It is not what is conferred that counts..

CONFERRED VALUE vs CONVEYED VALUE
A commentary on the Fair Judgment by Justice Donald Bowman
In his hearing of the Case of:- “The Executive Who Hates Golf”.
Reference:- The Toronto Globe and Mail Newspaper
Front Page – Issue of June 18, 2008
This commentary by Victor Drummond ©
June 2008

For the benefit of those who may not have read, or heard of, this court case here is a brief synopsis:-

A Canadian, by the name of Henry Rachfalowski, was hired by The Canadian Life Financial Corporation, (CLFC), in 1968, as a senior executive.

CLFC had a policy of demanding their senior executives become a member in a prestigious golf club, where they might entertain clients and maintain the corporations preferred image.

The corporation was reasonable in this respect as they paid the employee’s $5,000 initiation fee and the annual $2,049 membership fee for the employee.

In 2005 the Canada Revenue Agency, (CRA), reassessed Mr. Rachfalowski’s taxes for the year 2002 and included the $2049 Golf Club Membership fee in his income as a “taxable benefit”.

Henry Rachfalowski objected to paying tax on this perk as he claimed he did not enjoy the game and seldom even attempted to play it. He admitted he had visited the Golf Club on a few occasions, played one or two rounds and even had lunch once or twice in the club dining room.

But he claimed he was pressured into accepting this perk by his bosses and peer pressure was also applied on him to accept the club membership.

The CRA argued that the membership fee was a perk that symbolizes that rank has its privileges in the corporate structure. The courts have established it provided you with an economic benefit even when unilaterally conferred. Therefore the fact that you did not like golf should not be a determinative.

Mr. Rachfalowski took his case to the Tax court of Canada where in April he argued, before Mr. Justice Donald Bowman, that his employer, CLFC, had benefited from the club membership whereas he had not.

Justice Bowman took into account that Mr. Rachfalowski had been pressured into accepting the perk and he had not personally enjoyed any benefit from the membership.

In his ruling, released the week beginning June 15th 2008, Judge Bowman reviewed several “taxable benefit cases” and said:- “They all come down to one question”. “Just what did the employee get out of the alleged benefit that ought to increase his or her income?” “Not much in Mr. Rachfalowski’s case, the judge found.”

The judge found the Golf Club membership was primarily for the employers benefit and ruled in favour of the victimized Mr. Rachfalowski.

Mr. Justice Donald Bowman’s ruling in essence said:- “A conferred perk is only a taxable benefit when the conveyed result is also of benefit to the recipient.”

A spokesperson for the CRA, when asked to comment on this ruling, said this decision will not be appealed.
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At long last a sensible, fair and just assessment of exactly what is, and what is not, a taxable benefit.

Why is it that from July 2000, when the tech market boom went bust and Canadian taxpayers began to be levied real taxable benefit taxes, on purely potential -- but non-existent ESPP/ESO gains -- that no one in authority could, or would, recognize this very simple fact, i.e.

“Where a person does not realize a benefit -- from anything conferred upon them by an employer – then there is no benefit to tax.”

In the cases of ESPP/ESO perks the employer was the guaranteed beneficiary, of these schemes whereas the employee was always at risk the conferred benefit may result in a conveyed loss. And in the year 2000 that is exactly what happened.

Now with a federal election pending, and the public is once more going to be barraged with campaign promises – keep this outrageous situation in mind.

There are thousands of honest hard-working Canadian taxpayers who have been legally robbed via the current “taxable benefit legislation” which gives permission to the CRA to extort huge sums of money from perks that never conveyed one cent of a taxable benefit to the recipient.

In fact the very opposite is the case. These same tax victims are being tax on a perk that has resulted in a huge loss of even their initial investment but the legislation prevents them from claiming their “Capital Losses” to reduce the taxes levied on the non-existent gain.

That is the height of incredible unfairness -- greed and stupidity -- that our elected representatives are willing to ignore and allow to persist.

For real accounts of a few such victims visit the “Canadians for Fair and Equitable Taxation”, (CFET) web pages at:- http://www.cfet.ca
Read the petition, and the comments of those who have signed the petition.

If none of the federal political party leaders acknowledge this atrocity, and commit to correcting this outrageous situation – then when it comes time to vote I intend to write in – Justice Donald Bowman – on every option on my ballot.

That will be my protest vote.

See you at the Election Polls – O’Grady.

Victor Drummond ©