Kim G C Moody’s Musings – 1-1-1 Newsletter For January 29, 2025
One Comment About Taxation – A Trifecta of Canadian Tax Debacles During Tax Filing Season…We Need to Avoid a Quadfecta
Last week, one of my friends out of Red Deer, AB – a fantastic tax accountant practitioner, Cory Litzenberger – posted a sarcastic and humorous post on LinkedIn. Despite such humour, it was also quite sobering and depressing.
The post described a fictional conversation that he had with a client who thought he was well prepared for this year’s tax filing that would be completed by Cory. The conversation revisited the updated Underused Housing Tax filing obligations, the “bare trust” debacle and what the requirements are for this year, how the capital gains proposals will need to be treated, dealing with the client’s short-term rental property expenses and how other troublesome issues would be treated for tax purposes. The fictional conversation ended with a concluding statement by Cory saying: “… and that’s when my client shot me your Honour“.
So why was Cory’s post sobering and depressing? Well, there’s a lot of truth in Cory’s fictional conversation (obviously not the shooting). The past few years have been a complete debacle for Canadian taxpayers and their tax advisors / preparers to ensure proper compliance. Why? Well, let’s revisit the last couple of years for accountants and the trifecta of debacles.
In 2023, the “new” Underused Housing Tax tax compliance season began to report for the 2022 calendar year. This silly and politically motivated tax came with numerous filing obligations for Canadians even though they were not subject to any tax. Failure to file came with $5,000 penalties. This obvious data grab by the government was met with significant interpretive issues in how to comply. The CRA tried their best to provide answers to accountants and finally announced a last-minute filing reprieve shortly before the deadline. Numerous filing extensions were subsequently announced. Later, recognizing the complete waste of resources and the outcries from the tax community, the government amended future filing requirements for Canadians.
Next, the trust reporting rules, first proposed in 2018 and amended in 2022 to draw in “bare trusts” to the reporting net (despite the many warnings from the tax community of the problems this would cause), became applicable for the first time for the 2024 tax filing season for 2023 reporting. As predicted, the filing requirements – and in particular the “bare trust” requirement – was a complete debacle of interpretive challenges. It was met with a last-second filing reprieve by the CRA announced on March 28, 2024, days before the filing deadline and after great efforts were made by taxpayers and their advisors to try to comply. Late last year, the CRA announced a reprieve for filing for bare trusts for the 2024 year.
And lastly, in the trifecta, the 2025 personal tax filing season is shaping up to be another debacle. The capital gains proposals, first announced in the 2024 federal budget, have been administered the Last Rites but the CRA is still administering such proposals as if they are law. This will add unnecessary confusion,
So where does this all leave us? It leaves us with a tax administration system that is significantly challenged. The huge increase in CRA headcount is certainly not helping with these challenges. Every political tax whim of this government – and there are many – needs to ultimately be reported and administered. The reporting aspect is generally handled by accountants and some non-accountant tax preparers. There is a huge shortage of accountants in North America. Of those remaining in the profession, there are significant numbers leaving public practice. Of the youngsters who do enter the profession, many are not interested in the rigours, grind and chaos – especially in recent years as illustrated – associated with the preparation of tax returns.
All of the above leaves the reporting / compliance function of our tax administration system in a precarious position.
In my view, it is incumbent on the government of Canada – especially the political branch of the Department of Finance – to engage more with the tax legislation branch and its great staff members – to heed warnings that I’m sure are being passed along with many of the political tax proposals. It’s obvious, though, that the tax legislation branch is beholden to its political masters who most certainly drive the bus. It’s also likely that the political branch often ignore /
It also behooves present-day and future political masters to engage in meaningful discussions with tax practitioners whenever tax proposals – especially politically motivated ones – are brought forward.
And by meaningful, I don’t mean the “pat on the head, we know best” types of engagement. Such politicians need to truly appreciate the chaos that they can create with taxpayers and their advisors. They also need to appreciate that tax practitioners / preparers are the navigators in a turbulent sea of ever-changing laws. Ignoring their expertise and experience risks turning an already complex system into chaos. Such chaos is a productivity drag, something this country does not need more of. We’re experiencing that right now with the capital gains proposals.
Yes, I know I’m dreaming. Tax and politics are inextricably linked. However, history can provide inspiration for a principled approach.
Michael Wilson, one of Canada’s best Finance Ministers in the 1980s, was known for his commitment to economic stability and fairness. He emphasized that the tax system should not be a playground for political ideology but a foundation for equitable growth and competitiveness.
It’s time to heed such an example. We don’t need a “quadfecta” for the 2026 tax filing season and future tax seasons. There’s much to learn from the sarcasm of my friend, Cory.
One Comment About Leadership – Leaders, Are You Able to Prioritize Your Goals and Minimize Multi-Tasking?
Earlier this month, I did a simple exercise. I looked at my goals for the next 12 months. There were about 10 important goals on the list. I then needed to whittle down that list to only 3 with the intention of parking the other 7 goals. I had to be in the frame of mind to pretend that I would focus only on those 3 most important goals for the year and not the others.
For me, this exercise was tough and brutal. Why? Because to only focus on 3 goals for the next 12 months meant I had to sacrifice progress on the other 7. I tried to rationalize that I couldn’t do that. I didn’t WANT to do that. But the more I thought about it, the exercise made perfect sense. The brain can only wholly focus on a small number of things at the same time. And to make deep and significant progress requires significant concentration and focused efforts.
One of the highlight lessons of this exercise for me was that multi-tasking is not optimal. I’ve often taken pride in the ability to multi-task. I know a lot of people who do so as well. However, over the years, I’ve actually become a lot better at trying to avoid multi-tasking since, frankly, it is sub-optimal. The brain is not wired to multi-task for projects that require focus, critical thinking, or creativity. While it may seem like an efficient way to handle multiple responsibilities, research consistently shows that multitasking reduces productivity and impairs the quality of work.
Leaders, I challenge you to look at your top 10 goals and whittle them down to the top 3 like I did. Pretend that you are not able to work on the other 7 at all for the next 12 months. Would you be able to do it and apply the required focus and concentration to excel at only those 3? Would you be able to avoid multitasking?
Since I’ve done that exercise, I have certainly not been perfect in applying that focus. But the readjustment to better-focused efforts in such a short time has been noticeable. Obviously, I intend to continue to apply that focus.
One Comment About Economics – The Parliamentary Budget Officer’s Report – Fall Economic Statement: Issues for Parliamentarians
On January 22, 2025, the Canadian PBO released its report entitled Fall Economic Statement: Issues for Parliamentarians. The report illustrates the train wreck of the Canadian federal government’s finances. Here are the Highlights from the report:
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As the Parliamentary Budget Officer (PBO) estimated last year, the Government’s 2023-24 budgetary deficit was worse than Budget 2024 indicated.
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Given the uncertain and volatile global context, the Government’s economic scenarios downplay risks.
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The demographic assumptions underpinning the Fall Economic Statement’s economic projection are not transparent, and likely inconsistent with current Government policy.
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Expenses for contingent liabilities continue to grow and are an increasing source of fiscal risk.
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The Public Service’s ability to produce timely, high-quality Public Accounts is deteriorating.
The PBO report then goes into various details for each of the above-noted highlights.
Regarding economic forecasts, the PBO stated the following:
The economic outlook presented in the FES is based on Finance Canada’s September 2024 survey of private-sector economists. Table 2 provides a high-level comparison of the average private sector forecast and PBO’s Economic and Fiscal Outlook (EFO) published on October 17.1
We note that both our economic forecast and those from the private sector were prepared prior to the Government’s announcement of the updated immigration level plans. As a result, private sector forecasters could not have incorporated the effects of this significant shift in immigration policy into their outlook. Furthermore, several private sector forecasters have published population projections that explicitly differ from the government’s demographic outlook.
Incorporating these updated demographic factors would likely lead to a significant downward revision in both the baseline and downside scenarios.2 This lack of transparency and consistency is particularly notable as positive impacts of the new immigration policies are highlighted throughout the FES 2024 Economic and Fiscal Overview while none of the negative impacts are mentioned.
Frankly, the above disclosure is disturbing. My short shrift interpretation is that the government was purposely misleading Canadians by not including this information.
Regarding contingent liabilities, the PBO stated the following:
As PBO noted earlier this year, expenses related to the provision for contingent liabilities can have a substantial impact on the federal government’s budgetary balance. 5 Moreover, the actual legal payouts can significantly vary from the original estimate. This is especially the case for claims proceeding through the courts and alternative dispute resolution mechanisms.
There is a clear and pressing need for additional transparency in the Government process for estimating contingent liabilities as well as to reconcile settlements of these claims with provisions previously booked. The Government agrees and has committed to establishing an internal working group to assess the issue. Nevertheless, PBO recommends that parliamentarians initiate a study of contingent liabilities and provide the Government with recommendations to rectify current weaknesses. PBO staff are available to support efforts promoting fiscal transparency.
Putting my “accounting hat” on, I totally agree with the above statement. To have such volatility in contingent liability estimates with zero transparency is simply unacceptable. Canadians need to demand better accountability.
Regarding the timely delivery of financial reporting, the PBO stated the following:
The federal government’s ability (or willingness) to produce high-quality, timely financial statements continues to deteriorate. As depicted in Figure 1, it reached a new low this year with a historically long delay in the signing of the Public Accounts by the Auditor General (253 days after the fiscal year ended). The Public Accounts were tabled almost a full nine months after the fiscal year closed. Even worse, the audited financial statements were inexplicably tabled the day after the FES, rather than prior to, or alongside, the Government’s economic and fiscal plan.
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As noted ad nauseam by the PBO, the timely publication of the Public Accounts is crucial for transparency and accountability in government finances. By publishing the Public Accounts earlier, the Government would provide parliamentarians with more time for ex-post financial scrutiny and better information for assessing the Government’s budget plans and estimates. As such, this inexplicable backsliding is of acute concern.
Taken together, the common theme of increased transparency and accountability is rather apparent in the blunt assessment by the PBO.
The above should be front-page news with Canadians up in arms about this. Unfortunately, with such a low level of financial literacy amongst Canadians and other more snack-able headlines dominating the news (Trump this, Trump that) it is likely this horrible Report Card will be buried.
Not good. Canadians need and deserve better accountability and leadership at the helm of Taxpayers’ dollars.
Bonus Comment – Quote from American Investor / Venture Capitalist John Doerr – About the Need to Focus on Minimal Goals
“We must realize—and act on the realization—that if we try to focus on everything, we focus on nothing.”
Yep, absolutely!
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