Thursday, September 3, 2009
NOT A NEAR CASH..
WHY ARE CONVENTIONAL CORPORATED SHARES
NOT A NEAR CASH ITEM
A commentary on the flaws in the Canadian Income Tax Act
that are used by the Canada Revenue Agency to tax honest,
Hard-working Canadians on phantom income.
By Victor Drummond ©
September 2009
Every year, since the Hi-Tech stock market boom went bust in July of the year 2000, hundreds of honest, hard working Canadians have been levied horrendous, financially devastating taxes on phantom “income”.
The total of such Canadian victims has been growing every year since and is still on-going despite the fact the United States government has corrected their defective income tax legislation and put an end to this unfair, unjust and abusive tax policy.
Without performing any analysis, of the problem, it is apparent to everyone, except our elected government members, there can be no possible justification for taxing people on money that never existed and forcing them to deplete their savings accounts, (after tax dollars), and even go to the extent of selling, or at least mortgaging/remortgaging the family home to pay any tax what-so-ever.
Although the defects in our “taxable benefits” legislation did not cause any problem during the Hi-Tech boom years BUT when the Hi-Tech market boom went bust, in the year 2000, then the taxable benefit legislation flaws became painfully obvious.
Many honest, hard-working Canadians -- employed by Hi-Tech communications corporations, such as Nortel Networks and JDS Uniphase Corp, who were participants in their employer’s Incentive Shares Options plans (ISO’s) i.e. in Canada, Employee Shares Purchase Plans (ESPP’s) and/or Employee Shares Option (ESO) agreements, and who had failed to sell their related shares on the day they took possession of them – were shocked to discover, when the year 2000 T4 slips were issued, that they had been declared to have “Earned Income” many times greater than their actual gross annual salary.
In many such cases the taxes alone levied on this inflated “Earned Income” exceeded the employee’s actual gross income, for the entire year, by as much as 1000%.
Victims of this outrageous tax began making appeals, for fair tax assessment. They sent letters of appeal to the CRA and to their Member of Parliament and to all levels of the Canadian Government from the Prime Minister to the farthest back, back-bencher and everyone in between.
All to no avail.
The only recourse made available to these victim’s, of Canada’s defective taxable benefit legislation, was to apply for deferment of the taxes levied by implimenting the features of the government form T1212.
Otherwise they could request their taxes be cancelled, or reduced, on the basis of being deemed a “hardship case”.
Appeals to the Chief of Appeals officers, in the various CRA Offices across Canada, were a crap shoot at best and the prospects of obtaining a favourable decision from these officials depended as much, or more, upon the location where the appeal was submitted, as it did upon the merits of the victims case.
(According to a recent Federal Auditors Report)
Upon inspection of the defective taxable benefits legislation and application policy it turns out this whole tax debacle could have been easily avoided, in the firat place, and can now been easily corrected by recognizing that the basis for this so-called taxable benefit is not a taxable benefit item in the first place.
The CRA policy of taxing recipients of their employer’s corporate shares is founded upon those shares being classified as “near cash” items. In the CRA Document T4130 “Employer’s Guide to Taxable Benefits” it states:
Gifts and awards
A gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash.
A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks.
Cash and near-cash gifts or awards are always a taxable benefit to the employee.
Non-cash gifts or non-cash awards, on the other hand, may not be considered a taxable benefit under certain circumstances.
Security options
When a corporation agrees to sell or issue its shares to an employee, or when a mutual fund trust grants options to an employee to acquire trust units, the employee may receive a taxable benefit.
The author(s) and interpreters of the above definition of the “taxable benefits” legislation have considered unsecured corporate shares to be a near-cash item. They are not a near cash item.
To be a near cash item an equity/document must have a face value, such as a bond, or a Guaranteed Investment Certificate (GIC) which has a guaranteed cash value upon maturity and possibly at all times prior.
Shares issued by a corporation do not have a secured or stated face value.
Neither the government,nor any other institution will guarantee you can exchange a conventional corporate share for any amount of cash. Try selling your Nortel Networks shares if you doubt this claim.
The cash value of conventional shares, traded on a conventional stock exchange, are only worth what the bidder(s) are willing to pay. No bidders = no cash value.
Secondly the shares reported to the CRA as “Earned Income” were purchased by the employee with their own money.
They were neither a gift nor an award. They were an incentive device intended to share the corporations growth, in value, with the people who produced that growth and to provide a tie between the employer and the valued employees during the Hi-Tech boom years when head-hunters were widely used to entice valued employees to change employers.
Whether or not you are a direct victim of this insidious tax fiasco -- or do not even know of anyone who is -- you will be doing yourself, and all Canadians, a huge favour if you will contact your riding Member of Parliament and inform them you demand the practice of taxing phantom income in Canada be stopped NOW, as has been done in the United States. Ref: www.reformamt.org and www.cfet.ca and all those already victimized be fairly compensated.
See you at the next federal election voting polls O’Grady
Victor Drummond ©
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