|Newsletter
Kim G C Moody’s Musings – 1-1-1 Newsletter For January 15, 2025
One Comment About Taxation – The Canadian Capital Gains Proposals and How the CRA is Administering Such Proposals Highlight The Need For Tax Reform
Well, last week the Canada Revenue Agency – supported by The Department of Finance – drew its line in the sand and stated that because of its standard practice (which to be fair has been in place for decades and is supported by Parliamentary convention) that it will continue to administer the capital gains proposals as if they were law. This is despite the high likelihood that the proposals will not get enacted anytime soon because of the current political chaos.
Accordingly, the CRA will release its updated forms by the end of January 2025. The commercial software providers will follow suit.
I sympathize with the CRA’s plight. They’re damned if they don’t proceed with their historical practice of administering proposed tax legislation (since, for example, they may be viewed to be adhering to politics and their role is to be neutral) and they’re damned if they do proceed.
Notwithstanding, it’s been my position that in this very unusual time in history, a one-size fits all approach is unlikely to be appropriate despite its historical practice and grounding in convention. While it is still a technical possibility that the capital gains proposals might eventually pass, it appears more likely each day that possibility is remote. With the Bloc and the NDP both giving the Liberal government a recent rebuff to support the government, it appears highly likely that Canadians will be going to the polls in the spring without the proposals being passed.
If so, this means that Canadians and advisors who blindly follow the CRA’s lead will be seeking amendments and refunds if the legislation does not get passed. While some have argued that a new government, likely being led by the Conservatives, might resurrect the proposals after the election, I would submit that possibility is about as good as a snowballs chance in hell. Accordingly, the effort by the CRA to update applicable tax forms, its technological systems and collection procedures for a tax amendment that is likely to be reversed seems like a complete waste of time and money.
Numerous tax preparers / taxpayers will, again, blindly follow the updated software for the capital gains proposals. If one wishes to not follow the CRA’s lead, they are certainly welcome to do so but it will likely not be with the “blessing of the software”. In other words, there will be a required work around that will be manually necessary in order to ensure that the existing law – and not the proposed law – is adhered to. This will require a very detailed eye, manual calculations and adjustments to ensure the software produces the “right” results. (But perhaps the updated forms and software provides an option to not follow the proposals? I guess we’ll see).
If the proposals do not become law, it will be a large process for the CRA to reverse its systems back to reflect existing law, to amend previously filed returns and process required refunds.
Our country suffers from a significant productivity challenge and spending valuable taxpayer dollars on exercises like this is frustrating.
Last week, some tax practitioners called on the government to signal its intent to either drop the proposals or to announce a change in the application date from June 25, 2024 to January 1, 2025. Either announcement would provide significant relief to the upcoming 2024 personal tax filing season. Other practitioners, including me, also called for these options but did so at the beginning of December 2024 when it became obvious the proposals were not going to get passed before Parliament recessed. At this stage of the game, it is very unlikely that the government will step in to provide that relief.
Instead, Canadians and their advisors will need to decide how to report their capital gains: follow the CRA or follow existing law (since the CRA cannot force you to file on the basis of proposed legislation).
The most conservative thing to do, to avoid possible interest and possible penalties, would be to follow the CRA. However, if you believe that these proposals will not get passed, then the most practical thing to do would be to file on the basis of existing law (but you would need to accept the risk of interest and possible penalties should the law ever get passed). In other words, do what is right for you but be aware of the risks and rewards of your choice.
This whole experience has highlighted, once again, how Canada is desperate for tax reform. It is badly needed to simplify the tax statute, its related administration, to provide incentives for hard work and risk taking (like introducing significant personal tax reduction and better capital gains taxation) and a host of other measures. Many of the recently introduced tax provisions that are so obviously politically motivated rather than providing sound tax, economic and public policy should be on the chopping block. The luxury tax, the underused housing tax, the prohibition of deductions on certain short-term rental properties, the “flipping tax” and a long, long list of other measures fall into this category.
The current experience has also highlighted that tax reform should also take a look at how proposed tax law is administered. Does the CRA’s current approach need tweaking? It would certainly seem so in order to accommodate unusual situations like we are facing with the capital gains proposals.
Overall, the capital gains proposals highlight the simple fact that the prosperity of a nation is built not on the promises of simple partisan politics, but on the strength of sound tax and economic policies that empower its people to thrive. As the Austrian – American economist Ludwig von Mises stated, “wealth is created by private individuals, not by governments. Governments are the stewards of good policy, not the creators of prosperity”.
Totally agree. It’s time for an election where Canadians can decide who they want to govern for the next four years. Let’s hope that choice brings a new government that appreciates the power of sound tax and economic policies. Canadians desperately need it.
One Comment About Leadership – Leaders, Don’t Try to Always Be Politically Correct
Have you ever experienced a person who is always trying to please? I have. They so obviously do not want to be disliked by anyone that they will go out of their way to be “nice”. I have often found such people to be pleasant but unfortunately their lives must be exhausting. Why? Well, it’s inevitable that sooner or later someone won’t like you. For “people pleasers”, it will often be their mission to turn that person around so that they’re liked.
Trying to please everyone is a fool’s game—it will dilute your authenticity, compromise your values, and inevitably you’ll disappoint someone in the end. True fulfillment comes from standing firm in who you are, not in chasing approval from others.
And that’s how I feel about political correctness. By being politically correct, it’s inevitable that you’re going to disappoint someone.
As an example, coming into the Christmas season, political correctness was on full display as usual. Many corporations, businesses and some individuals will go out of their way to say or choose greeting cards that say “Happy Holidays” thinking that they are being inclusive by doing so. Well, there is a large body of people that don’t appreciate such a stale and politically correct sentiment. I happen to be one of them. Christmas is Christmas and that’s what I celebrate. By trying to be “inclusive” with such a statement you’re actually excluding a large portion of people who are proud to celebrate Christmas.
Being overly politically correct can alienate people for several reasons including:
- It can come across as inauthentic;
- It can create an environment where people feel they cannot express themselves honestly. This can stifle open dialogue and may cause resentment, particularly among those who feel their opinions are marginalized or dismissed as offensive; and
- Over-focusing on political correctness may lead to compromises on core principles or values, which can alienate those who expect leadership to stand firm on tough issues. It may be seen as prioritizing appearances over meaningful action.
Leadership requires making tough decisions, addressing uncomfortable truths, and fostering honest discussions. Over-prioritizing political correctness can sometimes hinder clear communication, stifle innovation, or prevent meaningful debate.
While it is important for leaders to be respectful and empathetic, being overly cautious about political correctness can dilute their impact and hinder their ability to lead effectively in complex and dynamic environments.
In my opinion, it’s important for leaders to strike a balance between being sensitive to others and staying true to one’s principles and goals. While respect and sensitivity are essential, overemphasis on political correctness can backfire, leading to mistrust, disengagement, and division. Finding a balance between thoughtful communication and authentic expression will foster greater connection and understanding.
Not easy. But it’s definitely worth striving for.
One Comment About Economics – Are Economic Boom Times Ahead For Canada?
Huh? Kim, are smoking dope? Canada is currently experiencing economic challenges and we face the possibility of crippling tariffs from the incoming new U.S. President next week? What are you talking about?
Well, I’m a glass half-full kind of guy. I’m an optimist but also a realist. Presently, Canada is lacking good governance (since we have a lame duck Prime Minister and government given our current political chaos) at a time when we need it most. While positive political change is in the air, it won’t happen for at a minimum another 3 – 4 months or so. In the meantime, significant challenges face our country.
Having said that, I read a thoughtful piece by former federal Finance Minister Joe Oliver in the Financial Post yesterday. The following quote from the article was worth thinking about:
The number of natural resource projects completed between 2015 and 2023 fell by 36.4 per cent; in value, electricity projects were down 49 per cent and mining, 55 per cent. The result is a staggering $600 billion in lost capital investments — not to mention attendant jobs, incomes, profits and tax revenues. The country simply cannot afford costs that high. The new Conservative government will need to repeal every one of the harmful and dysfunctional policies.
Liberal mis-rule is nearing an end. Soon Canadians will once again be able to benefit from our enormous natural wealth, while their country can rejoin the community of nations as a strong, prosperous and responsible ally.
Yes, a new government will have very serious economic challenges to work on. But, like Joe Oliver, I’m confident that adult and sensible new leadership will make a concerted effort to unlock our country’s wealth.
In the meantime, buckle up.
Bonus Comment – Quote from Actor, Mel Gibson, About Political Correctness
“I am politically incorrect, that’s true. Political correctness to me is just intellectual terrorism. I find that really scary, and I won’t be intimidated into changing my mind.”
Yep, totally agree. Leaders, be wary of falling into the politically correct trap. It’s much more important to be authentic.
Hope you enjoyed this edition of 1-1-1…please sign up for my mailing list today.
