Everything has...

THERE IS A BEST BEFORE DATE
A commentary on the idiotic excuses proffered by
Federal Ministers to defend an obsolete and
Insidious item of legislation.
By Victor Drummond ©
June 2008

Prior to the introduction of the policy of marking foods and medications with a “Best Before Date”, (BBD) or a “Use by Date”, (UBD), there were no established guidelines for the consumer to refer to regarding the purchase and storage of these items.

Consequently there were rather frequent incidents of people falling ill after eating tainted food or after using medication that had lost its effectiveness.

Spoiled seafood products and antibiotics were among the most frequent items to be the cause of illness -- or even death -- of the user.

The practice of applying a BBD spread rapidly from a few -- known high-risk -- items to a whole spectrum of things – many of which are not prone to spoilage -- or even significant loss of potency, if properly stored.

A belief that the longer an item had been properly stored the better it becomes applies to very few things.

The production of wine is the one of those items and the other is the proper storage of certain kinds of cheese.

Besides food and medication there are a few other aspects of society that can drift from being beneficial to humans to being detrimental in the extreme.

One very important element -- impacting upon the quality of humans living together – is a system of establishing and maintaining acceptable conduct at all levels of society.

As social and/or government need(s) changed the related rules, (laws), required updating. Or in many cases -- needed to be struck down completely regardless of the length of time the now defunct law had been in operation.

Consequently -- in the case of man made laws -- the longer a law has been in force the greater the probability it is no longer valid.

A person might conclude that a law -- designed to provide Canadians from potential bodily harm and/or premature violent death – is indisputably a good law -- with no expiry date.

Well the Supreme Court of Canada didn’t think so as they unanimously struck down the Security Certificate Law on the basis that it conflicted with rights guaranteed to all Canadians under the “Canadian Charter of Rights and Freedoms”.

Ref:- http://www.cbc.ca/canada/story/2007/02/23/security-certificate.html

Apparently laws that deny Canadians their rights and/or personal protection – guaranteed under the Canadian Charter – are not good laws.

So in that event the Supreme Court of Canada should take a careful look at the portion of the Canadian Income Tax act as it relates to the taxing of Corporate shares acquired by employee’s via Employee Share Purchase Plans, (ESPP’s) and Employee Share Option, (ESO), schemes.

This insidious, unfair, unjustified, unreasonable and punitive law contains penalties for its victims if they have outstanding tax levies and wish to leave Canada.

A clear violation of the charter right to freedom-of-movement as guaranteed by article 6.

The charter also guarantees all Canadians the right “Not to be subjected to any cruel, and/or unusual treatment or punishment” according to Article 12

It would be pure idiocy to claim the levy of punitive and excessive taxes on “income” that never actually materialized -- is not unusual treatment, is not cruel and is not severe punishment for some nonexistent misdemeanour.

Therefore this law also violates article 12 of the charter.

To compound this felony the miserable effort to provide some measure of fairness -- to a miniscule sample of Canadian Taxpayers via the SDL/JDSU Tax Remission Order, (TRO), (per Canada Gazette Nov. 14/07 issue) – merely added an element of favouritism to the mix. This boondoggle created a violation of another article of the Charter, i.e., Article (15).

Allowing the defect -- in the legislation relating to taxing ESPP/ESO equities -- was not apparent at the time the legislation was initially enacted, and its insidious, unfair, unjust, and punitive impact was possibly not anticipated by the authors of this law – then it might be weakly argued that initially this law was perhaps tolerable -- but never really good.

When the tech market bust happened -- in July of the year 2000 -- then the obscure trap in the ESPP/ESO taxable benefit legislation became apparent. It began to generate huge tax levies on purely theoretical -- but nonexistent -- gains. This legislation very quickly became punitive, abusive, and grossly unfair.

There is absolutely no doubt that a reasonable, fair, compassionate, intelligent, person would immediately recognize this law was now a very bad law.

It was also obvious to everyone -- outside of the government in power -- this law is still in operation well past its BEST BEFORE DATE, i.e. July 31st 2000

When taxpayers began receiving tax levies – in the year 2001 -- that were, 300% and greater than their total real income -- for the entire year – they started appealing to Members of Parliament -- (MP’s) and even directly to the Prime Minister -- for fair and reasonable tax levies.

I came across a copy of correspondence between a victim -- who had to take out a second mortgage to pay this extortionist tax -- and the Most Honourable PM – that went along these lines.

(Reply from the PM’s Office, paraphrased):- “Thank you for drawing your concerns regarding your year 2000 tax levy to the attention of this office.” Pleased be advised your letter will receive prompt and careful consideration.” Tax matters are not in the jurisdiction of the PM’s office but your letter is being forwarded to the office of the Honourable Ralph Goodale, National Minister of Finance, for action.”

Signed for -- The Most Honourable PM.
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Some months later the victim received a reply from the Honourable Ralph Goodale In essence the reply said:- “The Law is Good -- as it is – so pay up.” (Paraphrased)
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In 2007 an appellant received, (about a year after sending the letter of appeal), a very similar reply from the Honourable James M. Flaherty Minister of Finance,

Following is the best argument the Minister could muster in defence of this obscene legislation and his denial of the appellant’s request – even after a year to formulate a reply:-

(1) “The tax treatment of stock-based compensation has been in effect for many years.”

(2) “and is based on the rationale that employees who exercise stock options may be compared to individual investors who acquire shares at fair market value with after tax dollars or borrowed money.”

(3) “This tax treatment applies equally to shares acquired through an employee share purchase plan.”

(4) “Individuals who exercise stock options are also subject to the same general income tax rules for capital gains and losses on the underlying shares as other investors and are generally not allowed to deduct the capital losses from other income.”

Sincerely

James M. Flaherty, Minister of Finance.-----------------------------------------------------------------------
Applying ordinary common sense to the foregoing statements reveals the total lack of comprehension the author has of the actual situation, i.e.

Item (1) does more to imply the law is obsolete than it does to justify its continued application.

Item (2) is pure and simple gobbledy-gook.

(a) In the last part of this idiotic statement the source of the money used to hase securities is totally irrelevant.

(b.1) Individual investors who acquire shares at fair market value do not pay tax unless and until they sell those shares at a profit.

(b.2) Employee’s who acquire shares via an ESPP or ESO are levied taxes as of the potential gain they might have realized if the shares could actually be sold at the FMV at the time they took possession.

As the bidder controls the price actually realized in a shares transaction the FMV is no guarantee the seller will actually receive that price per share.

Therefore the employee is being taxed on an assumed – but purely theoretical – non-existent amount of money.

Individual (b.1) is taxed on real gain, if any, and employee
b.2) is taxed on potential gain,if any.

Therefore the stated comparison does not exist.

The Item (2) statement is totally incorrect -- either by ignorance of the facts or plain deceit.

Item (3) A repeat of the item (2) comparison – which is incorrect and merely an attempt to muddy the waters.

Since the issuing of the SDL Optics victims TRO -- this stated tax treatment equality -- does not even apply to all ESPP/ESO victims.

Item (4) This statement is also making a false comparison.

If there actually was a realized income from the ESPP/ESO shares then there would be a basis for a taxable benefit tax.
AND
Where there is a basis for a, taxable benefit, tax then it is reasonable to exclude the offsetting of this tax by preventing the taxpayer from deducting it from other income.
BUT
When a tax is levied on a purely theoretical income there is no real basis for a tax so preventing the taxpayer from offsetting this extortion from other income merely compounds the felony.

In summary this reply -- to a taxpayer in financial distress appealing for correction of an unjustified tax -- is nothing more than an insult to the intelligence of the average fifth grader and absolutely no credit what-so-ever to the author.
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Moving the clock back to the December 2006 we find a newly elected conservative MP -- for the riding of Saanich Gulf-Islands, British Columbia -- proudly declaring “It took a change of government … etc.” to bring tax fairness to a paltry 30 ,or so, ESPP victims in his riding.

There is no doubt MP Gary Lunn recognized the ESPP/ESO tax legislation as not “a good law”.
In reality it never was -- and never will be -- a good law.
It was designed to be nothing more or less than an up-front money grab.

Not only did Gary Lunn acknowledge this fact, so did Prime Minister Stephen Harper, and the Governor General for Canada, Michael Jean, when they each signed the same Tax Remission Order.

There have been a number of newspaper journalist reporting on this issue and none of them have said, -- or even implied – that taxing people for “income” that never actually existed – could possibly be according to a good law.

Not only is the taxable benefit legislation – as it applies to ESPP/ESO plans – a very bad law it is well beyond its BBD of July 31 2000.

The same can be said regarding authorities that continue to ignore the problem and/or insult the intelligence of Canadians with rationales that are totally lacking in substance.

There can never be justification for taking money from taxpayers on the excuse they could have made a profit. IF?

If none of our elected representatives and/or those who aspire to become our elected representatives have the comprehension and/or compassion to understand the harm this legislation is wreaking upon innocent hard working Canadians THEN they also are past their BBD.

If you would like to see a revival of decency, ethics and fairness in your elected federal representative send a message to your Member of Parliament informing him, or her, that you demand the defective taxable benefit legislation be corrected and those already taxed – on “income” that never existed be fairly compensated.

An organization called “Canadians for Fair and Equitable Taxation”, (CFET) has made it easy for you to E-mail your MP. Visit their web page:- http://www.cfet.ca and use the -- Mail an MP -- link to send your message.

Everyone should inform their MP that they are intelligent adults and will not be flimflammed by irrational argument. Let them know that your BBD is still a long way off.

If you haven’t signed the petition for “Fair Taxation” you may do so while visiting the CFET Web page.

Victor Drummond ©