APPEALS TO REASON ..

APPEALS TO REASON – Part 10
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.

Read: Appeals To Reason Part – 1 (preamble) & Parts – 2, 3,4,5,6,7,8,9 for more background information.
By Victor Drummond ©
May 2009

Synopsis of the events to the present

Part 8: Excerpts from additional published articles that could explain what happened to disillusion former Minister of National Revenue, the Honourable Carol Skelton and possibly the reason she decided not to run for office in the 2008 federal election.

Part 9: Letters to Carol Skelton from other Members of Canada’s 39th Parliament pressuring her to take action to have all Canadian victims of phantom income tax treated fairly.

Part 9 closes part way through reporting on the events following the announcement on May 28 2007 by the Honourable Carol Skelton, Minister of National Revenue and the Honourable James Flaherty, Minister of Finance, of two new government initiatives falsely proclaimed to bring fair taxation to all Canadians.

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The following article that appeared in the National Post, Financial Post section on June 9 2007
may have been the straw that broke Carol Skelton’s association with the perfidious “senior bureaucrats” in the Conservative party.

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Financial Post, June 9, 2007.

Taxpayer rights don’t apply equally.

In Toronto’s historic Dominion Public Building on a bright Monday morning in late May, Minister of National Revenue Carol Skelton, flanked by Minister of Finance Jim Flaherty, took the stage at a press conference to proclaim Canada’s new Taxpayer Bill of Rights.

In the two weeks since the announcement, the new bill containing 15 taxpayer rights has been dismissed by various columnists (including Jon Chevreau and Arthur Drache of this paper) as nothing more than a huge public relations exercise by the Canada Revenue Agency.

But if you’re one of the thousands of Canadians who face a looming tax bill on paper profits that subsequently vanished, the new Bill of Rights and, in particular Right No. 8 – “the right to have the law applied consistently” smacks of doublespeak considering the preferential tax treatment given only a small group of former JDS Uniphase employees.

But what about people like Victoria resident Kevin Hawe? Mr. Hawe joined ACD Systems, a technology start-up, in May, 1999, as vice-president, sales and marketing. The company went public in 2000, and Mr. Hawe exercised stock options, paying $0.25 per share when the market value of the stock was around $12.

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(Note:- What was not made clear in this article is that terms of the Employee Shares Option (ESO) plan that Mr. Hawe signed contained black-out conditions that prevented him from selling any shares, he purchased under the plan, for months at a time.)

(These black-out periods generally preceded and followed scheduled corporation financial reports. Because Mr. Hawe was considered senior management his disposal of ACD corporation shares could trigger a general stock market sell-off. )

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When he received his T4 slip in February, 2001, he was shocked to see that he had crystallized a $1.2-million employment benefit, which would be deferred until he sold the shares. Meanwhile, the stock had dropped in value to $7.

Mr. Hawe explains “I didn’t want to sell stock --- I just kept drinking the
Kool-Aid.” As an insider, he was also subject to severe restrictions on when he could sell the shares. Besides selling the stock would have triggered an immediate tax liability. Not something, Mr. Hawe wanted.

Earlier this year he was forced to sell his shares when ACD was taken private at $0.57 per share.

The CRA has traditionally had little sympathy for employees such as Mr. Hawe, who don’t sell their shares immediately. The agency’s thinking is that employees who hold their shares have chosen to accept a market risk as an investor in the expectation of future appreciation. Thus they are subject to the same rules respecting capital gains and losses as other investors.

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(Note:- The last statement attributed to the policy of the CRA is inherently wrong, on two scores:-

(1) On what written law does the CRA base their right to apply a tax on ESPP/ESO equities when the equities have not actually delivered the theoretical gain being taxed?

Has any ESPP/ESO contract contained a clause stipulating the related equities must be sold or exchanged at the time of exercise?

If so – show me.

Is there any tax legislation and/or published tax guideline that makes, and informs, the taxpayer of such a stipulation?

If so – show me.

(2) The taxpayer who fails to sell their ESPP/ESO equities at the time of exercise is not “subjected to the same rules respecting capital gains or losses as other investors.”

If that were true then all investors would be taxed on the value of their equities at time of delivery, or, no one would be so taxed.

It is very obvious the CRA supported by “senior bureaucrats” in the Canadian government have targeted taxpayers who participate in ESPP/ESO plans and they are not about to give up such a lucrative cash-cow no matter how unfair, or devastating the policy may be to honest, hard-working Canadians.

Their greed obviously far outweighs their allotment of decency, honesty, integrity and compassion.)

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When Mr. Hawe first read about the JDS deal in his local paper, he immediately called Mr. Lunn’s office. “It doesn’t apply to you.” he was told. “I felt like I had been kicked in the head,” Mr. Hawe said.

In January, I asked Ms. Skelton if the treatment JDS employees received would be available to the thousands of other Canadians similarly affected. Last month I received a two-line e-mail response from Ms. Skelton stating that the CRA “is implementing the direction that the Government of Canada has provided, which specifies that such relief is available only to former employees of SDL Optics (JDS Uniphase) who participated in the company’s stock purchase plan.”

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The above article concludes with an account of the author asking Ms. Carol Skelton “how Rule No 8 of the Taxpayer Bill of Rights” – the right to have the law applied consistently – jibes with her position on JDS. Ms. Skelton said she would look into it and then shut down the press conference.”

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Likely Ms. Skelton’s attempts to “look into the issue” put her at odds with those “senior government bureaucrats” who call the shots for Canada’s Prime Ministers and also apparently for leaders of the federal opposition parties as well.

So far as I am aware: Not one federal political party leader has so much as whispered: “let’s really restore fair and equitable taxation for all Canadian taxpayers.”

From the announcement of the updated “Taxpayers Bill of Rights” with the Hon. Jim Flaherty’s statement:- “When it comes to taxes this government believes in strong accountability, but fairness.” nothing has been done by Mr. Flaherty to actually provide “fairness” to honest, hard-working Canadians who have been grossly abused by the CRA when demanding payment of outrageous taxes on money they never received. “Blarney” would be the politest word I can think of to describe that deception.

If the Hon Jim Flaherty has done anything regarding "fair" treatment of Canadian victims of phantom taxation it has been to vigorously oppose fair treatment of these abused Canadians.
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The following letters are likely typical of many such appeals Ms Skelton received.
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May 11, 2007

Honourable Carol Skelton
Minister of National Revenue
House of Commons
Ottawa, ON K1A 0A6

Dear Ms. Skelton

Re: Tax Rules for Employee Stock Option (ESO) Plans

Under current legislation my understanding is that on sale of a company, stocks are deemed taxable benefits, yet the employee doesn’t actually receive the monetary payout on the stocks. The employee must then bear the financial burden of paying increased taxes without having the increased funds to do so.
While deferral of this tax is now possible, current legislation continues to place undue burden on hard working Canadians.

Many Canadians view the problems with ESO’s as being essentially the same as with ESPP’s. The Conservative government has addressed the ESPP tax problems, yet similar action has not been taken with ESO’s

While individuals wait for change on this issue, please clarify the appeal process and options available as they attempt to manage their financial burdens through the Canada Revenue Agency.

This is an issue of fairness. As such I urge you to implement equitable remedies. I look forward to your response.

Sincerely,

(Signed)

Jean Crowder, MP (NDP)
Nanaimo-Cowichan
(British Columbia)

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May 14, 2007

URGENT

Hon. Carol Skelton, P.C., M.P.
Minister of National Revenue
555 Mackenzie Avenue
Connaught Building, 7th Floor
Ottawa, ON, K1A 0L5

Dear Minister Skelton,

This concerns a critical situation concerning Mr. Kevin Hawe who has been a victim of the employee share option tax devisal. You are well aware of the ESO’s and how they trigger massive debts on profits that are never realized. This is similar to but not identical to the ESPP program of which JDS Uniphase was a prominent example. I might also remind you that I have written to your office in the past on this particular case and situation and have yet to receive any adequate response.

Therefore in the case of Mr. Hawe I strongly ask that you look into his case because due to a public company in which he held stock going private he has been forced to realize a tax bill of $280,000 on a fictitious deemed disposition equal to $1,225,350.

Quite frankly I am personally very frustrated in the inability to get answers or to deal with this situation and given the catastrophe that this poses for people who were in ESO’s I am asking for a response so that these individuals do not have to pay these ridiculous onerous taxes on unrealized profits and the taxes they do pay are commensurate with the profits they receive.

An urgent response to this matter is greatly appreciated.

Sincerely

Dr. Keith Martin, M.D., P.C., M.P.
Esquimalt – Juan de Fuca

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I have travelled from coast to coast in Canada and lived in several western provinces while working for the installation department of a large Canadian communications corporation.

You can not find more honest, decent, ethical, kind and conscientious people anywhere in Canada than you will find in the provinces of Saskatchewan, Alberta and British Columbia.

Carol Skelton was born in Biggar Saskatchewan and was first elected to the office of federal MP, as a member of the Canadian Alliance for the riding of, Saskatoon-Rosetown-Biggar, in the year 2000 federal election.

Evidence of her concern for the well-being of her constituents, and all Canadians in general, is revealed in the social programs she promptly became involved with:

Carol is the former opposition critic of Family issues, Children and Youth, Human Resources Development, the Deputy Prime Minister, Social Economy, Western Economic Diversification, Public Health and Social Development, where she was instrumental in developing the party’s child care policies.

In her first run at becoming an elected Member of Parliament Carol barely won by the slim margin of only 68 votes over NDP incumbent Dennis Gruending.

Carol went up against Dennis again, in the 2004 federal election, and that time won by a comfortable 2000 vote majority. Her constituent support grew with each succeeding federal election.

The foregoing information, supplied by Wikipedia, is very strong evidence that Carol Skelton is a person of integrity, honesty and compassion.

No doubt when Carol Skelton realized she was an unwitting party to a political atrocity and had been scammed along with the rest of the Canadian voting population, by her own Conservative colleagues she wasn’t too happy.

Receiving letters such as from colleague Dr. Keith Martin and from opposition MP, Jean Crowder , (above) certainly wouldn’t give Carol much comfort or piece of mind either.

When the Right Honourable Stephen Harper shuffled his cabinet on August 14, 2007, and Carol Skelton was replaced by the incompetent Honourable Gordon O’Connor, as Minister of National Revenue, I believe, a truly Honourable, Carol Skelton became another victim of the tax on phantom income fiasco.


Victor Drummond ©