CORPORATE SHARES NOT A TAXABLE BENEFIT
By definition per The Canadian Income Tax Act
Taxable Benefits document T4130.
A Report by Victor Drummond ©
September 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 whether or not a significant “CHOICE” is present or absent.
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.”
On examination let us see which conveys the greater versus lesser element of choice when corporate shares are added to the mix.
Your employer gives you the following items at zero cost to you:-
(1) -- A $100 Gift Card/Certificate to a department store chain – such as Wal Mart.
(2) – A pair of tickets to the final game of the NHL Playoffs. (Face Value $200.00)
(3) – 1000 shares in his corporation. (Currently trading at $10.00/share)
Allowing you dare not exercise your choice to refuse any of your employers offers – else you forfeit all future offers – then this does not qualify as a choice.
Choices with gift (1):- ($100 Gift Card/Certificate)
Within the constraints of store locations and operating hours you may go to any one, or more,of the multiple location stores and:-
(1-a) Select from a wide variety of merchandise and use your gift card to take possession of your selection(s). The store clerks and/or managerial staff can not alter the purchasing power of your gift card.
(1-b) Allowing the recent “No Expiry Date” for Gift Cards your Gift Card retains its intrinsic value, i.e. It is valued at $100.00 no matter how long you keep it.
Choices with Gift (2):- $200.00 (Face Value) NHL Playoff Tickets.
(2-a) Attend the game, with or without a companion. (No choice of time or location.)
(2-b) Stay home and try to sell the tickets. If game sold out then tickets may sell for multiples of their face value – a very high probability. If low or no public interest in the final play- off game – a never heard of before prospect -- the tickets may be worthless. (But not very likely.)
(2-c) Give the tickets to someone else.
Choices with Gift (3):- 1000 shares of employer’s stock. Current value $10,000
(3-a) Can only be traded on the listed stock exchange – within the constrains of the stock market trading day and times – No choice of location. Limited choice of time.
(3-b) Shares have no “Face or Tangible Value”. The stockholder has no choice of the value to be received for the shares – this aspect is totally under the control of the bidder.
(3-c) Once taxed illegally -- on a pretend gain re:- the shares held -- to the level where a “Deferred Tax” is in effect THEN the stockholder no longer has even a choice of holding or selling those shares.
So how do the three Employer’s gifts stack up?
(1) Gift Certificate has the most choices and It Has a Guaranteed Tangible value with no time imit
This is a “No Contest” – “$100 Taxable Benefit”
(2) Event Tickets – Have a face value, but No Guarantee of an “Tangible Value” and
No Choice of Time or Location.
Holder may – or may not -- recover any cash for this gift.
This is a “No Contest” – “Not a Taxable Benefit.”
(3) Shares in employers Corporation.
Have * No face Value, and No Guarantee of an “Tangible Value” and holder may
even Have No Choice of when, or where to liquidate the shares.
Holder has no choice of the selling price of the shares.
This item is a “No Contest” – “Not a Taxable Benefit”.
Consequently Canadian Taxpayers have been taxed illegally for years -- on Non-existent “Taxable Benefits”.
* Unless one uses the once-upon-a-time “Par Value $1.00 as a face value that sometimes appeared on stock certificates.
Prove me wrong—if you can.
Victor Drummond ©
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8 comments:
Excellent post, Victor!!!
I'll be back a little later this evening to comment.
Glenn
Glenn:-
Thanks for taking the time tread this article. Am looking Forward to reading your follow-up.
Victor
Astonishingly unfair - thx for bringing it to my attention.
Ken:-
Very pleased to see you visited my blog page.
If you read a few of the articles posted you will find url's for the articles "Tories Kill Tax on profits never made" and Jamie Golombek's article:- "What about the rest of us.." In the middle of August Google lost its ability to find those articles by title??
So here are the Url's:-
http://www.canada.com/vancouversun/voices/story.html?id=457f01fa-2bc1-4589-b744-2eb682d961bf%20
and:- http://www.canada.com/nationalpost/story.html?id=fcae05b1-9f28-4e2d-89b6-f7cf8fc33217&k=17428
Would appreciate your comments on these articles.
Victor
Victor:
Had you followed through to page 14 you would have discovered
On page 14 they state quite clearly that quote
"A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks."
They go on to say quote
"Cash and near-cash gifts or awards are always a taxable benefit to the employee. Non-cash gifts or non-cash awards, on the other hand, may not be considered a taxable benefit under certain circumstances"
So they cover stock options solidly and there can be no argument with either the law as written or the intent of the law.
That should be sufficient evidence to prove you are wrong.
Berris
Berris:-
Thanks for accepting my challenge – to prove me wrong.
The counter statements you quoted are not valid evidence in support of classifying of corporate shares as a “Taxable Benefit”.
The later statements which list items that are ruled to be “Taxable Benefits” i.e.
"A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks."
This list is a mix of genuine “Taxable Benefits” with “stocks” which is merely an unsubstantiated attempt to “JUSTIFY” taxing employee’s who obtain employer’s shares under employer’s shares purchase option plans.
The end result is ludicrous -- as it merely contradicts the criteria by which a gift, or an award, from an employer -- to their employees -- is defined to be a “Taxable Benefit” or is “Tax Exempt”.
As pointed out in my article – A “Taxable Benefit” must have a “Tangible” value – and must provide the holder with a variety of “Choices” – according to this very same document.
So let’s begin with the definition of “Tangible”. See a typical Dictionary definition as follows:- (Reference Dictionary.com)
WordNet - Cite This Source
tangible
adjective
1. perceptible by the senses especially the sense of touch; "skin with a tangible roughness" [ant: impalpable]
2. capable of being treated as fact; "tangible evidence"; "his brief time as Prime Minister brought few real benefits to the poor" [syn: real]
3. (of especially business assets) having physical substance and intrinsic monetary value ; "tangible property like real estate"; "tangible assets such as machinery" [ant: intangible]
4. capable of being perceived; especially capable of being handled or touched or felt.
Definition 3, above relates to “Business Assets” which should provide a definition that can be related to “Stocks” and/or “Corporation Shares.
No argument:- Securities – such as a “Guaranteed Investment Certificate”, (GIC’s), come as a document you can touch – has both a “Face Value” and an “Intrinsic Value” value which will be honoured at any branch of the issuing financial institution. GIC’s are definitely a “Taxable Benefit”.
When do “Stocks” or “Corporate Shares” have “Intrinsic Monetary Value”?
They only have “Intrinsic” or “Tangible” monetary value when they are sold or exchanged for something else that has real “Tangible” and “Intrinsic” value.
How about being able to “Touch” your stock certificate. It has been a decade or two since stock brokers stopped sending “Tangible” share certificates to clients. Now all you ever get is a transaction notice. A Transaction Notice” is not a “Tangible” document with “Intrinsic” value. You can not exchange it anywhere for cash or anything else.
As long as corporate shares remain in the holders account – what choices do they provide?
Only two that I can name:- (1) Accept the current bid – if there is one -- to sell the shares or (2) Decline the current bid and hold the shares.
That is several choices less than the non-taxable “Event Tickets”
All that the additional statements – you quoted above – prove is that there is a glaring contradiction in document T4130 and that brings out another aspect of the issue.
When a dispute arises over the terms of a contract, or legal document, the courts endeavour, (in most cases), to determine the intent of the originator(s) of that document.
Can anyone in their right mind conclude -- that those who drafted the current version of the Canadian Income Tax Act – ever intended taxpayers to be taxed on non-existent income?
Can anyone in their right mind conclude that – the non-existent income could be falsely titled “Earned Income” ? In this case both terms are misnomers.
What service or act did the employee -- who purchased corporate shares -- perform for the employer to “Earn” anything -- more than every other investor who purchases the same Shares?
Can anyone in their right mind conclude that shares -- with no “Tangible” or real “Intrinsic” value -- should be added to the employees REAL “Income” -- and the employee then taxed to the point of financial extinction -- when no such real “Income” ever existed?
Obviously those who wrote the “Canadian Income Tax Act” never intended any of the foregoing CCRA rationalizations to result in taxpayers being exposed to – what amounts to – Legalized Extortion.
As the document name indicates – it is to define taxes to be paid on “INCOME” -- not on the opportunity to make an investment profit – NOT ON A POTENTIAL “Income” disguised -- by use of misnomers to appear to be “Earned “Income” -- WHICH IT DEFINETLY IS NOT.
The Only logical conclusion anyone in their right mind can come to is:-
“The author(s) of the “Canadian Income Tax Act.” NEVER INTENDED ANYONE TO BE TAXED ON NON-EXISTANT INCOME”
Therefore my initial challenge stands:- “Prove me wrong – if you can.”
Victor
"Shares in employers Corporation.
Have * No face Value, and No Guarantee of an “Tangible Value” and holder may
even Have No Choice of when, or where to liquidate the shares.
Holder has no choice of the selling price of the shares.
This item is a “No Contest” – “Not a Taxable Benefit”.
Victor, the point you make about corporate shares, that those shares actually represent little choice, is well made.
I must confess to being a little intimidated by the technical scope of the issue being discussed.
But you appear to making several good points.
Glenn Fitzgerald.
Glenn:-
To the vast majority of Canadian Taxpayers the points made in my postings here are a tempest in a teacup. The arguments presented by me seem unimportant to those not victimized and -- my points presented -- the rantings of someone who merely wants to write about one insignificant item.
If you happen to be a taxpayer who has been victimized by the ESPP/ESO Taxable Benefits rip-off the issue is of major importance as:- (1) you have already been taxed heavily on a false "Earned Income" and you may also have a huge "Deferred Tax" that will:- (a) prevent you from moving out of Canada -- no matter what opportunities you may have to give up -- and
(2) Will eventually come due and could leave you essentially penniless -- or worse still heavily in debt.
These are the Canadians I am fighting for -- those that are not directly effected and also do not care if others are abused -- will be bored stiff by my articles.
If no one takes corrective action to equalize the tax relief -- given to only a very few victims so far -- it is a very sad testiment of the quality of the average Canadian.
Thanks Glenn for your encouraging comments.
Victor
Victor
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