ALL IS FAIR IN LOVE, WAR AND...

ALL IS “FAIR” IN: LOVE, WAR AND TAXATION
An update on the old folk saying: “All is Fair in Love and War”

By Victor Drummond ©
June 2009

When it comes to winning the hand of the person you want to spend the rest of your life with society tolerates every trick in the book with barely a frown in response to some unethical trick or downright deception to outwit the competition.

Likewise in battle where survival is the object of both combatants playing by any kind of rules is not required. May the best fighter win and the devil take the loser.

But what excuse does a government -- elected to represent the best interests of its citizens – have for attempting to justify taxing any of its citizens on purely theoretical income, (phantom income), and then declaring such a tax policy is “FAIR”?

When a tax is identified as “Income Tax” what can possibly be “FAIR” about levying this tax on money that never existed as any form of real income?

How much do you rely on your own intellectual reasoning power? Does taxing your own honest, hard-working citizens into financial ruin on any pretext what-so-ever make sense? Not in my books.

Could anyone overpower my sense of fairness to convince me that such a tax policy is “fair” in any sense of the word? No way!

If the Canadian public tolerates this insult to their intelligence and blatant abuse of political power then obviously the area of “TAXATION” belongs in the same classification as “LOVE” and “WAR”.

Unfortunately voting age Canadians who do nothing about this outrage are not the ones who suffer its direct impact. And those who have been ripped off in this way are too much of a minority to pressure the politicians to correct the problem – as the Americans have done already.
Ref:- www.reformAMT.org

No matter what deception is applied or whatever callous disregard the politicians have for those victimized honest, hard-working Canadians -- it is “ FAIR” taxation.

At least that is what our Honourable Minister of Finance would have us believe.

When the CBC, (British Columbia), “Go Public” program broadcast the interview with CFET member Shannon MacLeod, on May 26, 2009 the following remarks were made:

" Vancouver tax lawyer William Cooper said.

"Right now there are probably thousands of people under water. And how many know about this tax before they get the bill? Not a lot. I would say very few."

Finance Minister Jim Flaherty indicated Ottawa has no plan to help affected taxpayers.

'I won't hold out any hope of any tax exemptions'—Finance Minister Jim Flaherty

"The tax laws apply to all of us equally," Flaherty said. "There are some remedies that are available through hardship cases, but the reality is that those stock option situations are not uncommon and apply to a large number of Canadians. So, I can't and I won't hold out any hope of any tax exemptions in respect to that."

When Flaherty mentioned "hardship" cases, he was likely referring to JDS Uniphase employees from Victoria. After lobbying by their MP, Gary Lunn, 37 employees with the optical-equipment company were granted exemptions from paying the tax last year.

How about that for equal treatment under the tax laws of Canada? The “Taxpayers updated Bill of Rights” article No 8 for example?

What was the Honourable James Flaherty saying when he included the following in his speech to the House of Commons Standing Committee on Finance, (FINA) on January 30 2007?

“Tax Fairness Plan”

“I want to say from the outset that it is regrettable that some investors suffered financial losses. Although it was a very difficult decision, it was an absolutely necessary decision for the country and for future generations of Canadians, our children and grandchildren.”

“Our Tax Fairness Plan achieves two critically important goals. It restores balance and fairness in the tax system and strengthens the Canadian economy, now and into the future.” (Not very far into the future apparently.)

And what about this statement made by the same James Flaherty on the occasion of this same speech where he used the words: “Tax Fairness” more than a dozen times and concluded with these undeniably true statements:

“A few finals thoughts to conclude.”

“In the end, our government was faced with a hard choice, and now this Parliament is faced with a big decision: to make the Tax Fairness Plan a reality.”

‘We chose not only to recognize a growing problem occurring in Canada's tax system, but to fix that problem.”

“We made our decision based not on political calculations, as did the previous government, but on principles of tax fairness, balancing the needs of individual investors with the interests of taxpayers and their families.”

“And we acted responsibly and decisively.”

“It is not tax fairness if it is only for a few.”

Jimmy we couldn’t agree with you more – per the above – but what happened on the way to the theatre?

While you were recognizing the growing problems occurring in Canada’s tax system, how could you possibly miss the abusive unfair policy of taxing honest, hard working Canadians into financial ruin on income that never happened, (phantom income)? Just what problems in the Canadian tax system did you actually “Fix” or as The Right Honourable Stephen Harper said: “resolve”?

Were you not recently quoted as declaring: “people who decide to hold the equities they acquired by way of an “Employee Shares Option” (ESO) agreement are treated the same as any other investor and therefore the tax treatment they receive is “FAIR”. (or words to that effect).

So lets state the tax treatment applied to any other investor:

(1) Any investor who purchases futures options on the open market has a choice of:- buying a “put” or a “call” option that carries a stated guaranteed return price per share, i.e. the “strike” price when the holder decides to exercise (sell) their options.

He or she can select the term of the option and the price they are willing to pay. (price determined on the time-risk and volatility risk of the underlying shares.) and take possession (control) over their equities from the moment their order is filled.

By comaprison the employee who signs an ESO agreement with his/her employer has no such choice.

The price, per share to be paid, and many other terms -- including when the purchased equities will be delivered, (exercised) are all fixed per the agreement and the price to be received if the shares are exercised, and sold, is an unknown until the actual time of sale.

So the buyer of an ESO option is at a big disadvantage to the typical investor from the very start.

(2) The typical investor may pass up all kinds of opportunities to take a profit while the equities are in their possession but they are not taxed until the equities are actually converted to cash and then only if a real profit has been realized.
No problem with that situation.

By comparison the ESO option holder is taxed on any potential gain they might have taken at the time of delivery of their purchased equities -- which may be a year or so after the purchase.

If, for any number of reasons, the ESO option holder does not sell their equity holdings on that date and miss an opportunity to take a theoretical profit – it makes no difference to the Canada Revenue Agency – the tax is levied regardless of the devastation it may cause the victim.

How can you say this is the same treatment as any other investor? It isn’t – and you know it.

Canada Revenue Agency web pages are loaded with claims of fair taxation, policies and
practices.

But how fair can it be to obliged victims to apply individually for tax relief on the
basis of “Hardship” and leave it up to a third party to decide whether or not to grant the tax relief applied for.

Some victims will receive tax relief and others will not – based on how good a story the victim can tell or even more likely depending upon the location the appeal is submitted. (per Federal Auditor General)

Such a system merely compounds the unfairness of the whole thing.

(3) The typical investor/speculator after having reported on a real “Capital Loss” may apply the Loss retroactively for up to three years, and into the future indefinitely, to offset the taxes paid, or to be paid, on any “Capital Gain”.

The ESO option buyer can not even apply any real loss suffered against the “taxes” levied on his or her phantom income charged against the phantom gain of those very same equities.

So tell me again Mr. Flaherty how is the victim of taxation, on ESO options, being treated the same as any other investor/speculator? Your concept of equal tax treatment and fair treatment is one for the books.

There is absolutely no similarity between the treatment of an ESO options buyer and any other investor in Canada.

The real tragedy is not how devastated the taxable benefit tax policy leaves its victims – that is bad enough – the greater tragedy occurs when the average Canadian allows themselves to be hoodwinked into believing their elected representatives -- in Canada’s Parliament -- are earning their salaries and are performing their duty regarding the serving and protecting the best interests of all Canadians.

Until the average Canadian realizes they are being treated like mushrooms, i.e. kept in the dark and fed Horse Manure, the Title: ALL IS FAIR IN LOVE, WAR AND TAXATION will stand.

See you at the voting polls in the next Federal Election – O’Grady

Victor Drummond ©