The JDS Employee's Tax Remission Order..

THE JDS EMPLOYEES TAXABLE BENEFIT
REMISSION ORDER – OUTLINE
What does this outline say?
What does the Whole Text of the Remission Order Mean?
A Commentary and Conjecture by Victor Drummond ©
November 2007

Below is a copy of the Taxable Benefit tax remission order as reported in the Canada Gazette on November 14th 2007. The description provided in the Gazette is sketchy and
leaves plenty of room for miss-interpretation by anyone less than a professional Income Tax Specialist.

DISCLAIMER

As your’s truly is not such a specialist kindly observe this disclaimer, i.e. that the interpretation given here is purely logical speculation and not necessarily a true statement of the real meaning of the subject Tax Remission Order.

Logical Assumption No. (1). (Rationale)

The Conservative Member of Parliament for the riding of Saanich, Gulf Islands, i.e.
The Honourable Gary Lunn -- is a tax professional and it is logical to assume that he drafted the original tax remission order specifically for the victims of the tax on potential income in his riding.

More specifically those persons formerly employed by the JDS Uniphase Corporation who acquired their employers shares via an Employee Shares Purchase Plan, (ESPP).

Mr. Lunn may, or may not, have been aware of the tens of thousands of other similar taxpayers – right across Canada -- who were unjustly taxed in exactly the same way.

From the way the remission order is worded I suspect he wasn’t aware of the scope of the problem. For if he was – then it would be logical to assume the tax remission order would not be worded for specific persons – even if they had could have hired him, as a group, to represent them.

Conclusion (1):- The Tax remission order was unintentionally written as to be to be totally unfair to all other Canadian Taxpayers who had been victimized the same
way via the same defective Tax legislation.

The remission order therefore – accidentally – became a violation of the Canadian
Charter of Rights and Freedoms Article 15(1) and the later updated Taxpayers Bill
of Rights Article 8.

Logical Assumption No. (2). (Rationale)

The Honourable Minister of National Revenue, Ms. Carol Skelton, (at that time), endorsed the remission order prepared by MP G. Lunn. The Honourable Ms. Skelton was likely also unaware of the scope of the problem at that time.

The endorsed document was then approved by the Right Honourable Michaelle Jean, Governor General of Canada which then became a codicil of Canada’s Income Tax Act. It is also highly doubtful that Her Excellency had any concept of the scope of the problem – but was well aware that the taxation of fictitious income was unjust, unfair, and not in the government’s or the public’s best interest.


Conclusion (2):- The tax remission order – that brought some semblance of “Fair Taxation” to those JDS Uniphase employee’s -- named in the order – actually became an amendment to the defective taxable benefits legislation more by accident than intent.

This conclusion is also strongly supported by the behaviour of the Conservative MP’s, -- including the PM and Minister’s of National Finance and National Revenue – all of who declined to acknowledge any and all appeals for details of the tax remission order – or in many cases to even admit it existed.


Logical Assumption (3), (Rationale)

From the sketchy details of the actual remission order it appears to operate in the following way:- Until the tech market correction -- that began in July of the year 2000 – Canadians who acquired employer’s shares -- via an ESPP, or Employer Shares Option (ESO) plans were exposed to being taxed on fictitious “Earned Income” just like the JDS Employees in British Columbia.

Although grossly unfair this policy did not produce wholesale hardship as long as the corporation shares kept rising in value. When the market correction hit – in mid-July of the year 2000 -- thousands of taxpayers found themselves levied with huge taxes on prodigious non-existent taxable benefits that were added to their Income Tax T4 documents. And thereby also reported to the Canada Revenue Agency – by the employer -- as “Earned Income”

Remission of taxes levied -- on the non-existent “Earned Income” -- can be achieved by cancelling the reported “taxable benefit” amount that was produced by the assumed “Fair Market Value”, (FMV) of all shares delivered, (exercised), to the employee in the years 1999 and 2000.

By allowing these taxpayers to report all ESPP/ESO shares exercised and/or liquidated in year 1999 and/or 2000 as being valued at the essentially zero value level they had -- as of December 29th in the year 2006 -- the inflated FMV they were initially taxed at in 1999 and/or 2000 is effectively wiped out.


Conclusion (3):- The $ numbers in Column 2 -- of Schedule 2 & 3 below -- I conclude – Is the “Taxable Benefit” amount produced by the FMV of the shares
Exercised by the employee named in column 1 and reported to the CRA,
by the employer as “Earned Income”.

(Some Employee names appear twice in column 1. It appears logical one
appearance is for a 1999 reported taxable benefit – and a second
appearance is for a year 2000 taxable benefit.)

By cancelling these reported taxable benefit amounts -- adjusted for the
persons base tax percent and the year(s) inclusion rate -- the excess taxes
are effectively removed.


Logical Assumption (4), (Rationale)

By allowing the taxpayer to declare their ESPP/ESO shares transactions for the year(s) 1999 and/or 2000 -- at the share value as of December 29th 2006 -- then every one of those taxpayers will be declaring a huge loss on their shares disposition.

As the original taxable benefits legislation blocked the application of “Capital Losses” against prior/succeeding taxes on those same shares when taxed as a “taxable benefit” a similar block is incorporated in this tax remission order.

Conclusion (4):-

The move towards truly fair taxation -- per the JDS tax remission order – falls a long way short of being 100% fair.

A real “Fair Taxation Policy” would be to correct the defective taxable benefit legislation to exclude intangible items -- such as volatile company stocks and corporation shares – from the taxable benefit classification altogether. These items are NOT NEAR CASH ITEMS and they have NO TANGIBLE QUALITIES. They can not be exchanged at a face value – as they have no FACE VALUE.

The government would still get all the revenue they are justly entitled to via the “Capital Gains” tax legislation – which at least can be applied uniformly.

How anyone can put any confidence, whatsoever, in a political organization -- that is claiming to provide “Fair Taxation” to all Canadians but allows the taxable benefits legislation to remain with a flaw that produces this bungled result – is way beyond me.

As it stands this defective taxable benefit legislation denies taxpayers their RIGHT to fair taxation – so it is therefore impossible to assure “All Canadians” will receive “Fair Taxation” no matter how many promises or pledges are announced – as long as this legislation continues in force.

A half a loaf is better than none – however – so let’s use the leverage we have to bring about as fair a tax result as these tools will allow us.

The 2007 updated “Fair Taxation Pledge” -- and related documents – are provide for dissatisfied Canadian Taxpayers to utilize one of the methods for asking the government to review their tax situation and grant them the same consideration as was given to the JDS Employees in Gary Lunn’s riding. See:- www.cra.gc.ca/fairness and/or read the prior posted article:- “Could Anyone Want for More”

I am advising the taxable benefit victim in my family -- to do the following:-
Call the government’s hand on this issue – and (b) to see just how quickly and how fairly they will treat his application, i.e. Complete and submit Form RC4288-e – Request for Taxpayer Relief.

This appears to be the form best suited to listing distant past. (more than 3 years), unjust taxation situations – and provides places to describe events that justify a tax review and tax remission -- at least equal to the deal provide to the JDS Employees of British Columbia.

If our governments word -- to provide “All Canadians Fair Taxation” according to their 2007 pledge and recent public announcements – is worth the time it takes to listen to them –
then every such taxable benefits victim -- who submits a similar request -- must receive equivalent remission of their unfair taxation as well.

The Canada Gazette report is displayed below.

Leave a comment if you have an opinion on this article and/or this issue.

Victor Drummond ©

===============================================

THE CANADA GAZETTE
Vol. 141, No. 23 — November 14, 2007
Registration
SI/2007-99 November 14, 2007
FINANCIAL ADMINISTRATION ACT
Certain Former Employees of SDL Optics, Inc. Remission Order
P.C. 2007-1635 October 25, 2007
Her Excellency the Governor General in Council, considering that it is in the public interest to do so, on the recommendation of the Minister of National Revenue, pursuant to subsection 23(2) (see footnote a) of the Financial Administration Act, hereby makes the annexed Certain Former Employees of SDL Optics, Inc. Remission Order.

CERTAIN FORMER EMPLOYEES OF SDL OPTICS, INC. REMISSION ORDER
INTERPRETATION

1. In this Order, "employment benefit" means a benefit under subsection 7(1) of the Income Tax Act in respect of the acquisition of shares, in 1999 and 2000, through the stock purchase plan for employees of SDL Optics, Inc.

REMISSION

2. Remission is granted to the taxpayers set out in column 1 of the schedule for the amount set out in column 2, in respect of the 1999 or 2000 taxation years, as the case may be, which represents,
(a) for those taxpayers set out in items 1 to 21 of the schedule, all or a portion of tax paid or payable under Part I of the Income Tax Act in respect of an employment benefit; or
(b) for those taxpayers set out in items 22 to 42 of the schedule, all or a portion of interest paid or payable under Part I of that Act, on tax paid or payable under that Part in respect of an employment benefit.

CONDITIONS

3. The remission set out in paragraph 2(a) is granted with one of the following conditions:
(a) in respect of those taxpayers set out in items 1, 4 to 11, 13, 15, and 17 to 19 of the schedule, that the taxpayer agrees to reduce the adjusted cost base of any shares held at the close of the stock markets on December 29, 2006 that were, or are identical to those, purshased in 1999 or 2000 through the stock purchase plan for employees of SDL Optics, Inc. by the amount set out in column 2 of the schedule, divided be the taxpayer's effective federal tax rate on the employment benefit; and
(b) in respect of those taxpayers set out in item 2, 3, 12, 14, 20 and 21 of the schedule, that the taxpayer agrees not to claim a deduction in respect of net capital losses, equal to one-half the amount set out in column 2 of the schedule, divided by the taxpayer's effective federal tax rate on the employment benefit.


SCHEDULE
(Sections 2 and 3)


Item Column 1

Taxpayer Column 2

Amount ($)
1. Sheri Colwell 1,430.92
2. Timothy Couch 6,551.90
3. Grant Coulombe 7,261.63
4. Rhonda Fleming 10,753.70
5. Vicki Harris 15,868.95
6. Hanna Kowalski 3,563.23
7. John Lauder 734.62
8. Howard Lo 14,285.42
9. Timothy Ying Tai Lo 30,675.50
10. Laura Meyer 134,847.28
11. Christie Michaud 2,587.67
12. Christine Mollerud 183,371.94
13. Anthony Ong 14,247.68
14. Mark Ord 2,718.19
15. Dennis Rasmussen 3,975.60
16. Dean Rheault 4,038.83
17. Cornelis Scheffer 672.63
18. Pamela Shwab 183.47
19. Peter Stern 5,945.87
20. Penny Taylor 20,202.28
21. Sandra Woodward 2,641.04
22. Victoria Barter 14,589.26
23. Allan Baxter 3,451.66
24. David Bengston 441.50
25. David Benson 860.22
26. Shannon Campbell 3,390.45
27. Timothy Couch 1,679.34
28. Grant Coulombe 2,733.15
29. Gloria Davenport 21,102.90
30. Connie Gethings 479.08
31. Don Hargreaves 12,706.01
32. Howard Lo 1,003.51
33. Laura Meyer 52,089.41
34. Tracy Mills 47,108.37
35. Christine Mollerud 179,260.64
36. Carina Paredes 3,287.87
37. Martha Perdomo 543.98
38. Dean Rheault 1,584.06
39. Penny Taylor 28.91
40. Richard Van Acken 51.82
41. Joseph Wood 14,330.76
42. Sandra Woodward 3.30

EXPLANATORY NOTE
(This note is not part of the Order.)
The Order remits all or a portion of federal income tax paid or payable in respect of the 1999 or 2000 taxation years, as the case may be, by certain former employees of SDL Optics, Inc. Those individuals qualify for tax remission if the tax assessed on the employment benefit associated with shares acquired in 1999 or 2000 through the stock purchase plan for employees of SDL Optics, Inc. exceeds the total of the proceeds of disposition realized on the disposition of those shares and the market value of any of those shares held at the close of stock markets on December 29, 2006. The amount remitted is subject to certain conditions and adjustments.
The Order also remits, to certain former employees of SDL Optics, Inc., all or a portion of interest paid or payable on tax paid or payable on an employment benefit in respect of shares acquired in 1999 or 2000 through the stock purchase plan for employees of SDL Optics, Inc.