One Comment About Taxation – The Canadian Short-Term Rental Proposal From the Fall Economic Statement – Some More Comments

 

In my 1-1-1 Newsletter from last week, I commented on the horribly thought-out proposal to super-tax short-term rental owners by denying expense deductions if they are renting out in an area that prohibits it.  I received a lot of comments on my thoughts – overwhelmingly positive – but some of the negative comments (and even some of the positive) displayed what I believe needs improvement in today’s environment.  Most of us form opinions based upon strong ideologies and we reinforce such ideologies by surrounding ourselves with people who have similar views.  Such “echo chambers” don’t enable us to think critically and look at all sides of an issue.  And such views become political very quickly.

With the above in mind, I’ll comment a bit further on the short-term rental proposal but first some comments to appease some of the negative commentators: 1. No, I don’t own any short-term rentals; 2. Yes, I’ve lived in a community with short-term rentals and am well aware of the dynamics; 3. It doesn’t matter who I support politically, this proposal is simply poorly thought-out; 4. It is overly simplistic to think that a super-tax – or steep fines and a registry like British Columbia has recently introduced – will cause short-term rental owners to put their properties into the long-term rental arena especially with slanted provincial tenancy laws that favour tenants; and 5. Sorry, but you have no idea if short-term rental owners are reporting their income for tax purposes despite your assertions otherwise.

Taxation is one of those topics where people have strong views but ultimately it warrants deep thought and consideration of many other areas of policy to form good policies for all.  A classic Seinfeld episode illustrates this point beautifully.  Kramer offers to help Jerry obtain a refund on his stereo, which is two years past the expiration of its warranty. A couple of days later, a package arrives for Jerry in the mail—which turns out to be his own smashed stereo. Kramer then bounces in and explains that he purposely broke the stereo because Jerry’s warranty had expired, and therefore, the only way to get Jerry’s money back is to cash in on the $400 insurance policy that Kramer had purchased from the post office. “So you’re going to make the post office pay for my new stereo?” Jerry asks incredulously. “All these big companies, they write everything off,” Kramer assures him.  As Jerry continues to poke holes in Kramer’s scheme, Kramer keeps repeating the phrase “tax write-off” until Jerry finally calls his bluff, betting that Kramer doesn’t even know what a write-off is. He happens to be right: Kramer has no idea how tax write-offs work, and neither does Jerry.

So, back to the short-term rental proposal. Let’s compare the proposal to a drug dealer who sells cocaine for a living.  Such an activity is clearly criminal and can result in that drug dealer going to jail.  The proceeds from the drug sales, are indeed taxable.  Yes, I understand that most drug dealers do not report their income which is another criminal activity, tax evasion.  But if they did, they would likely be able to deduct the business costs of their “drug sale business” – like the costs of acquisition of their “inventory” that has been sold, automotive expenses, sales expenses, etc.  There is no explicit prohibition in the Income Tax Act that prevents the deduction of such expenses against such illegal income. Such net amount would then be included in their income and taxes paid.

Compare that to the short-term renter who is collecting income illegally pursuant to municipal restrictions. Such activities are clearly not criminal.  But now they will be treated, from a taxation perspective, worse than a tax compliant criminal because of the resulting exorbitant income tax rates imposed on them as a result of the poorly thought-out proposal. (However, both the drug dealer and the small group of short-term renters who do not report their income will, of course, both be criminal tax evaders and on equal footing). This, as I alluded to in my previous article, has the strong possibility to cause an increase in the amount of short-term rental property owners to simply not report such income if they will be treated worse than a criminal.  Canada’s overall taxation policies need to encourage compliance not discourage it.  This is one of the fundamental tenets of a good taxation system as espoused by Adam Smith more than 200 years ago.

Our country’s housing issues will most certainly not be solved by attacking the perceived evils through the taxation system.  Instead, it will cause further complexity and division in an already divided and polarized society.

Canada’s housing challenges require solid thinking from a number of different areas of policy.  Deploying “Kramer-like” / “tax write-off” responses – like the proposed federal denial of expenses – is shockingly silly and will most definitely not garner the response expected / required other than appease an already ideologically fueled voter base.

 

One Comment About Leadership – “Merry Christmas!”

 

‘Tis the season!  Christmas is right around the corner.  After Easter, Christmas is one of the biggest celebrations for Christians.  When I grew up as a child, it was common to say “Merry Christmas” at this time of the year.  Over the years, Christmas cards and greetings were replaced by the more generic “Happy Holidays” and “Merry X-mas”.  Christmas parties made way for “holiday parties”.  As a youngster, I went along for the ride because apparently if I said “Merry Christmas” I might be offending someone who is not a Christian and / or simply doesn’t celebrate it.

One day in my young adulthood, one of my best friends – a practicing Muslim – said to me: “Kim, don’t wish me happy holidays…it’s Christmas.  I know you celebrate Christmas and I find it offensive to diminish that fact with me”.  He took me by surprise.  I had to think about what he was saying.  In my opinion, he was right.  From that day forward – now over 25 years ago – I have not hesitated nor am I embarrassed to say “Merry Christmas” although it does take some courage and leadership to say that in this overly politically correct society that we live in.  Especially when I see the Canadian Human Rights Commission – a federal agency – state that the Christmas holiday is religious intolerance.  Such nonsense.

But I take heart in a public opinion poll that was published and reported on last year.  From the article:

And while some respondents who celebrate Christmas said they deliberately avoid the traditional holiday salutation for fear of causing offence, the survey suggests that’s rarely a problem: 92 per cent of respondents who grew up in a non-Christian household said they are not offended by someone sending Christmas greetings. A full 70 per cent of respondents nationwide said they are more likely to greet someone this time of year by saying “Merry Christmas,” compared to 23 per cent who said they will likely go with “Happy Holidays,” according to a Postmedia-Leger opinion survey examining attitudes on how religion relates to the holiday season.

A minority of the subset of survey respondents who grew up in a Christian household said they deliberately avoid greeting strangers with Merry Christmas for fear of offending them — 29 per cent said they avoided it, and 71 per cent said they didn’t.

Of the respondents who grew up in a culturally or religiously non-Christian household, only eight per cent said they are offended by a Christmas greeting.

“Institutions, governments, businesses, sometimes they make a lot of effort trying to come up with, I guess we could call it a politically correct approach, to passing on greetings. It seems a strong majority tend to just use Merry Christmas,” said Andrew Enns, an executive vice-president at Leger.

“Maybe we are worrying about something that the people we think we might be offending don’t feel very offended.”

So, for me, I agree with the vast majority of Canadians and my good friend.  Notwithstanding I do respect and understand that some may feel more comfortable and inclusive not saying or greeting people with Merry Christmas…each to their own.

Leaders, don’t be so quick to be politically correct on issues like this.  Consider your audience and how they feel.  And how YOU feel too.

In the meantime, an early Merry Christmas to all of you!

 

One Comment About Economics and Politics: The Canadian Fall Economic Update – Public Debt Charges

 

An interesting news headline from the Financial Post grabbed my attention this week.  The headline stated that “Soon Every Penny Collected From GST Will Go Towards Servicing Ottawa’s Debt”.  So, I read the article written by the Federal Director of The Canadian Taxpayer’s Federation.  It was an interesting read of how poorly the federal government is managing our government’s finances.  But I wanted to prove whether or not the headline was correct…it couldn’t be!  You mean EVERY penny of GST collected in Canada will soon go to public debt charges as a resulting of skyrocketing annual federal deficits with resulting accumulated debt that has SIGNIFICANTLY increased in recent years?

So, off to Statistics Canada I went.  For the last fiscal period, the Government of Canada collected $45.962 Billion.  For 2023-2024, the estimated GST collected is $52.1 Billion as per the Fall Economic Statement (see page 78 here).  But the public debt charges for 2022-23 was $35 Billion and estimated to be $46.5 Billion for 2023-2024 (see page 82 here).  So, we’re not quite there yet with “every penny” of GST being spent on interest charges but we’re close.

Let’s provide a bit of perspective.  As disclosed in the Fall Economic Statement, the estimated public debt charges of $46.5 Billion for 2023-2024 is almost as much as the amount of money estimated to be transferred by the federal government to the provinces for the Canada Health Transfer ($49.4 Billion) and far exceeds the amount transferred to Canadians via the Canada Child Benefit ($25.6 Billion).

The amount of public debt charges are estimated to increase to $60.7 Billion for 2028-2029.  However, I’m not that optimistic that estimate is sound.  GST revenues for that fiscal period are estimated to increase to $61.0 Billion.  Again, think about that:  as the newspaper article that I’ve highlighted above states, [almost] every penny collected from GST will go to public debt charges.  That is a tremendous amount of money that could be used to build schools, improve infrastructure like roads, more hospitals and long-term beds, schools, and other necessary public services.

Canadians need to wake up to the looming economic disaster that Canada is facing.

 

Bonus Comment – Quote From Thomas Sowell  – the Eminent Economist – About Thinking Things Through

 

“Seldom do people think things through foolishly. More often, they do not bother to think things through at all, so that even brainy individuals can reach untenable conclusions because their brainpower means little if it is not deployed and applied.”

Yep, totally agree!

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