One Comment About Taxation – There Are Positives to The Capital Gains Inclusion Rate Increase??

 

June 25, 2024.  By the time you read this it will be that day or beyond.  What’s the significance of that particular day?  Well, Silly, it’s the day that the Canadian capital gains inclusion rate increase comes into effect.  While the particular legislation is not yet in a Bill and thus not passed into law, it’s quite clear that it will be later this year with legal effect as of that day.  

 

When the measure was announced on April 16, 2024, it quickly became a lightning rod of controversy. By now, most of us are familiar with the deceptive messaging by the government.  Despite the continued repeating by government and its followers, the new measure applies to many more than the deceptively presented 0.13% of Canadians.  And it is most certainly not needed to ensure “fairness”. And to prevent the “rich” from living in ever increasing “high walls” while the commoners are envious at their gates.

 

Frankly, the whole thing stinks. It’s politics at its worst.  The taxation policy, while lauded by some academics and ideologues, is poor.  There is no doubt in my mind that the continued departure of successful Canadians outside of Canada will continue.  In addition, this is yet another measure that investors will not look favorably to when deciding whether to invest in Canada.

 

Prior to June 25, the most common question that I would receive by concerned people is “what should I do??”  While the federal government shamelessly budgeted that many Canadians would rush to crystallize their affected assets under the lower taxation regime, and certainly some have, it’s been my experience that in many cases, the cost of triggering the tax prior to June 25 simply doesn’t make sense if you have the benefit of time and sufficient / stable rates of return.  

 

Most of the people that I have chatted with have also been interested in the political risk.  “If the Conservatives win the next election in 2025, will they reverse these measures?”, they ask.  That’s obviously something I cannot answer with certainty but when the Conservatives announced recently that they would implement a tax reform task force within 60 days of taking office, there remains some hope that this poor measure – along with a whole host of other poor taxation measures – would come under the microscope by a new government.  If the capital gains increase ultimately gets reversed by a new government, there will be plenty of Canadian taxpayers who might look back in hindsight and regret the decision they made prior to June 25, 2024.

 

Given the above, it will be interesting to see if the government’s prediction of how much tax revenue it will collect will come to fruition.  My prediction:  it won’t.  If I’m correct, then the obvious result is that the 2025 deficit will come in much larger than estimated.  

 

I like to think that I’m a “glass half full” kind of guy. While the negatives about this measure are obvious, what are some of the positives?  Well, there are some.  I’ll give you a few.  

 

The first is that anytime the general public is talking about taxation, it’s a good thing.  I’ve said for years, including in my 2020 breezy book “Making Life Less Taxing” that Canadians’ knowledge about their tax affairs needs to improve.  For example, I’ve seen numerous social media “influencers” recently emphatically state that “flippers” of property always get capital gains treatment so the increase in the inclusion rate is “fair”.  Nope…not true.  Existing rules in the Income Tax Act most certainly treat “flippers’” profits as fully taxable income and not capital gains.  And it’s these types of falsehoods that politicians take advantage of when convenient.  

 

The second positive is that if you spend even a short amount of time trying to understand the dynamics of what’s at play, you can quickly see the deceptive nature of this government and the cheerleading by ideological academics who lack practical and business experience. The amount of effort that the government has expended in coordinated social media messaging by its MPs and followers is impressive. Accordingly, the exposure of how broken this government is on full display.  Any reasonable Canadian can see that and should demand better governance.

 

The third is that it’s apparent most centrist and reasonable Canadians have had enough of the poor policies in favor of divisive and vile politics.  Or the constant push for equality of outcomes rather than equality of opportunity. It’s enough.  Reasonable Canadians are demanding change.

 

Dan Sullivan is famous for saying: “Always make your future bigger than your past”.  

 

I agree.  I’m very optimistic that Canada has a brighter future than its rich past.  However, as mentioned, it needs better governance which includes a government that is considerate of ALL of its constituents, has a respect for basic economics and good taxation policy, a population that is willing to work hard to improve its standard of living and take care of its vulnerable.  

 

I look forward to a bright Canadian future.  

 

One Comment About Leadership – Courage Over Comfort

 

Recently, at one of my peer-to-peer coaching sessions at MacKay CEO Forums, our group had a brief discussion about how good leadership often requires leaders to exhibit “courage over comfort” (a phrase popularized by popular speaker / professor Brene Brown).  The discussion was interesting but the basic thrust and conclusion of our group was that good leadership requires leaders to not take the easy or comfortable route but instead good progress often requires leaders to veer into areas that they are not familiar with, might be risky and ultimately require courageous action.  

 

There is a lot written on this subject with many authors offering their views on how to be more courageous or deal with the ultimate discomfort that taking courageous action will cause.  I think the bottom line is that being a good leader indeed requires one to be courageous. Being courageous often requires the leader to be vulnerable.  

 

When you’re leading people, there is no doubt that you will encounter difficult issues that you have no experience in.  Or perhaps you’re presented with an opportunity to enhance your organization but such opportunity will require a new path and calculated risks. Or you know that for the better of the organization that a long-time employee and / or department that has been valuable in the past needs to go but the departure will be ugly with significant and possiblly negative fallout.  All of these situations – and more – require significant courage to “do the right thing”.  The comfortable thing to do is do nothing…stay in status quo.  Good leaders, however, despise status quo and are always looking for ways to improve.

 

A small personal example.  As an accountant, I realized early in my career that if I truly wanted to practice taxation at a specialist level that I would need more legal training since the Income Tax Act is a statute and the interpretation of such is a legal function…not an accounting function.  Notwithstanding that I could go back to law school (which I almost did about 10 years ago after getting admitted to the University of Calgary Law School…that’s a story for another day), the better and more strategic thing to do, in my opinion, was to create a multi-disciplinary offering of accountants and lawyers since both disciplines are critical to the practice of taxation advisory.  

 

When I started to work on creating the multi-disciplinary practice, I received a lot of unsolicited feedback such as:

 

“That’s been tried before, Kim, and it failed…don’t you know that?”

 

“Provincial law societies prohibit mult-disciplinary practices, Kim.  Perhaps you should do your homework.”

 

“Lawyers and accountants are wired differently, Kim.  You’ll never find a model to make them work well together.”

 

Every time I received such condescending – and sometimes arrogant – comments that defended the status quo, I was more determined than ever to take the courageous and necessary steps to make it happen.  With the assistance of my partners, we did it.  In the whole scheme of things, the model wasn’t that difficult but, of course, required careful navigation and challenging the status quo.

 

What is something that requires your courage today rather than your comfort?

 

One Comment About Economics: The Economic Cost to Canada of EV Subsidies

 

I have previously written in this newsletter about the disgustingly high amounts of money being paid to various companies to subsidize the building of battery plants for EVs.  It’s gross.  

 

Last week, the Canadian Parliamentary Budget Officer released a Report entitled Tallying Government Support for EV Investment in Canada.  The report does a decent job of tallying up the amount of dollars that the government has committed or spent on this version of corporate welfare.  For those that don’t want to read the Report – or don’t feel like they have the time – here are some highlights:

 

• Total “investment” (a word often used by government to minimize the impact of wasteful government spending) by the government – $52.455 billion;
• Total number of companies receiving such “government support” – 13; and
• In a previous Report, the PBO estimated a breakeven time period of 15 years for the VW subsidies and 23 years for the Stellantis subsidies (VW and Stellantis represents $35.305 of the $52.455 billion of “government support”). With such long payback periods, I don’t think it’s unreasonable to suggest that those “investments” are already worthless and likely will never be recovered.  

 

Canada, it’s time to rein in this wasteful spending.

 

Bonus Comment – Quote From Brene Brown – Professor, Author and Speaker – About Courage Over Comfort

 

“Integrity is choosing courage over comfort; choosing what is right over what is fun, fast, or easy; and choosing to practice our values rather than simply professing them”

 

Yep, totally agree!  Leaders, are you choosing the courageous path?

 

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