CANADIANS HAVE AN AXE...

CANADIANS HAVE AN AXE TO GRIND
An age old expression that has meaning, today, for all Canadians.

By Victor Drummond ©
August 2009

When European settlers first arrived in North America they found most of the East coast, and as for hundreds of miles to the west, the land was covered by trees.

From this state of affairs the expression, “I have an axe to grind.”, which was originally a literal statement, eventually became synonymous with the meaning “I have an issue to settle.”.

Within a few generations of honest hard-working Canadians the forest gave way to grand cities, paved highways, parklands and farms.

These were the mainstays of Canada’s economic rise to international greatness.

A land of opportunity governed, for the most part, by a democratically elected body of honest, fair-minded, compassionate, and decent people.

Within the past decade, however, a new forest, has taken over in Canada which once more threatens to downgrade the progress Canadians have made over the past 250 years.

This new forest does not consist of living plants, such as the original trees but is nonetheless present and effectively blocking Canadians from realizing their true worth and potential.

The new forest consists of mental images, used to convince people things that are false are actually true and vice-versa. While being deceived people are convinced they are getting the real picture and true facts. They falsely believe they are being kept well informed and are in control.

That is the way most of the German population felt during the 1930’s while Joseph Goebbels and Adolf Hitler were selling them on the story they were a superior race destined to rule the world.

These two spin doctors made their claims of the German Master Race sound authentic. Claims that were even supported by intellectual members of the highly regarded German universities.

Of course everyone wants to believe they are best at something. So the warnings put forward by people of clearer insight – that the German citizens had an axe to grind -- to clear away these false doctrines – went unheeded.

Just imagine the death and devastation that would have been avoided if the German people had recognized the deception and took an axe – figuratively speaking – to clear away the whole master race façade.

Canadian politicians haven’t quite reached that low, in their schemes to deceive Canadians, but they are on track to arrive there -- if Canadian’s do not realize: “We now have an axe to grind.”

No intelligent adult really believes it is fair, reasonable, decent, compassionate, or proper to deprive honest, hard-working citizens of their after tax income and give nothing in return.

The fact is the Canadian Government has been doing exactly that for nearly a decade on the flimsiest of excuses.

Thousands of such victimized Canadians have been decimated financially over most of the past decade while, all but a few, of their |House of Commons representatives, elected to serve the best interests of all Canadians, have remained silent and indifferent to constituents appeals for equal treatment under the law and fair tax treatment.

Is this indifference, to the distress of others, typical of Canadians in general?

My answer to that question is a loud and clear “NO IT IS NOT”. So why is this happening?

The answer lies with the political use of spin doctors, such as Joseph Goebbels, who tell things the way their bosses want the truth to appear. They declare Canadian tax laws are fair and are applied equally. A check of the facts reveals this is not true.

In order to make it appear reasonable to extort money from someone, without giving anything in return, the public must believe the extortion is justified. That those honest, hard-working Canadians, that have been taxed into financial ruin, are the architects of their own misfortune.

So lets begin to expose this elusion by following events when an employee is provided an incentive performance award by their employer, in the form of subsidized company share purchases.

The spin doctors say the Fair Market Value (FMV) of those shares is a taxable benefit to the extent the FMV exceeds the Adjusted Cost Base (ACB). This sounds reasonable, and fair, so far.

Next: no one will object when we say: when an employee, who has been allowed to purchase employer’s shares, at a discount, actually receives those shares then the employee has received (on paper) the benefit of any gain in the FMV of those shares to the extent the current FMV now exceeds the ACB of those shares. Therefore it is fair and proper to demand the employee pay the government income tax on the paper gain the employee might have realized at the time of delivery, i.e. the exercise date. This step also sounds reasonable and fair.

After all hasn’t the employee actually received a benefit equal to this difference?
On paper “YES” but in tangible, taxable, “income” money “NO”.

Until the shares received are actually converted to cash the employee has not received so much as one cent of real income. There is only the potential to acquire real income. But until that actually happens we are dealing with: “phantom” income.

Well after all hasn’t the net worth of the employee gone up in proportion to the added value of the shares they now hold? The answer to this question is “Yes”.

“IF” the employee were to convert their assets into cash at the moment they received their the shares they have gained in FMV. OK so isn’t reasonable then to tax the employee on this net gain?

“YES” “IF” the employee actually converted their shares into a cash profit at the time they actually receive “exercise” their shares purchased. Then it is reasonable and fair to levy a “Capital Gains” tax on that real profit.

“NO” “IF” the employee does not sell or convert their shares to actually realize a gain of any kind. The fact they might have made a gain if the buyer acted at the right time is totally irrelevant.

Our tax spin doctors would have you believe our government is entitled to tax any profit that might have been realized on those shares simply because the buyer of the shares is an employee of the business that issued them.

Where the employee works and what shares they purchased and how he/she acquired those shares is also irrelevant. Shares provided by an employer at a discount, in exchange for outstanding performance and or other factors such as vacation time or pay raises, are neither a gift nor a benefit to the employee.

Among the confusion of terms and definitions, which imply different things when used in connection with ESPP/ESO shares, as compared to the same words used in the world’s stock exchanges is the key word “exercised”

In the general definition the expression “to exercise shares” comes across to the average person as meaning “SOLD”.

When used in connection with shares acquired via an ESPP or ESO plans the term “to exercise shares” does not mean they have been sold -- it only means the shares have been delivered to the buyers account. This may give the buyer a profit potential but nothing more.

There is a huge difference between actual profit and potential profit. But the difference is not made clear by the government tax authorities and this misconception has very likely been deliberately exploited by, government spin doctors to allow the general public to think the employee has a real hands-on gain which the government is entitled to tax. This is a misconception.

The spin doctors encourage this general misconception as it then leads directly into the next misleading interpretation of the situation.

The general public is then encouraged to believe employees, who are allowed to participate in their employers shares incentive and rewards plans, such as the Employee Shares Purchase Plans (ESPP’s) and/or the Employee Share Option (ESO) agreements are all highly paid, senior level executives or highly paid scientific or technical staff. This is definitely not the case.

Furthermore the general public is lead to believe these affluent executive people, who complain about being taxed on phantom income, are unethical individuals who are merely attempting to avoid paying taxes on their ill-gotten gains. Again this is definitely not the average case.

Nothing could be further from the truth. By far the greater majority of those taxed into financial ruin through being taxed on money they never saw, are ordinary clerks, production level employees, who found themselves suddenly caught in a tax trap that no one warned them about and which didn’t become obvious until the trap was sprung.

The tax trap activating mechanism was the sudden, unexpected, crash of the decades long Hi-Tech stock market boom in the year 2000.

Even after the Hi-Tech stocks began to crash in July 2000 market advisors were telling investors to keep buying shares and to hold the shares they had.

So instead of those vilified highly paid tax evaders, the public was warned about, the victims of this fiasco are mostly ordinary production workers, clerks and maintenance people who had to deplete their savings accounts and even sell or remortgage their homes to pay this unfair, unjustified, unreasonable tax with whatever after tax dollars they could scrape together.

When the Conservative government was elected in 2005 the brand new first time Prime Minister the Right Honourable Stephen Harper, with his ideals still intact, acted on the advice of Mr. Gary Lunn CP MP for the riding of Saanich Gulf-Islands, British Columbia to provide the “fair Taxation” promised during the Conservative Party pre-election campaign.

Recognizing the gross unfairness of taxing the SDL Optics Inc./JDS Uniphase former employees on money that never existed, “phantom income” Prime Minister Harper signed a Tax Remission Order (TRO) which cancelled the taxes and related penalties levied the phantom income of 37 victimized Canadians.

He did this in spite of the warnings given by senior bureaucrats in the department of finance that by doing so he was setting a dangerous precedent. What should be dangerous about restoring extorted money to its rightful owners?

It is obvious from the events that then took place the Prime Minister and most of his advisors recognized that taxing honest, hard-working Canadians out of their savings, homes, and possessions was really unjust, and unfair – but the spin doctors won out and the Honourable Jim Flaherty, Canada’s Minister of Finance went back on the bandwagon telling all and sundry that Canada’s tax laws are fair because those that elected to hold on to shares they acquired via an ESO/ESPP plan are treated the same as all other Canadian investors/speculators.

If you believe that statement by Jim Flaherty is true and that those who complain about being taxed into poverty, on phantom income, are unethical fat-cat executives who are only trying to evade paying their taxes – it is no wonder the victims receive no support from their elected representatives in the house of commons and the average Canadian has no compassion for them.

Canada’s spin doctors are doing a great job – but beware – you are being misled.

There is nothing fair or justifiable about taxing Canadians on income that never existed in actual hard cash.

The United States government acknowledged this fact when their Congress passed bills in October 2008 putting an end to taxing Americans on phantom income. Ref: www.reformamt.org

It is time for all Canadian voters to start grinding our axes to clear away the façade of deception that on the front depicts truth, equal treatment, and fairness relating to victims of phantom income taxation while behind the scene is tax induced poverty, anxiety and financial ruin due to unjust and unfair tax treatment. Ref: www.cfet.ca

Our government should extend the token fair treatment, provide the SDL Optics Inc/JDS Uniphase employees via the TRO and provide this fair tax treatment to all Canadians who have been caught in the same tax booby trap.

The only effective way to effectively correct this problem is to follow the U.S. government example and amend Canada’s income tax legislation to reclassify all publicly traded shares as “Capital” investments regardless of the manner in which they are acquired and to fairly compensate Canadians, who have already been victimized by this defective tax policy, from the time of the Hi-Tech market crash beginning in the year 2000 to the present time.

It is time for all Canadians of voting age to select an axe to grind and notify their riding Members of Parliament they will get the chop, figuratively speaking, in the next federal election if they do not take action now to have Canada’s phantom tax policy abolished and those already victimized given fair compensation.

See you at the next federal election voting polls O’Grady.

Victor Drummond ©