7 tax tales that should scare anyone at any time of the year

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Boo!! Did I scare you? If not, sit back, take a sip of your favourite beverage and get ready for some spooky tax stories for Halloween.

Halloween has an interesting history dating back hundreds of years. Income tax in Canada doesn’t have quite the same history — dating back to only 1917 — but the first known taxation took place in ancient Egypt around 3000–2800 BC. Technically, Halloween is a youngster compared to taxation.

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One of my favourite 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, but tax can also be very spooky.

Accordingly, in the spirit of the season, I present to you — in a deep voice — Sleepy Hollow: The Canadian Tax Version, which includes some of the country’s spookiest tax scenes of recent years. Don’t get too frightened, but please make sure you read these stories to your kids or other young ones tonight … it’s important they are spooked, too.

The cry for the rich to pay more: This spooky story keeps being told by lefties 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 who 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.

Scary real estate taxation measures: I’ve recited this spooky story many times, but it 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 just gets evermore cluttered and complex.

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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.

The disappearance of successful Canadians: The story of successful Canadians leaving this country for better economic and taxation conditions has been ongoing for more than seven years now. It’s not good and it needs to be stemmed sooner rather than later.

The capital gains inclusion rate bite: This tale has been told since the April 16, 2024, federal budget when the capital gains inclusion rate was hiked, and it has been a complex and scary one for sure. The likely ending of this story will result in more successful Canadians leaving and less incentives for entrepreneurs and investors to risk their capital. Not good.

The taxman stumbles: The headcount of the Canada Revenue Agency has grown by almost 48 per cent in the past nine years while service standards have dramatically decreased — by my anecdotal experience. This needs to get better.

The failing luxury tax: This 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.

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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.

Bad things happen to good people: This tale started in the 2021 federal election as a political stunt and ultimately resulted in amendments to the Alternative Minimum Tax (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 the AMT, so it needs to be repealed.

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

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.

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The push towards the climax started with the introduction of the capital gains inclusion rate increase in the 2024 federal budget. This has upset many people, who have since 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, something that is badly needed in Canada, to help improve our country’s dangerously low productivity and to reward and 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.

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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 kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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