Assumptions

ASS – U – ME
A commentary on the arbitrary aspects of
“The Canadian Income Tax Act”
and the power of “The Canada Revenue Agency”
to levy REAL TAXES on the basis of “ASSUMPTIONS”
by Victor Drummond ©
August 2007


According to Revenue Canada’s “Guide to Employers – Taxable Benefits” document T4130 (E) Rev. 06, certain gifts -- of tangible value -- bestowed by employers on their employees -- are either taxable benefits, or exempt of taxation -- on the basis of rather arbitrary regulations.

For example on page 14, “Gifts and awards” -- “Example 1:- You give your employee a gift card or gift certificate with a value of $100.00 to a department store.” “The employee can use this to choose whatever merchandise or service the store offers.” “The gift card or gift certificate is additional remuneration and therefore a taxable benefit to the employee because there is an element of choice.”

Page 15:- “Example 2:- You give your employee tickets to a specific event on a specific date and time.” This is not a taxable benefit since there is no element of choice.”

These examples look OK at first glance BUT upon closer examination a few loop-holes and booby-traps are found in this arrangement.

There are worlds of variables here that render the above rulings arbitrary and unfair.

The element of choice is stated as the deciding factor between tax and no tax.
BUT no one knows whether or not there really is an element of choice in every instance.

In both examples the employee may be reluctant to refuse any gift offer, of their employer, for risk of creating an offence. No choice here in either case.

Then there is the real possibility the gift, of a gift card, is to a department store the employee would never patronizes, for many possible reasons. This results in the employee is being taxed on a benefit never realized. (Sounds familiar)

Then there is the lack of a specific limit on the value and/or quantity of event tickets the employee may be given. The employee may be given dozens of tickets for box seats at a Grand Final Sporting event that has been sold out for months. Scalpers getting $1000.00 per ticket. (Not reportable as a Taxable Benefit.)


The employee may not even need to leave the house to liquidate tickets worth thousands of dollars. Allowing there is time -- the tickets could be sold on E-Bay.

A bit of a loop-hole here don’t you think?

The foregoing misguided tax regulations are based upon assumptions made by the author(s) of the Taxable Benefits regulations.

No one, however, is going to make an issue, or launch an appeal to the Canada Revenue Agency, if they were overtaxed on an unused $100 gift card/certificate, or got away without paying tax on a few thousand dollars worth of event tickets.

If that were the limit of the harm done -- via assumptions made by the Canada Revenue Agency -- there would be no problem worth mentioning.

There is at least one instance, however, when The Canada Revenue Agency can, and does, make an equally arbitrary assumption that costs some taxpayers hundreds of thousands of dollars.

That assumption is built into the “Taxable Benefits” regulation pertaining to employee’s who hold onto their ESO/ESPP shares past their exercise date.

The built-in assumption being (that) the employee has voluntarily elected to accept a market risk rather than apply the “Cashless Sale” provision that is part of most employee incentive/rewards shares plans. This assumption is then used to apply real taxes on the opportunity the employee is assumed to have voluntarily declined for real gains.

First of all there is no solid basis for this assumption. No one has taken a poll to determine what percentage of those, so taxed, had a real opportunity to accept the cashless sale option -- as opposed to the number that were denied that opportunity for any number of possible situations. (Ref. prior post:- “Stone Walls …”)

Second there is a double standard here -- in that when a gift or award is given an employee it has one identity. It either has intrinsic value of its own, or it does not.

If the gift item has no intrinsic value then the item is not, and does not become, anything else but a token gift -- until the recipient converts the item into something that has real value.

In the case of employers shares, or stock market stocks of any kind, no matter how acquired, they have no intrinsic value as long as they sit in the employee’s account.
It is both unreasonable and unfair to impose any tax, (that is not offset by real losses), on any POTENTIAL profit those paper certificates may appear to represent.



Canada Revenue Agency does not end their damaging assumptions at this point either. Now that they have levied a real tax on phantom gains and the employee has paid the ransom on his/her ESO/ESPP “Taxable (yet to become any kind of) Benefit” the same shares when still held by the employee magically turn into another taxable item, i.e. a “Capital Asset” subject to “Capital Gains Taxes.” BUT if these new entities happen to produce a LOSS the taxpayer is denied recovery of any taxes already paid on that other entity, i.e. The non-existent:- “Taxable Benefit”.

Talk about eating your cake and having it to.

The street definition of the word “ASSUME” applies in full measure in this case.
It makes an “ASS” of “YOU” and “ME”

If you are a Canadian of voting age you can apply pressure on those in a position to correct this intolerable, unfair and unjust, situation.

Just contact those, who campaign for your vote -- in the next Federal Election -- and make it clear to them:- if they personally, and their political party, do not commit to correcting this problem -- in a timely manner – they will not get your vote.

Give the same message to any pollster that contacts you – asking about your intention to support one political party or another – and pass the web address of this blog page along to all the Canadian contacts you have -- of voting age.

You will be doing yourself and your fellow Canadians a real favour.

You may reach your MP by regular mail, postage free, or telephone, or
by E-mail via the following web page and following the links to the list of sitting MP’s.http://webinfo.parl.gc.ca/MembersOfParliament/MainMPsAddressList.aspx?TimePeriod=Current&Language=E

Victor Drummond ©