One Comment About Taxation – Why Are Some Canadians Motivated to Engage in Tax Evasion?

Last week, I visited one of my favorite restaurants. The food and service, as usual, were out of this world: something a food delivery service cannot replicate. But the restaurant has a strict “cash only” policy. I always need to remind myself about that before I go. Obviously, as a tax guy, I wonder if the cash-only policy is a signal that the owner is participating in tax evasion. Cash-only businesses have often been a target for the Canada Revenue Agency to review such operations and determine if the proprietor is wholly reporting income. 

 

In some cases, it’s obvious that tax evasion is the objective. For example, I’ve interviewed many renovators for my homes over the years and inevitably some of the prospective contractors will have a two-tiered pricing structure: a lower cash price and a higher “traditional invoice” structure. In other cases, it’s obvious that other factors might be at play (avoidance of high banking costs or credit card fees).

 

For the small number of cases that involve tax evasion, I’m often curious why such people engage in that illegal behavior and are prepared to risk serious criminal penalties – including possible jail time. The answers are important because if you can understand the motivation, governments can design policy to dispel that. While tax evasion is not a pervasive problem in Canada (reliable statistics are lacking but it is likely less than 3% of taxpayers willingly participate in such criminal behavior), it is, again, important to understand the motivations.

 

In my opinion, there are a number of motivations with the most obvious being excessively high personal tax rates. In Canada, 8 out of the 13 provinces and territories have marginal tax rates at the high end that exceed 50%. In 1966, the Royal Commission on Taxation – the only time that Canada had comprehensive tax review leading to reform – released its voluminous Report and recommendations.  Regarding personal tax rates, the Report stated this at Chapter 11:

 

“We are persuaded that high marginal rates of tax have an adverse effect on the decision to work rather than enjoy leisure, on the decision to save rather than consume, and on the decision to hold assets that provide monetary returns rather than assets that provide benefits in kind. We think there would be great merit in adopting a top marginal rate no greater than 50 percent…We think there is a psychological barrier to greater effort, saving and profitable investment when the state can take more than one half of the potential gain.”

 

Totally agree. That almost 60-year-old comment is just as valid today as it was back then.

 

Other reasons include:

 

– Complex and onerous reporting requirements which exhaust the average taxpayer. Tax preparers are stretched and scramble to ensure such reportings are accurate and timely filed. An obvious example of this is Canada’s foreign reporting requirements and the new mandatory disclosure rules. Governments around the world are infatuated with onerous reporting requirements with one of the stated objectives being to reduce tax evasion. While I appreciate the sentiment, the “bad guys” won’t comply no matter what the reporting requirements are. Instead, such requirements are pushed on to the average tax compliant taxpayer which simply adds to the already burdensome compliance;

 

– Punitive treatment of certain activities like the ridiculous short-term rental rules which prohibit the deduction of all expenses for certain owners. This, without a doubt, encourages non-compliance;

 

– Poorly targeted anti-avoidance rules like the horribly complex tax-on-split-income rules which attempts to prevent income splitting amongst family members on certain types of corporate and other income. Such rules often catch legitimate family business arrangements. The rules are often beyond the comprehension of many tax preparers / advisors which breeds non-compliance, underreporting or the encouragement of other informal arrangements to avoid such rules; and

 

– Lack of access to a simpler tax filing system. While some do not like the idea of the government implementing an automatic tax filing system, I do. Especially since the government has access to much of a taxpayer’s data – like employment earnings, pension earnings, etc. Instead, taxpayers are often forced to navigate a complex tax compliance system which can encourage the non-reporting of other earnings;

 

Canada isn’t just taxing people too much – it’s exhausting them. When otherwise good people feel that exhaustion, they will resort to options to ensure that they are not.

 

It’s similar to the reasons why successful Canadians are leaving Canada. As I’ve written and spoken about many times, the number of successful Canadians leaving is worrisome. While the actual numbers of people are small, the amount of jobs and wealth and opportunity costs that are departing are staggering. It needs to stop.

 

So, what’s the solution to all of this? A tax system that is much less punitive – both from a financial and compliance perspective. A tax system that is much simpler and approachable to the average Canadian. A tax system that rewards success rather than punishes it. And a tax system that is much less political.

 

The answer isn’t more enforcement or another layer of disclosure. It’s meaningful tax reform. Reform that lowers the overall burden, simplifies compliance, and rebuilds trust. Not surgical fixes but “big bang” reform that encourages compliance. Canadians deserve a system that rewards effort and contribution – not one that drives them underground or out of the country entirely.

 

PM Mark Carney promised an “expert review of the corporate tax system” during last spring’s election campaign. Not surprisingly, that vague copycat promise (since the Conservatives promised a fulsome tax reform task force) never made it into the November 4, 2025 budget. Canadians don’t need more rhetoric. We need bold action. Comprehensive tax reform is long overdue – and it’s the only way to bring people back to the table.

 

In the meantime, I’ll keep enjoying my favorite cash-only restaurant – and keep wondering how many more Canadians are quietly deciding that our tax system just isn’t worth the price on the menu.

 

One Comment About Leadership – Leaders: Your Messages Need to Deliver Toughness, Kindness and Clarity

 

Last week, while on a long walk, I listened to an episode of Shane Parrish’s The Knowledge Project podcast – a recap of insights from his 2025 guests – intended to inspire listeners to be their best in 2026. One segment featured Indra Nooyi, former CEO of PepsiCo. Among the many topics she touched on, her thoughts on giving performance feedback stood out.

 

Her message was blunt and instructive: feedback must be delivered with toughness, kindness and clarity. If someone’s performance isn’t up to par, leaders shouldn’t sugar-coat the message. Bluntness is necessary – but not cruelty. As she put it, direct feedback delivered kindly is far more effective than either soft-pedaling or berating. And, critically, it must be clear. For example: “If you adjust your performance to include [insert adjustments], then you can progress to [insert advancement] within [insert time frame].”

 

That resonated with me. That’s exactly how I tried to deliver feedback when building Moodys Tax. Most appreciated the directness and clarity. Some didn’t and those people usually didn’t last long with our organization.

 

Now compare Indra’s model to what’s often taught in leadership circles – the so-called “Shit Sandwich”: start with a compliment, provide the criticism, then end with another compliment. For example: “You dressed nicely for the meeting. But your comments were harsh. That said, I do appreciate your contributions.” That’s classic Shit Sandwich territory. And it doesn’t work. The brain detects the B.S. and goes into defensive mode rather than absorbing the actual feedback.

 

Leaders: skip the shit sandwiches. Practice TKC – toughness, kindness, and clarity.

 

One Comment About Economics  – Partisan Politics Shouldn’t Trump Economic Realities

 

Politicians are famous for spinning realities into fantasies and creating cutesy phrases that get trumpeted out like clockwork to appease voters and potential voters. Economic realities are often ignored or intentionally distorted. I find that horribly misleading no matter what political party engages in it. Regardless of the party, ignoring the numbers to pander to voters is both common and dangerous.

 

Full disclosure – I’m a card-carrying member of The Conservative Party of Canada. Having said that, I will criticize them for poor policy or messages. Similarly, I will praise the governing Liberal Party if there is good reason to do so (although admittedly such praise has been very rare in the last decade).

 

Take the phrase “spend less to invest more” – a favorite of our current government. It’s vacuous. Ditto the deceptive separation between the “operating budget” and the “capital budget” – both are designed to placate the financially illiterate into thinking the government is wisely investing. Hogwash.

 

To continue a bit on this rant, it frustrates me greatly to see people so entrenched in their ideology (and political party that fits with that ideology) that all other realities are set aside in favor of their favorite party or the “mighty leader”. Just this week, I read a Globe and Mail letter to the editor from a reader that was so excited about how PM Carney has “transformed Canada” and “he’s just getting started!”. Cringe. To be fair, there should always be room for reasonable policy disagreements but to blindly support a party – or its leader – is dangerous.

 

I see similar sentiments from people who think that we can respond to the United States aggression against Canada by not traveling there or that Canada should simply rewire its economy away from the U.S. A common sentiment from this crowd: “…good on PM Carney for getting trade deals with other countries around the world!” Again, cringe.

 

The reality is our current government has done nothing to “transform Canada” unless you think “Elbows Up!” was a good strategy. Actions speak much louder than words. And if you don’t want to travel to the U.S. thinking that you’ll be part of a group of people who want to stick it to the U.S., well that’s fine but the reality is such an action is meaningless and will have no long-term impact. Instead, you’re simply depriving yourself of a nice vacation and possibly hurting some innocent U.S. entrepreneurs who rely on tourism. Spare me the usual and vacuous rebuttal of “…well, those entrepreneurs shouldn’t have voted for Trump.”

 

Canada is not only dependent on the United States as a customer for roughly one-sixth of its economic output, but also as a supplier of the capital goods, inputs, and technology that enable domestic production. In 2024, roughly 76% of Canada’s merchandise exports were destined for the United States. When both exports and imports are considered, roughly a quarter to one-third of Canada’s economic activity is structurally tied to the U.S. economy.  If you think Canada can simply disconnect from the U.S. and rewire its economy overnight, I’ve got a bridge to sell you. Real cheap. Call me.

 

The solution to all of this is improved financial literacy for Canadians. Improved financial literacy would help Canadians understand that government indeed plays an important role, but it is not the solution for all of life’s issues. In order to provide for yourself and your loved ones, you need an income source and the ability to save. Again, governments can play a role by ensuring the economic landscape is ripe for entrepreneurs to risk their savings to start businesses and create jobs – which hopefully you or your loved ones can be one of those entrepreneurs or the recipient of an entrepreneur’s job creation.

 

Having governments cut unnecessary “red tape” can also help foreign investment flow into our country which is also critically important to provide jobs.

 

With better financial  literacy, Canadians would ditch partisan politics, see through the slogans, question the numbers and demand competence over charisma. “Elbows Up!“ isn’t an economic strategy – it’s a poor slogan for a rec hockey team.

 

Bonus Comment – Quote From Brene  Brown – American Professor  and Leadership Guru – About Communication and Hard Conversations

 

“Clear is kind. Unclear is unkind.”

 

Absolutely agree!!

 

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.