A Letter to the Editor

Following is a copy of a letter I received from a victim of the:- "Taxable Benefits" boondoggle foisted upon innocent Canadians who were unfortunate enough to be caught in the booby trap set in place by Revenue Canada classing employers shares as a "Taxable Benefit".

It is a long document but well worth your time if you care about honest and fair taxation.

vic.drummond@sympatico.ca
Sent
May 12, 2007 6:29:51 PM
To :
vic.drummond@sympatico.ca
Subject :
A Letter to ther Editor -- Caveat Emptor


Dear Sir,

I believe we all are aware, under the current law, those 10,000+ Canadians who are unfortunate enough to have been blindsided by the ESO debacle have a tax deferral until the year in which they dispose of the securities, become a non-resident, or die, whichever is earlier. It is, at best, by any other name, a postponement of the inevitable financial hardship. I appreciate how back in 2000 the Tax department and Government rushed to arrive at this "solution" to an unforeseen and massive issue brought about by the incredible event called the .com stock price bubble. The Tax department recognized the unfolding mess and made some hasty changes to allow for what was clearly unfair exisiting legislation. Unfortunately the revisions that they made to the tax policy turned out to be flawed and nothing more than a stop gap solution to a problem that was and is not going away. As described above it is a simply a postponed problem ... until one of those triggers is pulled. Ultimately, the allowances provided in the law are not a real remedy at all. I do not believe that more than a small handful of those affected by the ESO laws would have consciously made the decision to place themselves in this tax trap and risk playing the market gain/risk game. I certainly did not and I have long since come to terms with my ignorant blunder. The .com era in which this mess originated was an unforeseen, phenomenal and short period of history that few were prepared for or understood the consequences of it - the government and Tax Department included.

For the past 6 years I have been in the described deferral situation, doing the best I could to prepare and safeguard my families financial welfare. The stress and fear and anxiety that my wife and I have carried over the years has been incredible. Over this extended period of time I have been hopeful that the two different Governments in power would act on their various promises and the protests of complaint from those affected and penalized. I have believed that those responsible for equitable tax policy would use their good sense and change the laws and provide some relief, as there really is no adequate way to prepare for a shocking surprise debt of this magnitude. I have been protecting my family against being financially destroyed by my untimely death, by buying extra life insurance to cover the inevitable debt. I have turned down several job offers in the USA which would have required me to move and most important of all – never selling one single share of the stock that I acquired from ESO’s … as this would trigger a massive debt on profits I would never see. It is also critically important for all those who purport a stake in the discussion, especially the Tax department, to recognize the distinction of the position I was in as a senior executive of a public company and I am ruled by stock trading governance that applies to all manner of actions, events and executive behavior.

These rules apply to regular predictable events and also other ad hoc events that happen as matter of business course. The most signifgant regular events are stock trading black out periods that, based on the guidelines and advice provided to me, it was illegal for me to buy to sell company stock for a period of one month before and one month after quarterly financial results were to be released. As a result my best case stock trading window was reduced to a total of 4 months out of 12. In addition the company was actively negotiating the acquisition of several companies in this period of time and over these lengthy periods of negotiations stock trading is forbidden as well. In one such "quiet or blackout period" the first one immediately following the date I exercised the ESO's that created this mess, the stock value fell by 50% in a period of 6 months during which it would have been illegal for me to sell any stock.

Fundamentally this is all wrong and in short, my opportunity to sell stock, under the "he choose to accept the market risk argument" was more than 75% less than someone who was not an insider. As a result my opportunity to play the market, should I have chosen to do so, was dramatically crippled and therefore it is clearly unfair for the same tax principles to be applied to the two very different circumstances. As of March 2007 however the deferral situation I have been in for the past 6 years has ended and my situation has gone from a pregnant and inevitable yet deferred liability to an actual realized debt. Through no fault or action of my doing the deferral has ended and I now owe tax on a fictitious “deemed disposition” equal to $1,225,350 … or roughly a $280,000 tax bill. This has occurred as a result of the public company in which the stock was held “went private”. In doing so they forced me to sell them all the stock that I had in the company and created a real disposition. They have paid me a total of $54,050 for the affected shares. Obviously I did not wish or intend for this to happen and had no control over it coming to fruition. In short I did not end the deferral - they did - against my wishes. So what I am looking for now is some guidance and advice and support.

I need to find away to regain the deferral or find some reasonable exit from this extremely unfair, unnecessary, trying and stressful saga. I have always been an extremely proud Canadian as I have seen it as a fair-minded country managed by reasonable people whose agendas are driven by common sense and doing what is right. I have been losing faith over the past 6 years in the institutions that affect me in this regards, given their refusal to accept the ESO situation in general as being ill founded and fundamentally unfair. My case has now gone from that to a very real and pressing tax liability problem. Clearly there are various schools of thought, differing opinions, many issues in play and nuances of great variety on the subject but, I can tell you one thing for sure.

Any fair minded person who the situation is explained to universally says “that is ridiculous – how can they expect you to pay tax or something you never had ?”. At the end of the day, regardless of how I arrived at this point of concern, I will be faced with first paying tax on the $54,050 in proceeds from the forced sale and then paying the Aprox $280,000 in taxes on the phantom profits I never made. That is simply not right or fair. It is ill conceived, ludicrous in it's logic, onerous in it's application and a change must be made. I urgently need some relief assistance now that the deferral period of reprieve from these taxes on phantom profits has been triggered. There are at least 10,000 people in Canada with an ESO Tax deferral ... ticking away waiting to explode, providing unjustified windfall tax profits to the government. In the interest of doing what is right and fair and just how can this be ignored ? Your support, guidance and assistance would be much appreciated. I need to know what avenues are open to me and what steps I need to take before I am forced into a very real financial disaster. Could you please take some time to consider my new situation and let me know your thoughts and what next steps I should take.

Sincerely,

(Name witheld for present)

Similar letters have been sent to sitting members of parliament without visible results so far.

Is this the kind of Government you want?

Victor

email:- vic.drummond@sympatico.ca