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Kim G C Moody’s Musings – 1-1-1 Newsletter For October 4, 2023

One Comment About Taxation – Tax on Split Income (“TOSI”) Policy

 The expanded TOSI rules, first announced in the 2017 Federal Budget, proposed to significantly restrict many common income-splitting strategies, such as sprinkling dividends to family member shareholders, preventing capital gains splitting and other types of investment income sprinkling.  The 2017 Canadian Budget documents stated as follows:

The review of federal tax expenditures highlighted a number of issues regarding tax planning strategies using private corporations, which can result in high-income individuals gaining unfair tax advantages. A variety of tax reduction strategies are available to these individuals that are not available to other Canadians. These strategies include: 

  • Sprinkling income using private corporations, which can reduce income taxes by causing income that would otherwise be realized by an individual facing a high personal income tax rate to instead be realized (e.g., via dividends or capital gains) by family members who are subject to lower personal tax rates (or who may not be taxable at all)…The Government intends to release a paper in the coming months setting out the nature of these issues in more detail as well as proposed policy responses.

Later that year – on July 18, 2017, to be exact – the Department of Finance released its so-called “consultation paper” on its proposals.  Unquestionably, the period from July 18, 2017, to early 2018 represented one of the most embarrassing periods of how a government should not try to change entrenched and long-standing taxation policy, andengaged in blatantly disingenuous “consultations” with the tax community and affected stakeholders.  Moodys Tax and many other practitioners and organizations across Canada were involved in a significant pushback against the proposals.  As an example, our firm made a number of presentations to interested parties and you can see the presentation on the first version of the overall proposals here.

The rhetoric that accompanied the release and subsequent amendments of the TOSI rules was that they were necessary to prevent high income earners from shifting their income to lower income family members.  While some shifting certainly did occur before the expanded TOSI rules, the conveniently forgotten part was that the TOSI rules generally did not materially affect ultra-wealthy families.  Instead, they significantly affect modest earning and hard-working business owners. Kenneth Keung, Director of Canadian Tax Advisory for Moodys Tax, and myself wrote a blog on this issue back in August 2017, and I’d encourage you to read it to understand how that is true.  While some technical rules were amended since we wrote that blog, the principles of what we were writing about remain true today.  The TOSI rules unquestionably affect modest-earning small business owners unfairly.

In an earlier newsletter, I questioned why communal organizations – like the Hutterites – are exempt from the TOSI regime.  But, overall, this set of rules needs to be abandoned.  It is harmful and complex (have a look at Moodys Private Client’s flowchart on TOSI if you need convincing on how complex it is).  Instead, as Kenneth Keung and I wrote about in the National Post back in 2017, that to be fair about income splitting for everyone – including business owners and employees – family taxation should be the basis of taxation.  The United States, for example, has a form of family taxation.  If adopted in Canada, it would greatly simplify a lot of complexity in the Income Tax Act and would be much more fair.


One Comment About Leadership – Leaders Practice Your Self-Awareness Skills

In my view, strong leaders have good self-awareness skills and constantly practice and sharpen their skills in this area.  Leaders have a definite impact on the organizations and people they lead.  But do you know exactly what that overall impact is?  Do you know what your day-to-day behaviours’ effect is on your teammates?  On certain teammates?  If not, then you should.

For example, I have often been told that I can be somewhat intimidating to certain teammates.  In my early leadership days, I would often dismiss this.  I mean, come on, how in the heck could a 5’3’’ man (and that height is being generous) be intimidating?  But as the days and years have passed, I began to understand some of that feedback better and would adjust my communications and style accordingly.  I did not, and do not want, teammates to feel intimidated by my behaviours and style since that would and could harm engagement and feedback. Occasionally, I still receive some of the same feedback, meaning I have continuous work to do.

What behaviours involving your leadership, do you need to be more self-aware of?  None, you say?  I doubt that’s true.  Have you sought genuine feedback?  If not, you should.  It’s important for continuous growth.  Honest and genuine feedback, however, doesn’t mean providing a license for people to provide meaningless cheap shots.  It means actively engaging with people you trust to provide you with important, constructive, and positive feedback to help you become a better leader by ensuring your eyes are open to the impacts that you have.

There are many good articles and books on how to practice / sharpen your self-awareness skills, like the short article that can be accessed here.  I’d encourage you to read more articles and books on this important topic and keep practicing. It’s critically important to be an empathetic and impactful leader.


One Comment About Economics – Government Cuts to Expenditures

Late last week, one of Canada’s top soldiers revealed to the public that the defence department was being asked to find ways to reduce or save $1 billion in expenditures from its current budget. While I’ll always agree with finding ways to reduce wasteful spending, it seems to me this particular ask of the defence department is not “seeing the forest for the trees”.  Currently and historically, our country’s defence budget has been very low compared to our allies and, in particular, the U.S.  With spending at 1.2% of Canada’s GDP, it will require significantly more money to meet our recent commitment to our NATO allies of a minimum spend of 2.0% of GDP.

In the meantime, as discussed in a previous newsletter, our country’s public debt charges (interest) will massively increase.  This is what I said:

With rising interest rates and increased spending, the estimated amount that the federal government will spend on public debt charges is expected to grow from $24.5 billion from the 2021-2022 fiscal year to a whopping $43.9 billion for the 2023-2024 fiscal year.  And $50.3 billion for the 2027-2028 fiscal year! [See page 206 at this link here for those projections].  Accordingly, in the span of six years, the debt charges will more than double! My suspicion is that those projections are too low, and the actual debt charges in the coming years will be larger.  For a small country like Canada, those costs are very, very significant and represent a lot of monies that could be available for Canadians such as increased health transfers to the provinces, improved infrastructure, etc.  Ultimately increased public debt charges will result in a poorer standard of living for every Canadian.  Canada needs to get its public spending back into balance.  Now.

Obviously, I stand by my earlier comments.  Now compare that to the proposed $1 billion of cuts to the defence department.  Here’s a suggestion:  what if the government got an overall assessment on its wasteful expenditures – like reducing our bloated public service that has grown by 18.5% since 2015, as I wrote about here – so our deficits and debt could be significantly reduced? Such reduced deficits and debt would result in corresponding reductions in public debt charges, which could be used on other important priorities such as defence.

Now that makes some sense.


Bonus Comment – Quote From Stephen Covey Famous American Author – About Self-Awareness


“In our personal lives, if we do not develop our own self-awareness and become responsible for first creations, we empower other people and circumstances to shape our lives by default.”

Yep…totally agree!

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