Time to stem the tide of successful people leaving Canada

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There are many successful Canadians who are exploring or outright leaving this country. Reliable statistics are hard to come by, but tax practitioners such as myself have been kept very busy because economic and taxation policies matter, especially the messaging surrounding such policies.

In the first 23 years of my career, I worked on approximately a dozen “departure tax” cases. Departure tax is the lingo that is used in my profession since a deemed disposition of one’s assets will immediately occur before a person becomes a non-resident of Canada, thus causing taxation (there are a variety of exceptions to this general rule). But the number of files that my colleagues and I have worked on in the past nine years has skyrocketed into the hundreds.

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It started with one of the new Liberal government’s first announcements in November 2015 that it would be “asking the wealthy to pay just a little bit more” by introducing a new top-end personal tax bracket that increased the previous highest rate by four percentage points. This measure boosted many provinces’ maximum combined federal-provincial personal tax rates to approximately 54 per cent.

To be fair, not all the new files we worked on resulted in people leaving Canada, but many people ultimately did and the rest wanted to know their options. Suffice it to say that the wealth associated with such files is massive.

The determination of whether or not a person is or becomes a non-resident of Canada for tax purposes is very much a question that requires careful analysis. Intention is not all that determinative. In other words, you might have the intention of being a non-resident of Canada for tax purposes, but your facts better make it so. Accordingly, it takes careful planning to become a non-resident of Canada for tax purposes.

Once a person becomes a non-resident, that person is then only subject to Canadian tax on their Canadian-sourced income, such as dispositions of Canadian real estate, employment exercised in Canada, carrying on a business in Canada and certain withholding taxes on Canadian-sourced dividends, royalties, rents, etc.

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Depending on the person’s situation and given Canada’s comparatively high personal tax rates, the future tax savings for many successful people — even when factoring in the one-time departure tax — can be tremendous. Not always, obviously.

Why are many successful — and increasingly younger — Canadians interested in exploring becoming non-residents? Well, there are many reasons, including lifestyle, the cost of living and better job markets and opportunities elsewhere.

Tax is also an issue. Our country’s personal tax rates are punishingly high and increasing, with the recent capital gains inclusion rate hike and amendments to the Alternative Minimum Tax. Capital is very fluid, so many of the people leaving simply deploy their capital elsewhere. Obviously, it’s not that easy for some.

Overall, though, the biggest cause of successful people leaving is that they feel that they are being attacked in their own country and are not appreciated for all their contributions. Virtually all the files that my colleagues and I have worked on in the past nine years have involved very proud and patriotic Canadians. Many of them are community leaders and very philanthropic, both with their money and their time.

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Policies that attack the very core of who they are make it seem like a long-term relationship that has turned sideways. The first attack was on Dec. 7, 2015, when the government increased personal tax rates for the “rich” (effective from 2016 forward). Huh? Weren’t they already contributing a lot?

Next was the brutal attack on small-business owners by introducing draconian taxation proposals on July 18, 2017. The messaging surrounding these proposals caused significant backlash, which the government doubled down on for months by using even more senseless rhetoric. Overly simplified, the messaging regarding these proposals stated that many small-business owners were essentially “tax cheats.” Not good.

This was followed by the COVID-19 period of endless and breathless spending by the government, with continuous articles being published about how that time could be used for a “reset.” Radical ideas such as the possible introduction of a wealth tax, windfall taxes and other senseless ideas were continuously floated by government operatives and their supporters.

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The recent introduction of the capital gains inclusion rate hike recycled the government’s attack on the rich by asking them to pay more and saying it would only apply to 0.13 per cent of Canadians (an outright misleading statement).

The latest attack is on older Canadians who have owned their homes and been fortunate enough to have capital appreciation. The government has been cozying up to organizations that believe these older Canadians should pay a home equity tax in certain circumstances. It’s obvious the government is exploring many ideas related to raising tax revenues in order to support its bloated spending.

The above list is obviously incomplete, but the picture being painted is obvious. Successful Canadians who are not feeling appreciated for their years of hard work, risks taken, jobs created, philanthropy, etc., and are constantly attacked are going to deal with it one way or another. At that point, emotions, rather than intellect, take over.

The policies and the messaging from the government stir those inevitable emotions. As a result, the acceleration of successful Canadians leaving will continue until the ugly politics, policies and divisive messaging decline.

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Canada needs a return to unifying messaging from the government. This should include the introduction of good economic and taxation policies that encourage, assist and reward people to take risks. And the small number of risk-takers who ultimately become successful need to be celebrated with positive messaging, not destructive and divisive rhetoric.

Such a change might just stem the tide of successful Canadians looking elsewhere.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at [email protected] and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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