IF YOU CAN AFFORD IT...

IF YOU CAN AFFORD IT – IT’S FAIR
A commentary on the logic used by the Canadian Government(s)
to justify taxing honest, hard-working Candains on money that
never existed – “Phantom Income”

by Victor Drummond ©
August 2009

All anyone needs to do to assess the fairness of the Canadian government(s) policy of taxing employees, who purchase shares and/or share options via their employer’s incentive/performance reward plans is to look at the criteria and factors whereby tax relief will be granted.

Any Canadian who feels their tax assessment is incorrect has the first option of submitting a written appeal to their local Chief of Appeals Officer located in one of the 40 Canada Revenue offices across Canada.

The Chief of Appeals Officer may grant a reassessment of the appellants tax levy if there were errors in the made in the original tax return or the taxpayer falls under the “hardship case” classification.

According to a 2008 report by the Auditor General the prospect of an appellant being granted a favourable ruling by a Chief of Appeals Officer depends as much, or more, upon the location where the appeal is submitted as it does upon the merits of the taxpayers case.

If the appellant fails to obtain tax relief by way of the Chief of Appeals Officer the taxpayer may then apply to the Tax Court of Canada. The tax court of Canada does not require an appellant to hire a lawyer to represent them BUT hiring a good tax lawyer greatly improves the chances of the appellant receiving a favourable ruling.

Under normal circumstances the Tax Court of Canada judges look at the facts of the appellants case and rule according to whether, or not, the appellants rights have been violated or any tax laws have been broken. The majority of Tax Court of Canada tax cases are not won by the appellants as the court rules Canada’s tax laws have not been broken even if a few of the taxpayers rights have been denied.

Among the factors the Tax Court of Canada can take into consideration is the financial state of the appellant(s). If the judge hearing the case rules the taxpayer is a financial “hardship case” then the appellant may obtain tax relief on this basis.

If the appellant fails to win a favourable ruling from the Tax Court of Canada judge he, or she, may then apply to have their case heard by the Supreme Court of Canada. Again the appellants chances of obtaining a favourable decision are greatly increased by hiring a top level tax lawyer to present your case.

The Supreme Court Judges may find the legislation, used to apply the appellant’s tax levy, is flawed and strike the law down. Even though the law may violate, or at the very least compromise, the taxpayers “RIGHTS” as provided under the Canadian Charter of Rights and Freedoms, and/or under the upgraded “Taxpayers Bill of Rights” it is most unlikely the Supreme Court judges would strike down the flawed legislation as it has withstood numerous challenges in the past.

In summary then: An honest, hard-working Canadian, who has been levied horrendous taxes on the basis of ESPP/ESO shares that are deemed by the Canada Revenue Agency (CRA) to have been “a taxable benefit” at the time the taxpayer received them but which never produced one cent of tangible income is not likely to obtain fair treatment under Canadian Tax Law and application policy unless the taxpayer is deemed to be a hardship case.

Otherwise if the victim can afford the loss – even if they must deplete their life’s savings -- then the taxes stand as they were originally levied.

If you can afford it – the tax is “fair” according to our elected government. It is a blatant whack at those that can afford it and it only provides fair taxation to those who can make a “hardship case”.

Are you prepared to elect, or re-elect, anyone who wants to preserve this outrageously unfair system of taxation?

Especially when the United States has already deemed taxing phantom income is "unfair" and have corrected their defective tax legislation. Ref. www.reformamt.org

All that is required for Canada's lawmakers to fix this problem is to revise Canada’s Income Tax Act "taxable benefit legislation" to exclude publicly traded shares from the taxable benefit classification and classify them as "Capital" equites no matter how the shares were acquired.

When that is done then, and only then, will the statement made by our Hon. James Flaherty, Minister of Finance, “Canada’s tax system is “Fair” because those who hold their ESPP/ESO shares are treated the same as all other Canadian investors.”, will be even close to being factual.

In the meantime if you want “Fairness” to be restored to those Canadians taxed on pretend “phantom” income then contact your local federal Member of Parliament and demand they take action to correct this outrage -- if they want your vote.

Our past and present representative Members of the House of Commons, with very few exceptions, have taken no action to correct this problem and most have ignored their constituents appeals for fair taxation.

See you at the voting polls of the next Federal Election O’Grady.

Victor Drummond ©