It’s springtime in Calgary, which, after the mud grey/brown of spring, brings a spectacular colour palette. At the top, long days bring the deepest blue skies, which fade into a rich horizontal array of the baby green enthusiasm of new leaves, which in turn meet an eye-level dazzling array of bright orange traffic cones as the city shuts down every other street for some sort of repairs or excavations; and as three lanes merge to one you sit interminably on the pavement then crawl at walking speed past a gaping hole in the pavement around which 15 men stare into like they’ve never anything quite like it, and I know they are actually busy but still, and the whole thing is just a huge reminder of how hard it is to actually build things.
Beyond the sheer physical challenge of construction, there are plenty of other issues with building. Most Canadians have grasped that the country has a productivity problem, and that a large part of it is a lack of investment. The staid Bank of Canada, whose job is to be literally as colourful as a rock (banks in general need to imply they are pillars of strength; not a lot of TikTok meme-ing going on, and the solemnity is double for a central bank) went (relatively) crazy not long ago and said Canada was in a ‘break-the-glass’ investment emergency, which is the equivalent of King Charles donning a Justin Bieber outfit and turning up at Coachella. It is noteworthy for the B of C to make animated statements like: “People have been sounding the alarm, but it can be hard to feel a sense of urgency about an abstract concept like productivity…When you compare Canada’s recent productivity record with that of other countries, what really sticks out is how much we lag on investment in machinery, equipment and, importantly, intellectual property.” The Bank also highlights that we need to attract and develop skilled workers – not arts grads, tradespeople (unless arts grads want to subsequently upgrade to tradespeople and bring artistic flair to the welding then sure). But fundamentally, we need capital.
Capital will not come if the country chooses to act like a clogged toilet the federal government needs to clear, so to speak (don’t blame me for the analogy, you walk down Stephen Avenue/First Street past the abandoned Bay and the drug fiends and their outdoor outhouse and tell me what analogies spring to mind) and the recipe for that is in part straightforward: reduce the cost of business; don’t increase carbon taxes, don’t add ideological/impossible UN green dreams, work with provinces to build corridors and remove barriers to trade.
But there’s also the insidious, nebulous, dangerous stuff that needs to dealt with also. These aren’t so much as clogged toilets, though similar in nature; they are a web of rules and regulations that have that Soviet smell about them: rules that, try as you might, you can never be sure you’re fully in compliance with; rules designed that way on purpose so that control-freak governments can subtly get away with dangerous enforcements that fly under the radar, that are dangerous in their lack of clarity. These foul legislative creations, often germinated in a desire for some social good (the true road to hell), are often laying there unobserved or even unknown, like an alligator that looks like a log until you step on it. In many instances, I’d take my chances with the alligator.
Some examples.
One is a seemingly benign attack on Canadians, the ‘trust reporting’ debacle. In 2023, the government announced “enhanced” rules governing trusts. All trusts, the CRA announced enhancingly, must now file a T3 Trust Income Tax and Information Return, unless specific conditions are met. What exactly is a trust? Good question. The CRA can’t and won’t help you; in their words: “Determining whether a particular arrangement is a trust (and if so, what kind of trust) can be very complex… Taxpayers may wish to consult a legal advisor for help in understanding all of the legal consequences of their trust or ownership arrangements, as the CRA does not advise taxpayers about the application of the relevant private law to their specific circumstances.”
Oh ok. Let’s check in with one of Canada’s premier law firms, Osler, and see what they have to say on the subject: “Unfortunately, uncertainties remain regarding whether particular arrangements that have some trust-like features or that use certain trust language may be considered trusts under the applicable private law, and therefore whether reporting may be required.”
And forget transferring wealth, this reaches right down to working stiffs like myself. My son had an account with ‘grandma money’ in it, and in the zero interest years I opted to open a discount brokerage account to by, like, 3 shares of Enbridge. Because he was under 18, the account was titled ‘[his name] in trust’. I called the CRA to find out if this account would be deemed a trust by the government and fall under the new regulations. Of course the front line worker couldn’t answer the question, and I was put through to a ‘trust expert’. I was about half way through my explanation of this situation, not a long explanation by any stretch, and the trust expert cut me off to shut down the conversation, saying flatly that the CRA would offer no guidance or help or advice of any sort whatsoever and that I should consult a lawyer.
That statement is as insane as it sounds. The government’s own tax experts, there for no other purpose than to help the public, refusing to even offer an opinion or advice. And they make no bones about it. On the CRA website they offer this: “Determining whether a particular arrangement is a trust (and if so, what kind of trust) can be very complex because it usually requires an analysis of all the facts and circumstances under the relevant private law… The legal principles that apply to a particular trust relationship vary depending on the private law of the relevant province or territory.”
But that’s just the half of it. The government can declare something a trust if they feel like it. Again from the CRA site: “In a bare trust, the separation of legal and beneficial ownership means that although trust property is registered under the trustee’s name, the beneficial owner has the rights or attributes of ownership in the property: (a) possession, (b) use, (c) risk and (d) control. Not all of these attributes will be present in every case, and some factors will be given more weight in certain cases… An arrangement between taxpayers about property might, for example, be an express trust, an implied trust or a trust created by law or judgment, such as a constructive trust. In some circumstances the participants might be considered joint owners or tenants in common rather than participants in a trust arrangement.” It’s entirely up to them and what they declare your possession, use, risk and control of a property to be.
The bare trust aspect sent the corporate world, or at least the energy corporate world, into a complete state of panic in early 2024 when it was declared, or widely understood perhaps better to say, that joint interests were now ‘bare trusts’ and had to apply for trust numbers and file trust returns, all by Feb 28th – for each joint venture. Or maybe not. No one was sure. The fines were significant.
Then at the last minute, the government said ok, you don’t have to. But they never scrapped the legislation; they simply declared that no one had to do the complex and onerous reporting that year. The legislation isn’t dead, it is simply ‘paused’. But not necessarily; they might come after you regardless. Per the CRA site again: ” …the CRA will not require bare trusts to file a T3 return, including Schedule 15 (Beneficial Ownership Information of a Trust), for the 2023 and 2024 taxation years, unless the CRA makes a direct request for these filings.” [emphasis added] This nightmare remains hanging over everyone’s head, dormant but still a potentially massive headache.
And the general issue of trust reporting, not just bare trusts, remains. Be careful with joint ownership of anything, as Manulife Investment Management puts it; “It’s important to distinguish between a true joint-ownership arrangement and a resulting trust. Even though the asset is owned jointly by two individuals, it may be possible that a resulting trust exists… Joint ownership is becoming increasingly complicated and isn’t necessarily a simple and easy way to transfer wealth.” A property jointly owned by spouses, for example, could be declared a trust, and the onus is on the owners to know all this before simply buying a property. And, as can be seen above, even the experts are often confused.
To repeat, the government has parked some of the more ridiculous aspects, stating that “the CRA has indicated that bare trusts are not required to file a T3 Return for the 2023 and 2024 taxation years.” Good for bare trusts. The rest of us? Be careful what you own, with whom.
Semi-forgotten, but still lurking, is the federal legislature Bill C-59, the legendary ‘anti-greenwashing’ rules. Oh wait, they’re not rules; rules would be straightforward and honest and un-devious. Bill C-59, like these other examples, is designed to give governments unlimited power to enforce certain things if and when they feel like it. Kangaroo court stuff.
The bill was ostensibly implemented to bring clarity to public claims of environmental benefit, along the lines of cleaning up false advertising. But the scope of the topic is so vast, so broad, and so intertwined with every complexity of human existence (the consumption of hydrocarbons, which enables our existence) that it is difficult to speak on the topic at all without possible violation of the law.
We vaguely remember this hideous legislation coming into effect, but we seem to forget how smothering and dangerous it is, and how it is set up to operate. A company cannot make a claim that anything it does benefits the environment without proving that assertion passes “adequate and proper substantiation in accordance with internationally recognized methodology.” Yet “internationally recognized methodology” is not defined anywhere. Are the anti-hydrocarbon rantings of the head of the UN “internationally recognized methodology”? Who knows? What we do know is that soon the public will be able to flood the government with complaints about any corporate statement that could possibly be construed as ‘greenwashing’ whether that is the case or not, and the onus is on the company to prove that it is not. The government itself lists some astonishing claims that it deems to be controversial and that people have a legitimate right to file a complaint about, such as this: “Some complaints address concerns about comparative environmental claims. These might compare products or services to past versions or to those of a competitor. For example, a business might claim that its product uses 25% less water than their previous model.” The government also calls out such unacceptable practices as saying they did something that reduced greenhouse gas emissions by 25 percent, which is bad, unless they provide a full life cycle analysis of the carbon chain of the entire product. Hmm, funny that the government didn’t use wind turbines as an example of ‘benefitting the environment’ without a requirement that a full life cycle analysis accompanies the endless photo stream of them? More on that in a second.
Can you imagine the audacity of some business making such a claim. It doesn’t matter if it’s true or not, as the government itself points out, in the same document: “…even if a statement is literally true, the general impression conveyed might be of a larger environmental benefit than is actually the case.” Which is unacceptable
So, if your company’s new washing machine is designed to proudly use 25% less water than the previous model, and you say so on your website, someone might complain and you might be forced to prove…I don’t even know what you’d be forced to prove. You would then be in a grey zone where the government decides at it’s sole discretion if what you’ve said is misleading to the public, and remember that their standard frame of reference is that we are in a climate emergency and not enough is being done. You could be found guilty because your claim is not aligned with ‘internationally aligned methodology’ because they don’t define it.
And hoo boy are there penalties. Financially, the hit for a guilty conviction can be $10 million or 3 percent of global revenues. But it can get far worse; an individual can be gooned for federal criminal charges on a summary conviction of up to a year in prison, or on an indictment of up to 14 years. They’re not messing around.
Interestingly, the issue applies to purely ‘green’ businesses such as wind energy, but the government has defined energy sources such as wind and solar to be good for the environment. That’s their very definition; their very existence has been deemed good by the federal government. So wind and solar don’t need to say anything about their full life cycle of emissions because they are just godly by their very existence. And you can bet the well paid army of ENGOs will be lined up to file complaints against conventional energy companies, but won’t be bothering renewables much. All those lawyers idling at activist firms have to keep busy don’t they.
And the last rant for the day is reserved for what sounds like a well-meaning bit of legislation, don’t they all, the “Forced Labour in Canadian Supply Chains” act brought to you and on you by Public Safety Canada. Now, who isn’t against slave labour or child labour? I don’t think I ever have or ever will find anyone that thinks either is a good idea. And yet both do happen in various parts of the world. The government could act like a government and work through diplomatic channels to encourage or discourage trade arrangements based on whether they see evidence of these factors in various countries, but why would they when they can hang it all on you.
The Forced Labour Act applies if you have more than $20 million of assets, or $40 million of revenue, or more than 250 employees. The Act requires such businesses to demonstrate that they have taken tangible steps to ensure that there is no forced labour or child labour in the goods or services they purchase and consume. All well and good, so far.
But the Act goes much deeper, to the surprise of no one, and sets dangerous traps, because “innocent” or “guilty” is not defined. For example, businesses that must report must fill out a very specific questionnaire that documents what the business has done to eliminate risks of forced/child labour. Part of the questionnaire is a number of check boxes, as in ‘have you done any of the following’. One section asks whether the organization has identified any risks in Tier One (direct) suppliers, Tier Two suppliers, Tier Three suppliers, or “Suppliers further down the supply chain than Tier Three”.
That is functionally impossible, to analyze “suppliers further down the supply chain than Tier Three”. And maybe the govenrment knows that. But there is no indication anywhere as to what is an acceptable level. At what point is a reporter guilty of ‘not doing enough’?
There is no guidance. It is entirely up to the government. And if you want a chill down your spine, read, from the Act itself the lengths the government can go to to determine if you have ‘done enough’. The feds can ‘designate persons or classes of persons’ to go after you in pretty much any way you can imagine. In their words: “14 The Minister may designate persons or classes of persons for the purposes of the administration and enforcement of this Part [Part 2, Reporting Obligations, Administration and Enforcement]…15 (1) A designated person may, for the purpose of verifying compliance with this Part, enter any place where they have reasonable grounds to believe there is anything to which this Part applies or any document relating to the administration of this Part. 15 (2) The designated person may, for the purpose referred to in subsection (1),
- (a)examine anything in the place, including any document;
- (b)use any means of communication in the place, or cause it to be used;
- (c)use any computer system in the place — or cause it to be used — to examine data contained in or available to it, or reproduce the data — or cause it to be reproduced — in the form of a printout or other intelligible output and remove any printout or output for examination or copying;
- (d)prepare a document based on the data, or cause one to be prepared;
- (e)use any copying equipment in the place, or cause it to be used;
- (f)take photographs or make recordings or sketches of anything in the place;
- (g)direct any person to put any equipment in the place into operation or to cease operating it;
- (h)prohibit or limit access to all or part of the place or to anything in the place; and
- (i)remove anything from the place for the purpose of examination.”
Why does the word ‘gulag’ keep springing to mind?
Individuals that fail to comply with the reporting regime are subject to fines of up to $250,000, and directors/officers are subject to the same fine if anyone in their chain of command fails to perform the obligations as well.
And what if the reporting is inadequate? What if it is not up to the government’s requirements? Here’s what they can do, emphasis added, based on whatever they found in 15 (2) above:
“Minister’s power
18 If, on the basis of information obtained under section 15, the Minister is of the opinion that an entity is not in compliance with section 11 or 13 [the reporting requirements and contents], the Minister may, by order, require the entity to take any measures that the Minister considers to be necessary to ensure compliance with those provisions.” [emphasis added] Does that sound like a government that’s working for you? That’s clearing the path to build stuff?
There are many other examples. This all must stop. The road to hell is paved with good intentions, and the road to zero capital investment is lined with this sort of legislation.
Apparently everyone wants to build everything right away. That’s awesome. But we need to drop the Soviet-style directives or it’s not going to happen.
Explore the lighter side of energy, and think of it as you never have before in The End of Fossil Fuel Insanity – the energy story for those that don’t live in the energy world, but want to find out. And laugh. Available at Amazon.ca, Indigo.ca, or Amazon.com.
Email Terry here.