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Kim G C Moody’s Musings – 1-1-1 Newsletter For July 17, 2024

 

One Comment About Taxation – Divisive Government Message Contributes Greatly to Successful Canadians Leaving Canada – We Need to Stem That

 

As I’ve written and spoken about before, there are many successful Canadians exploring or outright leaving Canada.  Reliable statistics are hard to come by but tax practitioners like me have been kept very busy over the last number of years.  Why?  Because economic and taxation policies matter especially the messaging surrounding such policies.  

 

In the first 23 years of my career, I worked on approximately a dozen “departure tax” cases.  Departure tax is the lingo that is used in my profession since a deemed disposition of one’s assets will occur immediately before the time that a person becomes a non-resident of Canada thus causing taxation (there are a variety of exceptions to this general rule).  However, in the last 9 years the number of files that my colleagues and I have worked on has skyrocketed to numbers that are into the hundreds. 

 

It started with one of the “new” Liberal government’s first announcements in November 2015 that it would be “asking the wealthy to pay just a little bit more” by introducing a new top-end personal tax bracket that increased the previous high rate by 4%.  This measure boosted many provinces’ maximum combined federal-provincial personal tax rates to approximately 54%.  Now, to be fair, not all of the new files resulted in people leaving Canada but ultimately many of them did with the rest wanting to know their options.  Suffice it to say that the wealth associated with such files is massive.    

 

The determination of whether or not a person is or becomes a non-resident of Canada for tax purposes is very much a question of fact that requires careful analysis.  Intention is not all that determinative.  In other words, you might have the intention of being a non-resident of Canada for tax purposes but your facts better make it so.  Accordingly, it takes careful planning to become a non-resident of Canada for tax purposes.  

 

Once a person becomes a non-resident, that person is then only subject to Canadian tax on his Canadian sourced income (like dispositions of Canadian real estate, employment exercised in Canada, carrying on a business in Canada and certain withholding taxes on Canadian sourced dividends, royalties, rents, etc).  Depending on the person’s situation and given Canada’s high personal tax rates comparatively around the world, the future tax savings for many successful Canadians – even when factoring in the one-time departure tax – can be tremendous.  Not always, obviously.

 

So, why are many successful – and ever-growing young Canadians – interested in exploring becoming a non-resident? Well, there are many reasons including lifestyle, cost of living, better job markets / opportunities elsewhere.  

 

Tax is also an issue.  As mentioned, our country’s personal tax rates are punishingly high and increasing more with the recent capital gains inclusion rate increase and amendments to the alternative minimum tax.  With capital being very fluid, many of the people leaving Canada simply deploy their capital elsewhere.  Obviously, it’s not that easy for some.  

 

Overall, though, the biggest cause of successful people leaving Canada is that they feel that they are being attacked in their own country and not appreciated for all of their contributions. Virtually all of the files that my colleagues and I have worked on in the last 9 years have involved very proud and patriotic Canadians.  Many of them are community leaders and very philanthropic both with their dollars and time.  

 

When policies are introduced that attack the very core of who they are, then it’s like a long-term relationship that has turned sideways. As mentioned, the first attack was that the “rich” were being asked to pay just a little bit more with a December 7, 2015 announcement to increase personal tax rates (effective for 2016 forward).  Huh?  Weren’t they already contributing a lot?  

 

Next, it was the brutal attack on small business owners with the attempt to radically reform taxation policy by introducing draconian proposals on July 18, 2017.  The messaging surrounding these proposals caused significant backlash which the government doubled down on for months with even more senseless rhetoric. Overly simplified, the messaging regarding these proposals basically stated that many small business owners were essentially “tax cheats”.  Not good. 

 

This was followed by the COVID period of endless and breathless spending by government with continuous articles being published about how that time could be used for a “re-set”.  Radical ideas like the possible introduction of a wealth tax, windfall taxes and other senseless ideas were continuously floated by government operatives and their supporters.  

 

The recent introduction of the capital gains inclusion rate recycled its attack on the rich by asking them to pay more and that it would only apply to 0.13% of Canadians (an outright misleading statement).  

 

The latest attack is on older Canadians who have owned their homes and been fortunate enough to have capital appreciation. The government has been cozying up to organizations who float radical ideas that these older Canadians should pay a home equity tax in certain circumstances.  It’s obvious that the government is exploring many new tax revenue raising ideas so as to support their bloated spending.

 

The above list is obviously incomplete but the picture being painted is obvious.  When successful Canadians are not feeling appreciated for the years of hard work, the risks being taken, the jobs created, the philanthropy, etc and the attacks are continuous, then it’s time to deal with it.  At that point, emotions – rather than intellect – take over. 

 

Messaging from government and its policies stir those inevitable emotions.  It’s my opinion that the acceleration of successful Canadians leaving Canada will continue until the ugly politics, policy and divisive messaging declines.  

 

Canada needs a return to unifying messaging from government.  This should include the introduction of good economic and taxation policies that incentivize, assist and reward people to take risks.  And for those small number of risk-takers that ultimately become successful, they need to be celebrated with positive messaging.  Not destructive and divisive rhetoric.  

 

That would be welcome and good leadership.  And it just might stem the tide of successful Canadians looking elsewhere. 

 

One Comment About Leadership – Good Leaders Welcome Dissent and Make Themselves Stronger; Weak Leaders Stifle Dissent and Leave Themselves Weaker

 

In the early days of my leadership journey, I was not the greatest at inviting feedback.  I knew that I was thin-skinned and had a hard time accepting feedback without taking it personally.  

 

Gradually, over time, I realized that in order to grow and become a better leader, I needed to get out of my echo chamber, stop stifling dissent and seek feedback that I often may not have wanted to hear.  When I became better at that – and especially learning to not take all feedback personally – I also became a better leader.  As any good leader will tell you, leadership is a continuous learning process and, frankly, it won’t end for me until I’m no longer on this earth.  

 

Today, I realize that most social media platforms are echo chambers.  In other words, such platforms do a good job of surrounding yourself with like-minded people by “connecting” with them. Do you purposely connect with opposites?  Admittedly, I often do not since the rhetoric is something I have a hard time with in today’s social media.  I do, however, have friends and colleagues that have completely different ideologies than me and I invite respectful conversations and debates with them.  Through such conversations I often learn a lot about a variety of topics and at a minimum I’ll retain that knowledge to deploy in future leadership situations. 

 

I was reading a newsletter published by Adam Grant that a friend sent to me the other day.  In the newsletter, Adam stated that “good leaders welcome dissent and make themselves stronger; weak leaders stifle dissent and leave themselves weaker”.  Very wise words.  

 

Leaders, are you stifling dissent?  Or inviting it?  If the former, it’s time to grow and invite it.  You’ll become a better leader. 

 

[Hat tip to Joy B. for sending me the Adam Grant newsletter]

 

One Comment About Economics: OECD Employment Outlook For Canada

 

One of the more credible think-tanks around the world is The Organisation for Economic Co-operation and Development (“OECD”).  Like most think-tanks, it has its flaws and can tend to be a bit too progressive for my liking but some of the statistics and reports it puts out are very thoughtful.

 

On July 9, 2024, the OECD released a Country Note about Canada on its employment outlook.  There were some interesting observations in the short note:

 

– In Canada, the unemployment rate was 6.4% in June 2024, slightly above the pre-pandemic rate of 5.6%, and above the current OECD average of 4.9%… In June 2024, the youth unemployment rate was 13.5%, slightly above both the pre-crisis level (10.8%) and rate recorded in June 2023 (11.4%). At 74.8% in Q2 2024, the employment rate among the working age population….

 

[KGCM observations / comments] – I’d be interested in understanding this further. It’s well known that our country’s productivity is very poo rand our immigration levels are amongst the highest per capita in the world.  My educated guess is that Canada has tremendous work to do on improving productivity and getting a handle on our immigration levels before these statistics improve.]

 

– According to OECD projections real GDP growth is expected to increase from 1% in 2024 to 1.8% in 2025, driven by improving global conditions, the easing of monetary policy, a surge in private spending and increased labour supply due to immigration. The labour market is projected to continue to grow over the next two years with total employment forecast to grow by 1.5% in 2024 and 2025.

 

[KGCM observations / comments] – First off, that level of GDP growth is pathetic even if it “is expected to increase…”.  I’d also be interested to understand better how increased immigration levels will help GDP growth.  In other words, how many of our new immigrants will actually be working as compared to relying on government social programs and / or are students?  This breakdown is important.  Overall, we need to target immigration levels better so as to assist with overall economic growth.  

 

– In Canada real wages are still 2.4% lower than they were just before the pandemic in Q4 2019.

 

Nominal wages (compensation per employee) in Canada are projected to increase by 2.3% in 2024 and 2.3% in 2025. Although these increases are significantly lower than in most other OECD countries, they will allow Canadian workers to start to regain some of their lost purchasing power by 2025, as inflation is projected to be 2.4% in 2024 and 2.1% in 2025

 

[KGCM observations / comments] – yep, inflation has significantly hurt the average Canadian worker.  So disappointing since massive inflation could have – and was – predicted to be a real problem as a result of out of control government spending during the pandemic and beyond.  

 

Overall, there are some interesting tidbits in the Report that I’d recommend you to read. Our country has a lot of work to do to clean up the financial mess that has been created.  

 

Bonus Comment – Quote From Adam Grant – Organizational Psychologist, Professor, Speaker and Author – About Leaders Inviting Dissent

 

“The true leader in a group is rarely the person who talks the most. It’s usually the person who listens best. Listening is more than hearing what’s said. It’s noticing and surfacing what isn’t said. Inviting dissenting views and amplifying quiet voices are acts of leadership.”

 

Leaders, are you inviting dissent?

 

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