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Tag Archives: #CANADA


President and First Lady Obama have filed and disclosed their 2015 US tax returns. On 2015 income of US$436,065, the Obama’s paid US$97,489 in taxes (the bulk Federal at $81,472) for a tax rate of 22.4%. Charitable contributions were a sizeable $64,000 (15% of their adjusted gross income) which skews the numbers considerably for those ready to skewer their tax accountants (you pay a lot more). The Illinois State Tax rate was recently as high as 5% but sunset back to a 3.75% rate as of Jan. 1, 2015. The Obama’s paid $16,017 in State tax to Illinois (3.7%).

There are many jurisdictions where state tax bite would have been a lot higher. NJ is a timely example, which has the 3rd highest taxes in the US (income taxes, property taxes, estate taxes and inheritance taxes). 40% of the NJ budget is funded by personal income taxes with a full 1/3 collected from the top 1%. The highest personal income tax rate is currently 8.97%. A special 10.75% millionaire bracket has been proposed but Gov. Chris Christie has vetoed repeatedly. Only a small percentage of the 1% have cement shoes, even in NJ, and they have lost a high profile golden goose to Florida for the coming tax year. NJ’s #1 taxpayer, David Tepper (58, has a net worth estimated at $11.4bln), has taken flight after 2 decades, setting up a branch of his Appaloosa fund in South Beach, Miami and listing his condo there as his primary residence. People can vote in many ways in a Democratic society and New Jersey should fully expect more to vote with their feet. Florida has no state income tax or estate tax.

I thought it would be instructive to show what the Obama’s 2015 tax bill would have been in other world jurisdictions.


France up is first, Paris of course. Tax rates are very high. For the level of income the Obama’s report on their joint filing, France would extract $185,057 in taxes for a tax rate of 42.4%. Over half of France’s inhabitants pay no income tax. 14% pay 30% for EUR26,792-71,826 band of income and only 1% pay the 45% rate, applicable to income above EUR151,108. There is a 66% credit (up to 20% of income) for charitable giving which greatly reduced the tax liability in the Obama’s case.

Canada is not far behind, but remember this analysis is for the 2015 tax year. The new Liberal government has raised taxes on the wealthy, defined as those making > C$200,000 (US$155,083) by 4% to 33% (Federal). Provincial taxes are high in Canada as well, with Ontario’s highest rate at 13.16%. Assuming the Obama’s hung their touques in Toronto, the tax bill would be US$165,179, for a tax rate of 37.9%, again tempered by the charitable donation of C$82.560. The top marginal tax rate in Ontario for taxpayers making > $200,000 for the 2016 taxation year is 53.53%.


United Kingdom, sunny London of course. The tax bill would be US$181,470 for a tax rate of 41.6%.

Singapore, Republic of Singapore. With no charitable deduction, the Obama’s tax bill for 2015 would have been US$71,293 or 16.3%, but a generous incentive program was in place for charitable giving in 2015, Singapore’s 50 year Anniversary year. The amount of the qualifying gift is grossed up by a factor of 300% for 2015 donations (normally 250% through 2018) which would have resulted in the Obama’s tax bill being $32,893, for a 7.5% tax rate (lower than NJ State tax for reference).

The US Federal tax code stands at 74,608 pages, by far the most complex of the countries mentioned. The average tax prep cost in 2014 was $273. The cost for all parties, including collection (IRS) calls for simplification of the tax code.

While a progressive tax system on balance makes the most sense globally, for developed economies, there are limits to the tax freight paid by the 1%. It is difficult to determine the exact breaking point, but when it comes, the golden goose can take to the skies for friendlier climes through both legal means (relocation) and via “structuring solutions” mired in the complexity of global tax policy (Mossack Fonseca et al). JCG

Note: The charitable laws of the US and of other nations reflect the notion of territoriality or the restriction of tax relief to those charitable contributions made only to domestic charities.

FX rates used; USD/CAD 1.29, USD/SGD 1.36, GBP/USD 1.42, EUR/USD 1.128.

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As has been well chronicled on this web site, all is not well with the commodity complex. For a wealthy, developed nation Canada has a heavy reliance on primary industry. Canada is one of the few remaining AAA rated sovereigns credits. Canada is a 1st world country with a 3rd world currency. Much has to do with the high correlation with oil, it has always been high at 0.80, but has been running at 0.94 of late.

Combined, the Oil & Gas and Mining & Metals sectors make up 35% of the stock market in Canada, versus 16% in the US. Both Canada’s population and economy are about 1/10th of the US (34.75mm & $1.5tln respectively) and trade flows run predominantly North/South, 73% of exports and 63% of imports are with Uncle Sam.

“Just Like The States” is a compliment old timers still use for a job well done and approx. 85% of Canada’s 34.75mm people live within 100 miles (165 km for the bulk of the world on the metric system) of the US border. Canada’s unemployment rate stands at 7% (all US states are below 7% with the whole a low 5 handle) yet there is a high degree of regional disparity, with some in the double digits. There are only 4 cities in Canada with populations >1mm (Toronto, Vancouver, Calgary and Montreal).

Energy in the form of oil, primarily from Alberta (oil sands), Newfoundland (offshore), and Quebec (hydroelectric) along with metals, agricultural products, and forest products make up over 58% of exports. Autos, machinery and equipment make up 38%. Exports make up approx. 32% of GDP

The oil downdraft has had the largest effect on Alberta and the situation is not likely to improve in the near term. Much of the pipeline infrastructure focus has been on southbound KeyStone XL – Stage 4 which has been blocked by Obama (will Trump want naming rights to approve?). Part of the solution to the oil conundrum will be improving the mobility of trade across Provincial borders, with the added advantage of being able to settle in Canadian dollars. Justin Trudeau has arrived in the Prime Minister role (centerfold actually), bringing the Liberal party back to power with great fanfare and has promised spending of C$60bln over 10 years on infrastructure, with a front-end weighting. A portion of the infrastructure spend with likely be on critical intra-Canada linkages. While there are less viable road and rail options for this purpose, the Energy East pipeline and Trans Mountain pipeline twinning project are the two major proposed pipeline projects taking Alberta oil both East and West (in higher volume) respectively. New environmental hurdles have raised questions about the governments support for the pipelines, but in the end they make too much economic sense to not advance. This improved infrastructure would reduce and potentially eliminate the reliance on imported oil, which costs Canada > $20bln per annum. Venezuela and Nigeria are both on the watch list for major civil unrest in 2016, largely due to the swoon in oil prices. Canada also imports oil from the US (roughly 1/2 of the 630k bbl per day imported versus Canada’s 2.7mm bbl a day habit), Norway and the UK. Azerbaijan, requesting $4bln in aid this week is the canary in the oil well. Brazil and South Africa (who just hikes short rates by 50bp to 6.75% yesterday to put a finger in the ZAR dyke yesterday), are also markets to watch for 2106.

The structural decline of the auto segment in Canada is a much tougher nut and there is almost no degree of currency depreciation that can bring production back above the 49th parallel. The first wave of market share losses were dolled out by manufacturers establishing non-union plants in the Southern US States. More recently, Mexico has been growing significantly, no longer hampered by a perceived product quality gap. Canada’s unit automobile production (centred in Ontario) is down to 2.3mm unit per annum which is 24% below peak levels (99′).

No export discussion can leave out China. The Chinese Renminbi broke into the top 5 payment currencies in 2015, displacing the Canadian Dollar (CAD) to 6th rank. China had held the Yuan (CNY) steady in the face of significant easing by most of its trading partners up until August 2015 and still gained 3% world export share (to 13% from 10%). Read: China does not need a cheaper currency to be competitive. On the capital flight question, how much would China have to devalue the currency by to dissuade those so inclined  from moving? A lot is the answer, hence the worries of a 10-15% de-valuation by China is overblown. There will likely be modest depreciation versus the USD going forward (inside of 5%), and relatively sanguine fluctuations should be expected versus a basket of their trading partners (which is PBOC’s eventual intent). China runs a very large current account surplus (2%+ of GDP on a US$10tln+ economy) and there will likely be a spike going forward as the rate of domestic investment will fall at a much faster pace than the savings rate falls. Flooding the global markets with industrial goods when protectionism is on the rise is not a formula for getting along, but get along we must.

Canada has a vast advantage over the US in two key areas. Corporate taxes are a full 13% lower than in the US. Canada has the most educated population in the OECD with 51% of adults aged 25-64 having finished post secondary education (OECD avg. 31%). Canada heavily subsidises education and the world class ranking of the top schools attracts many foreign students.

As a developed market, birth rates are modest at 1.6 children per woman (2.1 required for a stable population base), but Canada has a long standing immigration policy that ensures, at least from a demographic perspective, that Canada keeps growing. Immigration to Canada is 260,000 per year (US is 1mm, 10x would be 2.6mm), 0.74% of the country’s population per annum (10% of those in the refugee category, 7% for the US). Life expectancy in Canada is 81.24 years versus 78.74 for the USA.

Canada is the 11th largest economy in the world, representing 2.9% of world GDP. Canada is home to 68 of the top 2000 companies in the world, for a tie for 5th with France.

Last week CAD and SGD, the Singapore Dollar traded at parity for the first time in 21 years, at 1.43 per USD. The commodity super cycle took CAD/SGD to near 1.60 over that 2 decade + period.  Singapore has none of the resource riches that Canada boasts, yet is has largely through will, minimizing graft and superior execution created the largest financial centre in South East Asia. The parallels to North America are strong, Hong Kong is like New York, Singapore is like Toronto. Singapore is one of the largest shipping centres in the world, depending on metric of throughput or value Singapore is often #1 (currently #2 to Shanghai). Singapore recently displaced Tokyo as the 3rd largest global fx trading centre after London and New York. Singapore boast > 30,000 multinationals that run their regional treasury centres for Asia (and in many cases broadened to include Europe and MENA) from a Singapore base.

Faced with the opportunity Canada has at hand, Singapore would have a crack team of government officials on tactical missions to entice multinational firms to relocate to Canada. Based on corporate taxation differentials alone (-13%), tax inversions make abundant sense. The grass is greener on the other side largely because it is fertilized with bull*hit, but in Canada’s case, the merits are largely beyond assail. The cash laden US tech sector in particular would be fertile with targets to entice to Canada’s Silicon Valley, Kitchener-Waterloo, Ontario. EDC, The Export Development Corporation of Canada, an Agent  of her Majesty in right of Canada (AAA/Aaa) stands at the ready to insure global trade.

Resident of Canada’s largest cities (Vancouver & Toronto) are admittedly over their skis with respect to residential property valuation at present (by 20% at Fitch’s latest tally), but even a modicum of success in leading a migration north of corporate America would make it look dirt cheap 3-5 year out.

Why did the Canadian cross the road? Answer: To get to the middle. Trade accordingly. JCG

Note: Author is a Singapore based Canadian, originally hailing from Cape Breton, Nova Scotia. Follow me on Twitter @firehorsecaper


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