of other provisions that need to be reviewed / eliminated but that’s a paper for another day.

So there you have it.  Would the above amendments improve our tax system?  Sure.  But it barely scratches the surface.  Canadians need an income tax system that is more comprehensible and approachable from an administrative perspective.  And one that is not filled with simple and silly political gestures.

Albert Einstein is attributed as saying “the hardest thing in the world to understand is the income tax”.   While one can debate the context of why he said this, I think there is a lot of truth in this statement.  It is unrealistic to think that Canada – and other modern countries – can ever get their income tax system to be “simple”.  But there is always good results when attempts are made to simplify.  That’s a big difference with a distinction.

Canada needs to make those attempts.

 

One Comment About Leadership – Multi-Tasking – Simply Not Good

 

In today’s society, there are no shortage of ways that leaders can be distracted.  Having a powerful computer / phone in your pocket doesn’t help.  The number of “notifications” / “pings” that are sent to you each hour can be overwhelming and certainly distracting.  Many of us try hard to achieve “in-box zero” (an attempt to ensure that all of your emails are dealt with and appropriately moved out of your in-box).  But it’s a never-ending battle.  Just when you think you’ve achieved success, along comes more emails.

Multi-tasking is often used by leaders to ensure things get done.  And being “busy” is certainly for many a positive status symbol.  But is it?  And is multi-taking really a good thing?  There are numerous studies and papers about multi-tasking and most of it does not reflect positive attributes.  It’s generally well accepted that the human brain cannot fully process multiple tasks at one time.  There is a great TED talk on this topic by Dr. Lindsay Blooms and it can be viewed here.  One of the excellent things she says in her talk is:

“Constant reactivity has become our default mode…we’ve created a habit about being continuously “on” and available…the more we try to keep up with the technological communication coming at us, the more we forget how to engage in face-to-face meaningful communication.  And this is damaging our ability to create and maintain genuine relationships…..responding to notifications can be downright addictive….making a choice to make a change is a great first-step.”

Dr. Lindsay Blooms goes on in her TED talk to say that mindfulness is the solution to the damage caused by multi-tasking.  There are many forms of mindfulness but ultimately being purposely mindful of your situation and being fully attentive to the task you’re working on is a good objective.

Admittedly, I struggle with this overall issue.  Many days, I receive upwards of 300 emails, countless texts and other notifications. Thankfully, I’ve turned most of my other notifications off (like those from my social media accounts).

But here are some simple things that I have done over the years and continue to work on (not without perfection, however):

• I don’t bring my devices – like my phone and iPad – to meetings. I don’t know about you, but it troubles me when someone brings their phone to a meeting and keeps it in on the table in front of them so they don’t “miss anything”.  At a minimum, I keep my phone tucked away in my breast pocket so I am not distracted;
• I wear an Apple Watch and turn all notification pings off. Nothing worse than a person looking at their Watch during a meeting;
• In a meeting, I give the person my full and intentional listening;
• I avoid video meetings as much as possible. In this day and age it can’t be fully avoided given time and geography since it’s like the telephone.  But if possible do it.  In my opinion, Zoom and other platforms have given many the excuse to not “show up” and not be engaged since they are often multi-tasking and not paying attention to the content of the actual meeting.  Combine that with many people having their cameras off (so they can do other things or not show up in their best form) or doing other activities (such as eating their breakfast / lunch / snack in front of the camera) and the ability to create and maintain genuine relationships is almost non-existent.  In its worst form, people will default to Zoom meetings even when a face-to-face meeting is easily available, but Zoom is “so much more convenient rather than fighting traffic and paying for parking”.  Boo hoo…creating meaningful relationships takes time and effort.  And getting ready for and traveling to a meeting is a tiny investment to create genuine relationships;
• I structure my days so I can get the most done in a focused and non-distracting way. This is much easier said than done and I continue to struggle with it, but I keep working at it.  There are numerous books, articles and papers written on this subject.  One method that has worked well for me (with some struggles along the way) is the Strategic Coach’s Entrepreneurial Time System.   But there are numerous other strategies too.  The key is to find one that works for you and don’t “wing-it” every day.

Leaders, as Dr. Lindsay Blooms says: “Making a choice to make a change is a good first step”.  Agree.  And the goal is progress….not perfection.

Make that choice to become more focused and multi-task less.

 

One Comment About Economics and Politics: Federal Immigration Policies and Basic Economics

  

A recent article in the National Post highlights, once again, how huge immigration increases in Canada are causing challenges:

 

Canada’s record population growth in the third quarter brings its housing crisis into the spotlight once again, with economists urging governments to boost spending to accommodate all the new arrivals. The country added 430,635 people from July to October, Statistics Canada said on Dec. 19, with the 1.1 per cent boost to the population being the highest quarterly growth rate since the second quarter of 1957. Overall, more than one million people were added during the first nine months of 2023, which is higher than any other full-year period since 1867. “The population numbers once again reinforce the need to boost the housing supply and bolster infrastructure spending,” Desjardins economist Marc Desormeaux said in a Dec. 19 note.

He added that until Canada improves its “long-run underperformance on productivity,” the country is “at risk of further declines in gross domestic product per capita (and our standard of living).”

Canada depends on immigrants to boost its economy and to replace its aging population. But the country is now battling inflation and a housing crisis, so economists and think tanks have urged the federal government to provide more clarity on how it plans to accommodate hundreds of thousands more newcomers.

….

The federal government has made several initiatives to increase housing supply in recent months; however, BMO Capital Markets senior economist Robert Kavcic believes it will be difficult to match the quick rise in population.

“In no version of reality can housing supply respond to an almost overnight tripling in the run rate of new bodies,” he said in a Dec. 20 note. “At 2.5 people per household, we’d need more than 170,000 new units every three months at this rate of population growth … right now, the industry is working all-out to complete 220,000 in a full year.”

 

I agree.  And Canadian policy makers need to get a handle on this before our overall standard of living is materially impacted.  Immigration is critical for Canada’s long-term success but too much of a good thing can also be a problem.  Canadians need to have respectful and meaningful conversations about immigration policy.

Unfortunately, like clock-work, anytime I mention something about immigration policy some people will pull out the “you’re racist” or “you’re bigoted” comment.  Nope.  Not even close. And such shallow, low intellect comments / rebuttals do not do anything to advance the conversation and challenges in a meaningful way.  However, I do fear that if “over-immigration” is not addressed in a meaningful way soon that the true racists and bigots will come out of the closet and compound the issues.

Canada needs to put meaningful and real caps on immigration until its infrastructure is ready to handle increased population loads and strain.  At a minimum, any increased immigration targets should be complemented by a meaningful plan as to where the new Canadians will live, where the increased costs to improve our country’s infrastructure (like increased numbers of hospital beds, hospitals, schools, roads, etc) will come from and how the new Canadians will be set up for success.

 

Bonus Comment – Quote From Daniel Levitin– Neuroscientist, Author, Musician – About Multitasking

 

“Multitasking creates a dopamine-addiction feedback loop, effectively rewarding the brain for losing focus and for constantly searching for external stimulation.”

 

Yep, totally agree!

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