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April 29, 2019 | Fleeced

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

There was a time I dreamed of earning in a year what I have to remit to the CRA on Tuesday. And that’s just the final installment for 2018. Taxes in Canada have reached a point where many doctors, for example, have decided to work less, cut back their practices and enjoy life more – since working those extra hours isn’t worth it. Not since Justin created a new high-income tax bracket, quashed corporate income-splitting and gutted TFSA contributions. Perhaps this is why 16% of Albertans can’t find a family doctor, 26% of Quebec residents are without one or that NS cancer patient’s vid  last week gripped so many hearts.

There’s more to come from the current government. The Department of Finance has been mandated to examine raising the threshhold for capital gains tax, significantly increasing the rates, while reducing the dividend tax credit. All aimed at the same target.

As mentioned here already, four in 10 families under the current Liberal administration pay no net tax. They receive more in government benefits (especially the breeding premium) than they remit in federal and provincial income tax. Indeed the 2015 platform forecast a $3 billion extra fleecing of the wealthy to finance a $3 billion ‘middle class’ tax cut. That small tax cut happened but the tax revenues did not materialize (docs and others reduced their incomes), so the deficit went up.

The top 1% of tax filers (making about $220,000 or more) take home 10% of all income but pay about 18% of all taxes. The top 20% of income-earners (family incomes over $120,000) earn 49% of income yet pay 65% of taxes. Families with a couple of kids earning $80,000 or less get the free ride – no net contribution for health care, education, defence, coast guard, food safety etc.

Whether this system is just or not is moot. More important, what are the effects? Will taxing the 1% more make life better for all? Or will it lead to wealthy people adjusting their lives to avoid the extra pain?

Seems that’s exactly what is happening. As rates creep higher and deductions wither, tax avoidance blossoms. The Trudeau eat-the-rich bracket has therefore collected only a fraction of what was anticipated. Human nature is breaking out all over, and now Ottawa’s decided to rein it in with a fat increase in the CRA’s enforcement budget.

Just to be clear, tax avoidance is legal. Tax evasion is a crime. Every person has the right to arrange their affairs in order to attract the least amount of tax. The courts have confirmed that. But the feds have something called GAAR on their side – the general anti-avoidance rule. That says the CRA can invalidate any savings flowing from actions that had no commercial purpose other than to reduce tax. Now law firms that help clients craft such schemes are being routinely fined, along with accountants and tax-preparers. In fact, legislative change over the years has turned accountants into de facto CRA employees. They answer to Ottawa first, then advise you. Only tax lawyers avoid this conflict-of-interest.

The Libs promised to turn the CRA into a toothy, taxpayer-chomping pitbull. And that’s happened. In the last three years alone it has audited close to 40,000 real estate deals in the GTA and YVR and assessed over $70 million in penalties. Caught in the net have been renovators, speckers, flippers and people who think they can avoid capital gains by declaring every property they own as a principal residence.

Small business owners and professionals with corps now face a minefield of rules and enhanced CRA scrutiny. It’s aimed at preventing people from retaining money in a company instead of being taxed on it personally. The premise is that a guy taking daily risks to be an entrepreneur should be taxed the same as a pensioned employee. Flawed logic.

Meanwhile untold numbers of Canadians Airbnb their houses, and pay nothing. In Toronto last year the average host rented out space 87 nights of the year and pocketed about ten grand. How many of these people filed the T776 form and declared their rental income? If they collected more than $30,000, did they register for, collect and remit HST?

The CRA also seems to have a blind spot when it comes to rental suites – meaningful, since Vancouver has the highest proportion in North America.  People renting their basements are legally required to report this as income, adding it to other earnings and paying tax at the marginal rate. Plus, if they alter their houses to accommodate a renter, they will lose a hunk of their capital gains exemption.

At least, that’s the theory. But how many comply? So far there’s no evidence the CRA has gone after this massive pot of untaxed moolah. That could be because there are 270,000 1%ers in Canada, and 36.79 million who are not. Of those, 25,669,742 are registered voters.

Taxes are a fact of life. Equity? Not so much.

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April 29th, 2019

Posted In: The Greater Fool

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