Two Way Traffic with Darren Coleman

Arlene 0:01
The opinions expressed on two way traffic are those of Darren Coleman and are for general information purposes only. It does not constitute any legally binding engagement between the podcasters and anyone else. Always check with your advisors to obtain your own tax or investment advice.

welcome to two way traffic with Darren Coleman of Portage cross border Wealth Management. In this series, Darren aims to guide you through the complexities, complications, implications, and most importantly, the advantages of having money and family on both sides of the border. In this episode, Darren is joined by Kim Moody, of Moodys private client, who says Canada is mired in bad tax planning and it's all based on ideology.

Darren Coleman 0:53
Hi everyone. I'm Darren Coleman, Senior Portfolio Manager with Raymond James in Toronto. Welcome back to another edition of two way traffic the podcast. I'm delighted to be joined today by Kim moody of Moody's tax and Moody's private client. You're also a law firm based in Calgary, Alberta, and you're probably one of Canada's best known tax and estate planning advisors. You're in the press quite a bit. You work a lot with owner managers, professional athletes, executives, entertainers and people both in Canada and the United States. So thank you for joining me in our conversation today.Kim,

Kim Moody 0:53
my pleasure.Thanks

Darren Coleman 1:27
now for listeners, if you heard our last conversation with Trevor Perry, who I know is a good friend of yours, and you guys apparently have someone going battle about pin stripes versus checks or something else that is extremely important for the rest of us to follow, and may the battle continue. I wear solids because, you know, it's slimming, and I'm trying to have a hot girl summer. So these are things that I do, but you wrote an article, and then Kevin and Trevor and I talked about this and and it was about some of the issues that we might be seeing in terms of taxation of the principal residence in Canada. And I've been saying for years to clients and anyone that will listen, that I think because governments have spent so much money that we're going to see tremendous innovation in taxation. And the most recent one, being about housing, is just one illustration of where this might go. And then you and I are going to dig into a couple of others. But Do you maybe just want to set the table a bit for the article that you wrote in the Financial Post, where you talked a bit about where this is coming from, and why I think Canadians might be on alert for what might be coming to tax the equity in their homes.

Kim Moody 2:25
Sure. So the point of the piece was mainly just to put Canadians on on notice that you had the Prime Minister and the finance minister, you know, sitting down with what I call pretty radical they call themselves a think tank. I hesitate to use that phrase, because I don't consider them a think tank. I consider them an ideological bastion of radical thought and so but that issue aside, they call them call themselves a think tank, and they this particular one, led by Paul Kershaw of generation squeeze, has stuff on their website that pretty much attacks the older Canadians to basically saying that, you know, they've they've gotten rich, and this is directly on their website. They've gotten rich by going to sleep and watching TV. And so the whole point is, oh,

Darren Coleman 3:20
how to make How to Make Friends, win friends, and influence people with that line of thinking, right?

Kim Moody 3:24
Unbelievable. Whoever approved that. I mean, it's just so offensive. But that issue aside, you know, the whole connotation of the messaging is that, hey, these people are rich. We've got these poor young Canadians who who are not and they can't afford houses because you're rich and and

Darren Coleman 3:44
someone should do something about it, right? That's the trick. Someone should do something.

Kim Moody 3:47
Someone should do something about it. And their solution is to introduce a so called Home Equity tax on any equity of a million dollars or more. And they call it a modest surtax of 1% per year. So it's like another, effectively property tax,

Darren Coleman 4:04
a modest proposal. Where have I heard this before?

Kim Moody 4:06
Yes, yes, nice language by the radical left. It's just so nonsensical and so offensive on a whole bunch of different levels. Like you think about, yeah, I can think about grandma and grandpa, you know, yeah, they've got equity in their homes, but they don't have a lot of cash. You know, they've been working hard their entire lives to pay off their their houses. And yes, they're they want to transfer down to their kids at some point, but right now, they're living again, and they're making ends meet by living off their pensions that they worked hard, and you're expecting them to shell out more money for that, and I find that offensive. But if you keep on reading their proposal like they don't talk about what the money will be used for, of course,

Darren Coleman 4:52
or who's going to get it, but someone needs to do something.

Kim Moody 4:54
Yeah, these organizations never talk about that, because tax is always the Savior. I like Winston, Churchill's line. Which I think I used in that article. You know, you can't tax your way to prosperity and something like that. I think that was Winston Churchill. It might have been somebody else. But anyhow, to make a long story short, they also go on to say that that because of this surtax, this charge, is that the housing market will stabilize and maybe even come down a bit so as to make the properties more affordable. And I'm thinking, Where did you take economics? Because,

Darren Coleman 5:33
well, yeah, one of the things they talked about was they want housing values to stabilize so incomes can catch up. But I'm like, I'm not sure how one accomplishes that in a free market society without it being remaining a free market society?

Kim Moody 5:44
Well, exactly. I mean basic supply and demand economics, right? Which the radical left are always willing to throw out basic concepts of economics. And

Speaker 1 5:54
the Soviets tried that right with, you know, we're going to make the price of bread this. There isn't any bread, but the price is low, right there, isn't it, but the price is low.

Kim Moody 6:02
And, you know, it's just stuff like that. You know, to go back to the original premise of why I wrote the article is number one, just to let Canadians know that our leaders are entertaining stuff like this. It doesn't mean that they're going to implement it, but they're actually entertaining radical organizations like this. Yeah, and if you watch the interview with the Prime Minister, there's a lot of offensive stuff in there. And then secondly, just to put Canadians on notice that this is just the beginning. If this regime continues with out of control spending, no adherence to basic economics, and then we could expect a whole bevy of other taxes, and this is just the beginning.

Darren Coleman 6:43
Well, indeed, they've already, they've already done some of this, right? So you know that this idea about we're going to tax home equity, either through some kind of annual sur tax on equity over a certain amount, or we're going to put a capital gain on principal residences. And I would argue that for years now, Canadians have had to report the sale of the principal residence on their tax return, which is a non taxable event, yet you now have to tell them, and if you don't, there's a penalty. I think that might just be to put the bureaucracy in place for what might be coming. But we've also seen, and I know you've also written about this, the latest change to the capital gains inclusion rate and the way in which they've justified some of that is also very curious. Do you want to talk like, for example, they talked about only point one, 3% of Canadians are affected by this change. Is that number accurate in any way?

Kim Moody 7:31
That number is so manipulative, so the way they when I, when I saw that in the budget documents, when I read it on April 16, I thought, oh, geez, how are they getting this number? Because that's just not right. And so then they go on to explain how they get it. And it's like, oh, really, that that's your methodology. And the methodology is this simple. They picked, I think it was 2022, if I recall my head, and they said,

Darren Coleman 7:57
pandemic is still rolling, not quite over yet, right?

Kim Moody 7:59
Yeah. And so they so they said, Okay, these are the reported capital gains, and these are the number of people who had over 250,000 and because of such a small number compared to the entire population of taxpayers, that's 0.13% so they extrapolated from one year,

Speaker 1 8:17
one year, which, by the way, it was a Negative year in stock markets globally. So they happen to pick that year.

Kim Moody 8:24
I didn't even think of that actually, in point and but, but here's part of the problem with that capital gains are realized as you know, as a portfolio advisor, you know, they're pretty lumpy, and especially when you're dealing with monumental type assets, like a lot of Canadians have cottage properties. I think the last numbers I saw there's three or 4 million. I can't remember the exact number, but it's a lot of people that have cottage properties, and then rental properties to try to provide for their retirement. So the the issue is that those capital gains will be realized either upon death, upon an eventual monetization or a gift to their children during lifetime. And

Darren Coleman 9:07
many of those returns were just inflation, by the way, which people saw, if you bought it in 1979 and you finally sell, sold it in 2025 Well, that's most of that is inflation when you're paying tax on all that inflation.

Kim Moody 9:19
yeah, which there's a big, big debate on all that, you know that goes back decades as to whether or not you should even tax capital gains, given that it's inflationary. And I think there's a good argument to be had that about that. But having said that, did they even think about that people are going to be affected by this during your lifetime. Jack mints wrote an article on this very point, and he conservatively estimated that 1.2 5 million Canadians will be eventually affected by this proposal. And he admittedly said in his article, and when I talked to him privately on this, that that number is likely very low. And so when you think about that. 1.2 5 million, even if that's very low, the number of taxpayers in Canada is about 29 million taxpayers today, our population is a lot higher. That doesn't mean they're taxpayers. So is that a material number? Yeah, that's a material number.

Darren Coleman 10:17
Well, and also, and for most Canadians, they're not going to be having this touch them until there's a deemed disposition at death, right? So mom or dad or whatever, pass away, the cottage, the rental property, whatever it is, is sold, and a generation's worth of equity is all going to be realized at once, and that's when that much higher capital gain comes in. So many people walk around don't think this applies to them. They'll discover at that one moment in time that, oh, it actually applies to you quite a bit.

Kim Moody 10:42
Here's another one. And Jack hinted about this, but he didn't do any math on it. I rang the alarm bell pretty quickly on this. So, and you probably deal with a lot of pensioners, you know, people that. And so, what are they investing? What are pension funds in Canada typically investing? Well, you companies real estate, yeah, but are they investing in, for example, public companies that pay dividends? Yep, for sure, right? Because it adds to their portfolio. What happens if those companies have capital gains now? Well, they're going to pay higher, higher tax, so which reduces the amount available to pay as a dividend,

Darren Coleman 10:42
right now it's all friction to the return pattern, right? Yeah,

Kim Moody 11:24
exactly. So are we going to see over time, a statistically significant amount that is reduced on dividends to the extent that that public company has capital gains, which many of them do, the answer is yes, will we, and which ultimately means that pension funds will come down. Now, it'll take a while for that whole cycle.

Speaker 1 11:44
Now all Canadians will feel that, right, whether it's either pensions, their RRSPs, whatever it is. So

Kim Moody 11:50
is it 0.13% is it 1.2 5 million, or is it something like 28 million? Right? I think it's closer to the bigger number. And so so maybe that I could go on and on, but I can't stand the deception.

Speaker 1 12:04
Well, one of the things you also just mentioned in the conversation was about tax policy, and one of the other elements to the capital gains tax was that individuals were given an exclusion of 250,000 the higher rate doesn't apply. Little complicated how it all blends in in year one, but that's another conversation that might be a little inside baseball for this. But the other reality is that for anyone who's saving inside their corporation, which in many cases are doctors or your next door neighbor who owns a plumbing business or something, they do not get that that additional amount, they're paying a higher rate of tax on dollar one. Yeah. And from a tax policy perspective, there's this idea of integration, which maybe you could talk about. And does that change? Because it's different on from corporate versus health and asset health personally. Does that further enable this concept of integration, or does it make it not work very well anymore?

Kim Moody 12:54
What do you think the answer is?

Speaker 1 12:58
Oh, but I'm not the CPA my friend, so I might know the answer, but you have to tell them.

Kim Moody 13:04
Well, you've kind of teed this one up on a

Speaker 1 13:06
I told you I'm going to put the Titleist on the on the T so you can hit it. I

Kim Moody 13:09
I like it. I like it, even though I'm the shitty golfer. So,

Speaker 1 13:13
oh my, I don't have a handicap. I have a disability. I convert right because right now these are my job.

Kim Moody 13:20
The short answer is, of course, it throws integration out. And what is integration in a nutshell? Well, yeah, years and years ago, the tax policy makers for Canada wisely designed our tax system so that ultimately investors should be neutral as to which vehicle, which legal form do they place their investment dollars. So if you place your investment dollars individually, or place them through a partnership or a trust or through a corporation, and just focusing on a corporation in individuals is the easiest to think about. Sure if I, if I take $100 and invest it individually versus $100 I place it inside a company. Well, if I make $10 of interest income on that $100 which would be a great year, let's just say I do the tax that I'm going to pay, by theory, should be exactly the same on that $10 of interest income. If that interest income is earned through a corporation. Now, in a corporation, you're gonna pay a combination of corporate tax and then when you take out that after tax return by way of a dividend, which is the only way you can take out after tax corporate rates of return by definition, from an accounting perspective, legally, you can, you can be a little more creative, but, but that personal tax and the dividend plus the corporate should equal the same tax. Had I earned it individually? That's integration,

Speaker 1 14:50
yes. The idea is, if I have that dollar, whether I own it personally or the company, I could run through all the gymnastics. Or you guys do, yeah, but I should be agnostic, right? If I Yes, like, I should be say, like, the same. 38 cents, or whatever it is at the end, whether it came one way or the other, the tax system was designed to make me neutral on that right, exactly. So I should end up in the same place.

Kim Moody 15:10
I like your word agnostic, because that's exactly what it is you should. You should be neutral from where you place your investment dollars in legal form. And

Speaker 1 15:18
from time to time, it's Yeah, and from time to time, to time, it's not I know from time to time I'd be a little bit better to earn that. And it's usually pennies, right? It's not that dramatic. Usually, when we're it's usually

Kim Moody 15:27
one to 3% on the most now and right now most provinces, because there's a provincial element here as well, most provinces are not in favor. In other words, it's not in your favor. If you have a choice to invest investment dollars inside a corporation, much better to invest personally and so

Darren Coleman 15:49
which, by the way, surprises people. I think the average Canadian walks around because of maybe some of the political rhetoric, thinking all these people are leaving this money in their corporations and cheating everybody, and they get all the loopholes and the write offs that I'd like to know what most of them are, but they apparently exist, and I've only done this for 32 years. I know I look 26 but I don't know what they are, but I'd love to maybe you know what they are. You're like the bartender at YukYuks. Now you're not laughing at anything, okay.

Kim Moody 16:19
Well, just to digress for a second, the the ever you ever watch Seinfeld, because I think you, of course, okay, do you remember the you remember when Jerry stereo doesn't work? And so Kramer comes up with a brilliant plan that he's gonna, you know, he's gonna get his money back. And so he busts it all up, unbeknownst to Jerry, and sends it in the mail, buys the insurance, and tries to rely on the insurance. And Kramer comes back and tells him the plan, and he says, You can't do that. And and Kramer says, Well, sure, you can. It's a write off. And this battery's around, yeah. Banter goes on and on. And finally, Jerry says to Kramer, you don't even know what a write off is, and Kramer says, right? I often use that because there's so much mythology and tax that, you know, it's like the Kramer and Jerry scenario, they get all these loopholes or, you know, all Canada needs to do is go offshore and grab all that money, because all these rich guys are not paying tax. Yeah, right, that is,

Speaker 1 17:27
well, these are the same ones living behind their walls and their gated communities with their airplanes that I've never met. Yeah? Apparently there's so many of them, every street corner has them, I guess.

Kim Moody 17:35
Yeah. Apparently that's why we needed the capital gains inclusion rate increase so but for

Speaker 1 17:40
this idea. But yeah, and so I would, I would, it sounds as though, if I read this correctly, it was less about maybe great policy, because if it was really good policy, they'd somehow preserve integration, or that would have been a key element of this. But that sounds like that's not what they were after maybe some other political dynamic, right? Because if they had maintained that same threshold, or tweaked it, they could have kept integration, yeah? Like, I think that if they'd allowed, perhaps the individual business have that same exclusion of 250,000 or whatever, the math would suggest, they could have protected that concept somehow.

Kim Moody 18:14
Yeah, I think, really, when they designed this, it was designed in a real hurry, and they and they found these nice statistics that moved into their narrative. You know, the 0.13% because corporations are viewed to be for the rich, and therefore we'll take care of the individuals on the first 250 but we won't worry about corporations and trust because they're viewed to be they're viewed to be rich. So this was pure ideology in really bad tax policy. It's as simple as that. And then to compound it, even worse, Darren, I'm sure you followed this, but they put this June 25 arbitrary deadline, which was roughly 10 weeks after the budget announcement, and they encouraged Canadians to monetize and crystallize

Speaker 1 19:04
to drive the bill up a bit higher. Yeah, we had a few conversations with clients about, should we, should we do this or not do this? And I think otherwise they would have not touched the asset. Yeah.

Kim Moody 19:14
Well, what I found offensive blood is they in the budget documents, they budgeted $7 billion of extra tax revenue for monetizations and crystallizations Like, how offensive is that?

Darren Coleman 19:26
Well, what's interesting to me on that topic is, if they really wanted to be sure that was done, why did they make people go and actually create a transaction? They could have just filed an election on their tax return potentially, and said, I'm willing to trigger this. I can't sell my cottage in time, but I'm willing to take the thing and I'll pay the tax some other way. Right now, there are other ways I think that could have accomplished that same feat without having people run around trying to get all these transactions done and maybe selling at the wrong time. Or I'm going to my accountants, lawyer is going to cost charge me a fortune. Or what if I can't get it done on time, I don't get to benefit from it. So there's been a lot of issues around. Implementation for sure.

Kim Moody 20:01
Yeah, and there's history behind this, right? There's good precedent. February 22 1994 when they eliminated the $100,000 capital gains deduction, they had a, this is going to show my deepness here, but they had a one, 10.6 19 election, right? A one time election, and you could file it on your on your due date of your tax return, which is, in some cases, more than a year later. Oh,

Speaker 1 20:25
yeah. Like, full disclosure, this wasn't Aaron's idea. I thought I'm sitting here. No, there was precedent for this, for sure. Like, they had it in the playbook, right?

Kim Moody 20:32
Yeah, so they could have done it. But why didn't they, I think, and of course, I don't have confirmation, is I think that this is dreamed up at a very last minute entry into the budget documents. You can tell by some of the shitty language in the budget documents, and ultimately, at the end of the day, they just didn't have time to think this through.

Darren Coleman 20:53
So are you trying to tell me that this may have not been well thought out, especially on the heels of how well they handled things like the bare trust reporting like that was so well done, I can't imagine they would have not done it well later. Yeah, kidding me,

Kim Moody 21:07
the whole thing, the introduction of it, the premise of it, and the messaging behind it, very poorly done, very So frankly, it's embarrassing.

Darren Coleman 21:17
So we'll talk about the US in a sec. But from as a from a Canadian taxpayers perspective dealing with all these things going on. What are a couple things you recommend people do to try and I don't they can't really insulate themselves from it, or at least try to incorporate some of these changes into their own planning. Any advice to them?

Kim Moody 21:33
Well, I'm not sure I understand totally the premise you question. But you know what I can tell you is that people are getting spooked by all these very bad changes. And what's that? What that is driving is a massive increase in people wondering if they should leave Canada, and then a massive increase of people leaving Canada. And I've written about that a lot too, and I would say for every four people that ask about it, one is actually pulling the trigger and leaving it and so what the capital gains inclusion rate increase did. It was the final straw for a lot of my clients and a lot of people I know a lot of other practitioners, clients that they said moody, just get me the hell out. Do it now. And you know, even last week, I had four new files on very successful Canadians who want out. Wow, they just said this and no more. And you know, you might think that that's not all, or your listeners might not think that's a lot, but that is a lot. Yeah, 464, successful Canadians in one week pulling the trigger, that's a lot well, and

Speaker 1 22:40
we're not seeing four successful people from other countries necessarily showing up to replace them.

Kim Moody 22:46
We're seeing a lot of international students which don't pay tax, yes,

Speaker 1 22:49
not the same thing, really. But it's Welcome to Canada, which is very good, but we do that too, right? Because we deal we're in both Canada, United States. So we see a lot of the movement, and there's a certain natural amount of movement as people retiring, coming home, or their job takes them, but we certainly see an uptake of people asking the question, we've had a couple that I think they don't like, maybe the way US politics are going, they're like, how do I leave the United States? But that's a different dialog. But certainly I think the mathematics for a lot of successful, economically successful Canadians are kind of looking south of the border saying, look, if I can get there, that's a lot better. So could we talk because I know you do a lot of cross border work, yeah, for like, on some of these comparators, if I'm a physician or an entrepreneur or something in Canada, what does the US tax give us a little bit of a picture of what would us taxation look like in terms of what are their marginal tax rates, what income thresholds are, they kick in at, like, what's a good comparative here?

Kim Moody 23:41
Yeah, that I wrote an article about this in the beginning of January, just on that very topic. And it really is state sensitive, like, Where were you coming from in Canada? Where you're going to in the States? You know, I did a comparison of somebody moving from Ontario to Florida. Well, Ontario is one of the highest Well, it is the highest tax rate province in Canada, some of the Atlantic provinces of Quebec and Florida being one of the cheapest, right, right? Because there's no state tax and so when you, when you take a doctor, let's say, earns a million dollars in Canada, forget about foreign currency adjustments, because that just, you know, adds to it, but earns a million dollars in the States. You know, just off the top of my head, we're trying to recall the math in that article, just between the 54% rate in Ontario and the high rate in Florida is 37 you know, that's a 17% delta. Now, it's a lot more complicated than that, because because of, you know, comparisons of credits and available deductions, what have you. But just alone, 17% that is a significant number. Oh, and you know what? Just as we're talking here, I got an email come in about a client that wants to leave.

Darren Coleman 24:52
There you go, just as it happens,

Kim Moody 24:53
just because it flashes across my screen. So I am paying attention to her, but I know

Darren Coleman 24:58
it's all good, but that's the thing like, that's how. Regular this is right? But the thing is, is it's not just that. It's a 17% difference. It's also in the dollar of income, right? So in Canada, we hit the top marginal tax rates at like 200 ish $1,000 depending on the province. But in the US, when do you hit the top tax brackets?

Kim Moody 25:15
Well, it depends on the state, of course. But I always use just as a rule of thumb, which is very conservative, because in most states, it's higher a half a million, right? And Florida, off the top my head, I think is higher than that off the top. I always have to double check these states, because there's 50 of them, and they all have, yeah,

Speaker 1 25:31
I agree. They're all a bit different. And California, New York, are higher than Florida. But at the end of the day, there's generally an overall tax savings for the vast majority of states, right? For sure. Sorry, go ahead,

Kim Moody 25:42
I'm working in a file right now where we're just crunching that math for this particular guy, because he's got a lot of capital gains upon exiting Canada. Because, of course, there's a departure tax deed disposition of all your assets in fair market value, minus some exemptions. And we're trying to figure out with precision how much tax he's going to save, because this fellow is moving from British Columbia to Florida, so same, same math as Ontario. And I can tell you, we're only about halfway through, and the number is big. The number is very big, right? And so now the usual thing I get is, especially when I write about this, is, oh, yeah, I can. But what about estate tax? Us? Estate tax, yeah? And the short answer is, yeah, much

Darren Coleman 26:24
is it higher. There it well, the US has this inherited Canada doesn't have an inheritance tax. They have a position is a bit different, yeah. So our taxes are actually gonna be much higher than in America would experience.

Kim Moody 26:34
Well, the it depends on the on the net worth, right? Because, as you know, if you're over the exemption amount in the US of 13 million, roughly, right now, yeah, then you're going to pay tax us, estate tax upon every dollar in excess of that amount. Now, for married couples, it's double that. And so it, you know, there's some significant planning that has to be done if you're moving, you know, like a family of a couple 100 million dollars of net worth into the United States, right? You gotta be careful with that, sure. The other issue I hear is health care. Oh, health care is very and it's free here. Yeah,

Speaker 1 27:11
I think covid Put I think covid Put paid to a lot of that belief system, right? A lot of people like, maybe it isn't what we thought it was. Well,

Kim Moody 27:18
I still get a lot of email traffic on it, and letters and so. So all I say is, it's interesting that a lot of my clients have been able to figure that out. Oh, and by the way, the quality of health care is a hell of a lot better, yeah, and yes, the premiums are more expensive, but not as astronomical, as you know, the mythology does say so well.

Speaker 1 27:38
And think of how much health insurance you can buy with that 17% that you're not paying to exactly right, exactly so, yeah. So I think from our perspective, when people are looking at this, my answer is, like, eyes wide open, get the right people that know what they're talking about to consult on your situation so that you can make a fully informed, proper decision on what to do and how to do it. I find when people just go on the internet and play the home game, it doesn't work out very well.

Kim Moody 27:46
I agree.

Speaker 1 27:49
that doesn't work so well. Now I'm going to ask you, because you're writing, you shared with me an article that's going to go in the Financial Post in a couple of days. You kind of gave me an advanced look at it, and in there you mentioned, and maybe this also you got to pay a quarter royalties to Mr. Mintz. But you you because I'm not, I don't like people that whine but don't provide a solution. So I think you're also in that category where you want to present a solution. And one of the ideas that I'll ask you to talk about that might be a way that, if you could run the tax policy for 20 minutes, this might be something you'd consider. So you guys mentioned that Estonia actually might be a source of inspiration for better tax policy. Could you take us through what the Estonians are doing?

Kim Moody 28:42
Sure? So Estonia, it's been rather well known that they revamped their tax system back in year 2000 so it's 24 years old already, but 24 years provides a good source of data to see how it's worked. And so Estonia only rather recently you know, with people like Jack mins, you know, has gotten some rather good attention on what their what their system works. I first tripped across Estonia with some clients. Well, one in particular, one large one that moved to Estonia for their manufacturing operations. And it goes something like this, you you earn money in a Estonia company, and as long as those funds are reinvested back in the business, then there's no corporate tax.

Darren Coleman 29:31
It's kind of like an RSP, in a sense, right? Yeah,

Kim Moody 29:34
but eventually, when those funds are distributed to the shareholders, then there's a corporate level of tax. Now, when you combine that, and Jack does a really good job in a 2022 paper that he wrote on this. And by the way, there's a, you know, the Fraser Institute wrote about it earlier this month. And then Trevor tombs, who's a University of Calgary economics professor, he wrote about it this month as well. So it's getting a bit of track. Oh, it's interesting. Okay. So I so I thought I'd add to the pile. So that's why I wrote about it in this post article. But what's interesting in Estonia is they, they have a 2020, and 20 system. So when you eventually distribute those funds, you pay 20% tax. But they also combine that there's a 20% value added tax, like our GST.

Darren Coleman 30:20
Okay, so, yeah, 20 on the 20, yep,

Kim Moody 30:23
well, no, you don't pay 20 on the 20. It's just, if you buy stuff, oh, okay, it's like our GST, you're gonna pay 20% I see. So it's so it's like a consumption tax, right? Got it, but, but then there's also a flat tax on your personal income of 20% no progressive rates. It's just flat 20, but there's an exemption for the amounts that have already been paid on this distributed profits tax. So if it comes out of the company, you're not paying another 20. And for low end, low income people, there's a bunch of exemptions so that it's not very regressive. So Jack talks about it as 2020, 20, and it's it's a very powerful system, but just focusing on no corporate tax, what does that do? Well, it encourages investment and reinvestment and hiring and expanding, and when you look at the number of entrepreneurs in that compared to Canada. And Fraser and Steve wrote about this about two weeks ago. The number of entrepreneurs per 1000 people in 2023 is 49.4 off the top of my head, something like that, whereas in Canada 4.9

Darren Coleman 31:37
Wow. So we're a 10th of that incredible. Yes.

Kim Moody 31:40
Wow, yes. And then there's a bunch of other amazing statistics, you know, on GDP and GDP growth and what have you that I can't remember off the top my head, but it's rather impressive. So does Canada need that kind of bold thinking, as opposed to, you know, let's, let's go after a Home Equity tax, or, you know, let's tax principal residences, or let's tax luxury cars and vehicles like, what a waste of time.

Speaker 1 32:09
So it sounds like, not only is this bad policy, but what I'm inferring from this is that there's a certain amount of envy tax, if you will, right? There's a little bit of class warfare. I think that might be behind some of this, and I don't know if that actually lands. Well, right?

Kim Moody 32:22
No, it doesn't. It just alienates and divides, right? As opposed to, if you encourage and celebrate success. Well, how is that divisive? You know that that's if you're creating more jobs for Canadians and making people more successful, and reinvesting those in Canada and then enticing talent to Canada. Wow. You know, that's a great story.

Speaker 1 32:48
These do sound like really good things. Well, it looks like you're not going to be wearing orange glasses at the next election run, but I'm going to guess that's although you're in an orange room. So maybe we got to talk about your bank colors.

Darren Coleman 33:00
This is you. It's all good.

Speaker 1 33:02
So this is so this is actually really helpful. So as as a Canadian, I'm dealing with some of these issues. Do you think that all is lost, or is there hope that this might get better?

Kim Moody 33:13
I think the only way this gets better is if we have government change, because this, this particular federal government is so ideologically entrenched that it's beyond and I've always maintained hope. I mean as much as I despise them when they took office, right you know right away that they're just not my political cup of tea, and I despise that version of politics. Entitled to that opinion for sure. Yeah, and it's just but it got worse and worse and worse and worse over years, and there's no way to turn this around on a dime. So you need a government change in order to make these bold changes that are necessary for the benefit of all Canadians, not just, you know, particularly voter bases. And yes, I understand the best politics, but we need,

Speaker 1 33:59
well, hang on, let me challenge you that I'll sure, because we keep seeing, every once in a while, these reports from the IMF saying, you know, Canada's growth is going to lead the next six weeks or two years or whatever, or we're living standards or stuff. So this is a question, because this is some of the stuff that Canadians are being told. Or should we question these or just eat them, like applesauce?

Kim Moody 34:18
Well, I think you know the answer. I think you need to take any particular Think Tank, whether they're ideologically aligned with you or not even take it with a grain of salt, because crystal balls are only as good as I don't know. Pick your analogy. They're not who would have predicted covid I certainly right. No,

Speaker 1 34:39
to be honest, there's not a single analyst who predicted that stuff right, right, and so crystal ball didn't work my magic. Eight balls out for repairs. So you know, all the things I used to forecast are not working either.

Kim Moody 34:51
So I think when you have an outlier report like the IMF, you can either accept that like the liberal MPs last week, you know. Growing about, hey, our economic plan is working. It's like, Let's go dig into this. So I went and took a look. Okay, yeah, I I don't understand it, whereas I do understand some of the other concerns. You know, some of the big banks in Canada put out some very thoughtful reports. You know, some of the freight there were the Fraser Institute put out, you know, rang the alarm bells most mainstream economists that I know, the ones that are not just partisan economics, or economists which, there's sort

Darren Coleman 35:28
sorry, hacks, I think you said, but anyway, yes,

Kim Moody 35:30
yes, yes, most reasonable centerist economists are ringing the alarm bell. And so I think there is significant cause for concern, just just on one thing alone, for example, our rising debt and public debt charges, yeah, do you know how much that is? Now?

Speaker 1 35:47
I do, but share with the audience how bad it's getting. It's an it's astronomical.

Kim Moody 35:52
This year is predicted to be 52 billion. I believe.

Speaker 1 35:56
Remember when w e had deficits that were 20 billion, and we thought that was a lot

Kim Moody 36:01
yeah, and now our public debt charges are 52 billion. Do you know what we transfer to the provinces, federally for health care?

Darren Coleman 36:10
Not that much.

Kim Moody 36:11
I believe it's 55 billion off the top.

Darren Coleman 36:14
So it's getting close, right? So we're spent too much.

Kim Moody 36:17
Do you know how much last one for you? Do you know how much we collect in net GST as a government.

Darren Coleman 36:22
No, I don't know this one actually,

Kim Moody 36:24
it's about $50 billion

Darren Coleman 36:26
Oh, so what we're paying on the debt? Well, what's this really interesting? Because a few years ago, when interest rates were 1% I believe our economic policy was we could afford the payments. I think that's what that came down to, right? Which, as a financial planner, is really not what you want to do? Just as a pro tip,

Kim Moody 36:42
there's a there's a famous clip during covid With Trudeau being asked this very question. He says, oh, Glenn, you realize that that we're at historic rates of interest or low interest rates, right? Glenn, you know that? Yeah. And I'm thinking, Oh, my god,

Speaker 1 37:00
yeah, this was when we had the step of Commons at the cottage, when everything was there no haircut, which also fascinated me, because, again, I don't think you need to be a genius, but if interest rates were that low, many people went out and, you know, reshaped their personal debt. You know, they restructured refinance their mortgage to lock in those lower interest rates. Shocking that the Government of Canada did not restructure our federal debt to lock in. I don't know why we didn't start issuing 100 year long bonds at 2% but what do I know? But I think there's a bit of urgency to getting our house in order. From this perspective, if we look at the US is going to go into an election in November, and I believe whether you want either party to win, whoever your fan is, both parties are fairly protectionist in how they want to do things, right? So I think this is whether it's a Democrat win or republican win. And I for a while there looked like it was a game of Survivor. Whoever makes it to November is probably going to win. Now we've seen a bit of change to that. But do you think Canada should be expecting whoever gets into the White House a positive relationship, or is the US going to really mind their own store? And we might be in bigger trouble than we've been in before.

Kim Moody 38:08
You know, I share concerns on the latter. You know, I think we need, I think Canada really needs to concern itself with who's going to be in the President's chair. You know, there's things about, I think both, you know, before Biden stepped down, and now it's Kamala Harris as the shoe. And from the looks of it, you know, I think both human beings as leaders and air quotes are pathetic, right? I just, I just, it's a sample

Darren Coleman 38:37
like, this is the best you can do, yeah? And I was

Kim Moody 38:39
just gonna say that you got 300 and what is it? 40,000,003 30 million people, and this is the best you can do. I don't get it in terms of,

Speaker 1 38:46
I think we should take the top two people from America's Got Talent and let them try it. I don't know. I think that's my that's just my personal thought.

Kim Moody 38:54
But of course, on the on the tax and economic side, I mean, I just, you know, looking at the Democrat policies that continue to come out. You know, a leaky border, you know, high tax rates, a tax on the rich. You know, blood just goes on and on and on. And I'm certainly not aligned with that at all, if I'm American, right, whereas I look at some of the other policies, you know, tightening the border, you know, encouraging more defense spending and, you know, looking at better tax policies and etc, I'm more aligned with that, of course, sure, but then, but then, all of a sudden, there's other policies that I'm certainly not an expert in that comes out on, you know, some platform like Trump came On called Alberta Oil, dirty oil the other day, you know. And you think about that as, like, hold on a second. Who's been telling me this? Yeah, and that, you know, certainly in my home province, that had a lot of people's backs up, and for Canada that should have the average Canada problem, that's a real problem, right?

Darren Coleman 39:57
Agreed.

Kim Moody 39:58
And so I. I I think there's policy concerns and certainly concerns all the way around, no matter who sits in that chair. And I think Canada needs to get ready. And in my view, it means strong leadership.

Speaker 1 40:11
Agree and agree to go fight our case. Right to go fight our case with our best friend and our neighbor and her cousin,

Kim Moody 40:17
and we don't have right now, so I worry about Canada.

Speaker 1 40:20
Yeah, tricky times ahead. Well, listen, my friend, thank you. It's been about 40 minutes. Thank you for your time today. I really appreciate the comments and the and the thought leadership you continue to provide in the the estate planning and the tax community in Canada. So keep up the good work. Thank you for your time. Any parting thoughts as we go?

Kim Moody 40:37
next time, I'll wear a jacket that competes nicely with with our friend Trevor Perry, but I'm on vacation today, so this is as good as it gets.

Speaker 1 40:47
I think one of the paper boy caps might work. He likes the bowler hat. You got to pick something else. I'll let you guys fight your sartorial battle. It's fun for me to watch from the sidelines. So good on you. Actually, maybe I should get both of you on one of these things and just throw something contentious up and watch you guys play jump ball for it. So,

Kim Moody 41:04
Oh, that'd be fun.

Darren Coleman 41:04
You agree on a lot of stuff, so I'm gonna have to really pick the thing that makes you both hungry at for advice, you know. Anyway, I'll ask, you know, something about, you know, again, pinstripes or checks off you go discuss. I have to find something for you guys. Yeah, okay. Well, listen. Thank you very much. Next time in Calgary, I'll come and visit and for those of you listening and watching, thank you for your time and attention. We'll catch on the next one. Thanks Kim.

Kim Moody 41:30
Thanks, Darren.

Arlene 41:32
This has been two way traffic with Darren Coleman of Portage cross border wealth management. Thanks for watching and listening. If you have any questions or comments or ideas for new episodes, send us an email at two way podcast@gmail.com and you can find the two way traffic podcast on Facebook and Twitter. This series is a production of the Acme podcasting company.

Darren Coleman 41:57
On behalf of the two way traffic podcast and Portage wealth of Raymond James, thank you for listening to this conversation. This podcast has been prepared by and expressed the opinions of Darren Coleman and his guests, and are not necessarily the opinions of Raymond James. Limited statistics, data and other information presented are from sources Raymond James believes to be reliable, but their accuracy cannot be guaranteed. This podcast is for information purposes only and is not construed as an offer or solicitation for the sale or purchase of securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investors circumstances and risk tolerance before making any investment decision, past performance is no guarantee of future results. Information provided in this podcast is general in nature and should not be construed as providing legal accounting and or tax advice. Should viewers have any specific questions or issues in these areas, please consult your legal tax andor accounting advisor. Raymond James Limited is a member of the Canadian Investor Protection Fund. Raymond James USA LTD is a member of FINRA and SIPC. Raymond James limited and Raymond James USA limited financial advisors may only transact businesses in provinces and or states where they're registered.

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