Kim Resources@2x

Kim G C Moody’s Musings – 1-1-1 Newsletter For February 28, 2024


One Comment About Taxation – Recent Housing Taxation Measures


These days, using the tax system – whether you’re a federal, provincial or municipal government – is all the rage to try to solve Canada’s housing supply shortage.  There’s been no shortage of taxation measures in the last few years.  Below is a list of taxation measures that have been implemented:

  1. While this measure is not directly a taxation measure, it is closely linked to some of the measures below and involves the implementation of legislation to prohibit non-Canadians from purchasing Canadian real estate. While there are some exceptions to this legislation, it was implemented effective January 1, 2023 and was scheduled to automatically expire on January 1, 2025.  However, a recent announcement by the federal government has indicated the intention to amend this legislation to extend the ban for another two years to expire on December 31, 2026.

If foreigners purchasing Canadian real estate are a significant culprit, it’s news to me since no compelling evidence / statistics have been offered to support this legislation.  In my view, it’s a bit surprising that the United States has not retaliated to this ban since there are many Canadians who purchase real estate in the U.S. and, conversely, there are many U.S. persons who purchase vacation properties or invest in real estate in Canada.

Could that retaliation be coming?

  1. The implementation of the Underused Housing Tax Act, again aimed at those “evil” non-Canadians, imposes an annual 1% tax on the fair market value of Canadian residential real estate that is owned by non-Canadians that is not sufficiently occupied during a year. The implementation of this measure has been a debacle with many reportings required, even for Canadians, in order to claim appropriate exemptions from the tax.  Recent announcements in the 2023 Fall Economic Statement appear to provide significant relief from such filings but legislation to implement such measures has not yet been implemented.

Again, if foreigners are the significant culprit to Canada’s housing problems, it’s news to me.  In my view, this legislation and related administration needs to be immediately scrapped.

  1. The implementation of a federal “flipping tax” aimed at those “evil” investors who “flip” residential property. First proposed in the 2021 Liberal Party election policy platform, this duplicative tax measure (since the Act has plenty of ammunition to already fully tax flippers’ profits including proper disclosures on tax returns to help identify and audit “flippers”) was introduced into the Income Tax Act last year to fully tax profits – as opposed to more preferential capital gains rates – of “flippers” who dispose of residential properties within one year of acquisition.  There are certain “life event” exceptions to this rule.

Last week, the province of British Columbia decided to join the party and introduced provisions in its budget documents to essentially replicate the federal rule but instead broaden the timing application to two years (with such tax scaling down to eventually zero between one year and two years) from the acquisition date as opposed to the one year rule federally.

These duplicative rules add unnecessary complexity and traps for many Canadians and need to be repealed.  (I recently released a podcast on this topic here…please have a listen).

If “flippers” are materially contributing to Canada’s housing challenges, it’s news to me.

  1. The introduction of a tax on the gross proceeds of short-term rental property owners who operate in a municipality / jurisdiction that prohibits short-term rentals effective January 1, 2024. (As an aside, British Columbia has introduced significant new rules regarding short-term rentals).

This is one of the most egregious taxation policy measures implemented during my lifetime.  Why?  Well, this new measure prohibits the deduction of normal business expenses against the gross rentals received and thus implements the applicable taxation rate on gross revenue.  This could result in situations where short term rental owners – who often are trying to simply eke a living / return on their properties despite prohibitions on operating in their municipality – are worse off than say a drug dealer who is tax compliant (since such criminal receipts are indeed taxable and there is no explicit prohibition on the deduction of their “business” expenses).  This is a very dangerous precedent.

Again, if short term property owners are significantly contributing to Canada’s housing problems, it’s news to me.  This silly provision needs to be repealed.

  1. The implementation of various municipal “empty home taxes” such as those in existence in Vancouver, Toronto and other areas. These municipal taxes add significant complexity and risks to property homeowners who inadvertently do not comply with required filing requirements.  Such taxes are dubious at best at purportedly trying to solve their various housing challenges and should be repealed.

Mark my words: all of the above taxation measures will have zero (or to be fair, perhaps negligible) impact on helping to increase Canada’s housing supply.  Every one of the above measures should be repealed.

But, as is usual, good politics – and playing the blame game with attacking bogeymen – is always better than good policy.

Canada’s taxation system is complex.  We do not need to add to that complexity with duplicative, unnecessary and dangerous taxation provisions to try to solve Canada’s housing challenges.


One Comment About Leadership – Book Recommendation – “Same as Ever” by Morgan Housel


In December 2023, I read the new book by Morgan Housel, “Same as Ever”.  There are no shortage of books and “experts” who make a living telling you what you need to do about the fast pace of change.  And if you don’t change quick, you’ll be left behind.  While there are always things you need to be aware of and, of course, respond to such change, what about the things that don’t change?  Morgan Housel picked up on this straight-forward concept and does a masterful job of describing age old concepts that don’t change that people should be aware of and focus on.  Leaders, take note.

There are a number of great concepts that Mr. Housel discusses in his book but the one I want to focus on today is that “stories are more powerful than facts and data”.  Have you ever listened to a speech on a topic where the speaker fills his or her presentation with numerous facts, graphs and data? Quickly, such a presentation gets very boring and the speaker often loses his or her audience quickly. Take the same subject, however, and have the speaker tell stories that the audience can relate to and the message becomes much more powerful and memorable.

Our human history is full of stories.  The Bible is a great example that has survived thousands of years.  Stories are a great way to communicate and make a lasting impression.

Leaders, the next time you address your audience and need to make a point, consider telling a compelling and engaging story to make it impactful and memorable.  It will likely be better than the technical presentation that you were about to make.

And do yourself a favor and have a read of Morgan Housel’s new book….it’s a good one.


One Comment About Economics: Short Term Rental Denial of Tax Deductions – How Much “Revenues” Will Canada Collect From This New Measure?


As mentioned above, and as I have written previously in this newsletter (here and here), the proposal to deny expenses against short-term rental operators’ revenues who operate in a municipality where it is prohibited is an atrocious tax policy.  But how much does the federal government expect to raise in tax revenue?  This was the subject of a recent Parliamentary Budget Officer (“PBO”) report.  The PBO estimates that the federal government will raise an additional $170 million over the next 5 years.

However, the PBO states the following in its report:

Licensing status could only be assessed for AirBnB, the dominant booking platform, due to a lack of published listing microdata for other platforms. The cost could be somewhat higher if regulatory compliance is lower on other platforms. Deducted expenses as a share of revenues are highly approximate due to a lack of data on the actual expenses deducted by individuals operating unlicensed short-term rentals. The increase in tax revenues for the federal government could be lower if individuals operating unlicensed short-term rentals also fail to report that income or if Canada Revenue Agency is not able to detect such short-term rentals. Despite strong growth in the sector overall, the outlook for unlicensed short-term rentals is assumed to be poor given the ease of detection.

 Given the above, I think it’s obvious that the PBO really can’t accurately estimate the cost to taxpayers that this measure will have.  However, I think the most interesting statement made by the PBO is the second last sentence in the above quote which states that the estimated tax revenues could be lower if individuals fail to report such income. I think that is the real risk here and I have been stating this consistently and loudly since these crazy proposals came to be.  When people are treated as quasi-criminal by simply trying to make a living, they can and often will do activity that is out of their normal character.

In my view, the behavioral response to these nutty new rules will be greater than many government officials think and the estimated tax revenues will be very small.  Time will obviously tell but hopefully a new government will immediately repeal these dangerous rules.


Bonus Comment – Quote From Philip Pullman – English Author – About Story Telling 


After nourishment, shelter and companionship, stories are the thing we need most in the world.”


Yep, totally agree!  Leaders, are you effectively telling stories to assist you with your leadership journey?

Hope you enjoyed this edition of 1-1-1…please sign up for my mailing list today.