Kim Resources@2x

Kim G C Moody’s Musings – 1-1-1 Newsletter For October 30, 2024

 

One Comment About Taxation – The Legend of Sleepy Hollow – The Canadian Tax Version

 

Boo!!  Did I scare you??  Well, if not, sit back, take a sip of your favorite beverage and get ready for some spooky tax stories for Halloween.  Yes, it’s right around the corner!  Halloween has an interesting history dating back hundreds of years.  While income tax in Canada doesn’t have quite the same history – dating back to only 1917, the first known taxation took place in Ancient Egypt around 3000–2800 BC. So, technically, Halloween is a youngster compared to taxation!

 

One of my favorite Halloween stories is The Legend of Sleepy Hollow.  As a youngster, I recall being freaked out listening to deep voiced narrators of the story on television.  I’m not sure why tax has not had the same appeal for Hollywood writers and producers since tax can also be very spooky!

 

Accordingly, in the spirit of Halloween, I present to you – in a deep voice – Sleepy Hollow (The Canadian Tax Version) that includes some of the spookiest Canadian tax scenes of recent years.  Don’t be too frightened but also please make sure you read these stories to your kids or other young ones tonight…it’s important they are spooked too!

 

1. The cries for the rich to pay more – this spooky story keeps being told by the radical left who feel like the so-called rich get all the tax breaks.  Thankfully, that has long ago been debunked.  It would be more intellectually honest for the people that tell this tale to state that they want the rich to pay all the tax.  Crazy, sure.  But at least the story wouldn’t be misleading. 

 

2. The many silly real estate taxation measures introduced – I’ve recited this spooky story many times in this column, but the story continues to get more frightening.  From a ban on owning residential real estate by foreigners, the underused housing tax aimed at foreigners, the silly “flipping tax”, the ridiculous ban on deduction of expenses for certain short-term rental owners, a proposed vacancy tax and recently introduced measures to encourage homeowners to become landlords, the story gets cluttered and complex.  None of these measures will help our “superhero” government solve our country’s housing issues but they’ll certainly keep making a mess of it!

 

3. Increased amounts of successful Canadians leaving Canada – this spooky story has been ongoing for over 7 years now.  It’s not good and it needs to be stemmed sooner rather than later.  

 

4. The increase in the capital gains inclusion rate – this scary story has been told since the April 16, 2024 Federal Budget. And it has been a complex and scary one for sure. The likely ending of this story will result in more successful Canadians leaving Canada and less incentives for entrepreneurs and investors to risk their capital.  Not good.

 

5. The decrease in service standards of the Canada Revenue Agency – this spooky story is ugly.  The headcount of the CRA has grown by almost 48% in the last 9 years while service standards have decreased – by my anecdotal experience – dramatically.  This needs to get better.

 

6. The luxury tax has been a failure – this new tax was introduced in 2022 as the Select Luxury Items Tax Act to charge buyers of certain luxury cars, boats and airplanes an additional tax to the extent the price of the item was above certain thresholds. In its first year of implementation, the government raised only $137 million (less than budgeted) and incurred $19 million to administer the new tax. This spooky taxation story is purely political and pathetic.  

 

7. Amendments to the Alternative Minimum Tax are ridiculous politics and bad for charity – this frightful story started in the 2021 federal election as a political stunt and ultimately resulted in amendments to the AMT that presumably target the “rich”.  Such amendments, however, will end up harming charities since charitable donations by the “rich” – despite recent amendments to soften the impact – can trigger AMT.  The spooky AMT needs to be repealed.

 

Classic stories are often structured in a way that provides for an exposition, then rising action, a climax, leading to falling action and then a resolution. This structure is known as the Freytag Pyramid named after the 19th century novelist Gustav Freytag who developed this narrative pyramid.

 

For 2024, it’s obvious that the Canadian tax version of Sleepy Hollow is well beyond the exposition stage – the first part of Freytag’s Pyramid – since it started years before.  The rising action has also continued for years with numerous taxation policies introduced by our federal government that are so overtly political and devoid of good taxation policy, as illustrated above.  The push towards the climax started with the introduction of the capital gains inclusion rate increase in the 2024 federal budget. This has had many people upset who have been pushing back.

 

We have yet to see the climax totally reached since the capital gains proposals have not become law and with the political uncertainty in Canada, it is not clear when or if these proposals will get passed.  If they do, the falling action will be the time between then and the next federal election.

 

The resolution to this story will be a new government that is committed to taxation reform, badly needed in Canada, to help improve our country’s dangerously low productivity and reward / encourage entrepreneurship and hard work.

 

Such a commitment will end this version of Sleepy Hollow and begin another taxation story.  But this time I’m confident it won’t be a spooky one.  I’m optimistic that we’ll see a much happier story…not a Halloween story filled with tricks and no treats.

 

In the meantime, enjoy Halloween!

 

One Comment About Leadership – Leaders Can Learn From Bees

 

A few years ago, some members of my family and I decided to take a beekeeping course so that we could have some beehives.  The course was fascinating, and I quickly learned how amazing these little creatures are.  While there have been some ups and downs with my beekeeping “career,” overall, it has been an amazing way to learn how important bees are to society.

 

Unfortunately, though, this past month, the wasp population at our place overtook the hives that we have been keeping and despite our best efforts, the hives were destroyed.  I hate wasps.  And I have been surprised at how sad I have been.

 

As mentioned, I have enjoyed learning and observing these little creatures.  They are absolutely fascinating.  I will often stand close to the hives during a warm day and simply observe what they are doing.  Observing the workers taking off from the hive at warp speed and coming back from a trip collecting pollen (their legs often colorful and heavy) is fun.  One of my sons – Jacob – and I will often do bee chores together.  We will open the hive, observe the activity, look for the queen, etc.  The observation of the activity is, again, fascinating.

 

I often think of communication and culture when I observe the bees.  To carry out that level of activity requires sophisticated communication and a level of committed culture that is unbelievable.  For example, how do certain workers know what to do?  How do they know to protect the queen to the death?  How do certain workers know when the hive is getting too crowded so they will go look for other spots (which is important for the beekeeper to observe to prevent swarming)? While much of this is obviously instinctive, communication and culture is critical.

 

For leaders, I think the lessons to be learned from bees are many.  But the basic lessons are as already described.  Leaders need to effectively communicate.  It’s not enough to just assume that your teammates instinctively know what to do and / or what success looks like.  You need to lay it out clearly.  And in doing so, you are helping to create a culture where everyone is pulling together for a common cause or what is often referred to as the organization’s vision.

 

My son and I will start again next spring with some new hives.  We’ll continue to learn to help nurture and grow some successful hives.  And harvest some delicious honey.  And if we see any wasps, well, let’s just say that that the war on wasps will start a lot earlier than it did this year.

 

Leaders, are you effectively communicating to your teammates to grow a successful culture (hive)?  Think about the bees before you answer this question and course correct as necessary. Fight all attacks (wasps) as best as you know how.  You won’t regret it.

 

One Comment About Economics: Canada’s Government Growth vs Private Sector Growth

 

A recently released Report by The Fraser Institute confirms (and updates previous research done by them) that Canada’s growth in the public sector has far exceeded that in the private sector.

 

From the Summary of the Report:

 

  • Several past analyses published by the Fraser Institute have shown that in recent years net job creation in the government sector has dramatically outstripped private-sector job creation.

 

  • This publication updates these data, showing that during the recession brought on by the COVID-19 pandemic and the following recovery (2019–2023), government employment has increased by13.0% while employment in the private sector (including self-employment) increased just 3.6%.

 

  • We further expand past analysis by comparing the ongoing recovery from the COVID-19 recession to past periods of economic recession and recovery.

 

  • We find that the extent to which the current economic recovery is driven by government job growthis historically unusual. We compare the current economic environment to five past economic recessions and slowdowns and find that none of those recoveries were nearly as reliant on job creation in the government sector.

 

  • We also compare the current recession and recovery in Canada to that in the United States, whichdiffers sharply. In the United States, the private sector has generated a large majority of all newjobs in recent years and the rate of net job creation in the private sector has been nearly identical to that in the government sector.

 

  • As a result of disproportionately faster growth in the public-sector employment, government’s shareof employment post-COVID is higher than at any point since the fiscal consolidations of the 1990s.

 

The Report is a fascinating read and I’d encourage you to read it.  What is obvious, however, is that this level of government growth compared to the private sector is simply not sustainable.  As a very, very, basic reminder for readers:  government growth is only sustainable with a robust private sector.  Why?  Well, silly, it provides the taxation revenues that are necessary to sustain the public sector and provide for its growth.  Without taxation revenues from the private sector, a public sector will not exist.

 

Stating the obvious, Canada needs an overall course correction.  It starts with economic and taxation reform and a dramatic shrinking of the public sector.  And it can’t happen soon enough.  Without it, Canadians’ standard of living will fall quickly.

 

Bonus Comment – Quote From Abraham Lincoln – 16th President of the United States – About Being an Effective Leader and Not Provoking People Unnecessarily

 

“If you want to gather honey, don’t kick over the beehive”.

 

Leaders, are you building a great beehive??

 

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