SHOWDOWN ON PARLIAMENT ..

SHOWDOWN ON PARLIAMENT HILL

A Commentary on the conflicting views on taxing fictitious
(phantom) income between the Minister of Finance (MOF) and
the House of Commons Standing Committee (HOC) on Finance, (FINA).

by Victor Drummond ©
October 2009

On June 2nd 2009 members of the House of Commons (HOC) standing committee on Finance (FINA) convened meeting No. 33 to consider a motion by M. P. Thomas Mulcair to amend Canada’s defective taxable benefit legislation as requested by the group of Canadians known as: “Canadians for Fair and Equitable Taxation” (CFET).

After hearing the CFET members appeal for implementation of the governments “Fair Taxation” plan for all Canadians, and the grossly unfair exclusion of thousands of Canadians taxed, on money never seen, from the Gary Lunn Tax Remission Order (TRO) the FINA members passed the motion, introduced by member Thomas Mulcair, by a vote of 7 to 0 in support the CFET request.

The 7 to 0 vote in favour of the CFET appeal for “fair” taxation is very strong evidence FINA members personally believe taxing of fictitious income is neither justified nor fair -- especially in view of the Gary Lunn C.P. M.P. TRO revoking all such taxes levied on 37 victims in his riding and also the U.S. A. government having amended their defective Alternative Minimum Tax (AMT) legislation thereby putting an end to taxing their citizens on phantom income. Ref: www.reformamt.org

When approving the Thomas Mulcair motion FINA members issued a request on the Department of Finance for information that would provide them with the financial aspects of revoking taxes already levied on phantom income and putting an end to the policy altogether.

Information FINA requested clearly related only to Canadian taxpayers who had been levied taxes on shares acquired via an Employee Share Purchase Plan (ESPP) and/or an Employee Share Option agreement and losses generated by those very same equities and allowing the losses to be applied to offset taxes levied on any fictitious gain before the shares had actually been sold.

FINA set a target date of August 31, 2009 for the Department of Finance to respond to in order to assure the Finance Department would not stall their reply to FINA’s request indefinitely.

A reply from the Minister of Finance, The Honourable Jim Flaherty, was received on behalf of FINA, by the Honourable Jean-Francois Page, HOC Committee Directorate, Sixth Floor, 131 Queen Street, Ottawa ON, K1A 0A6 on, or before, the date requested by FINA.

And what information requested by FINA was contained in the letter?

Did the letter provide any financial data relative to the number of taxpayers who had been levied taxes on phantom income? Answer: No.

Did the letter state how much money might be deducted from the government accounts receivable if the outstanding taxes currently on deferral via form T1212 were revoked? Answer : No.

Did the letter indicate how many Canadians had taxable benefit entries reported by their employers on the T4’s issued, in any given year, from the Hi-Tech stock market crash beginning in the year 2000?
Answer: No.

Did the letter report the number of Canadians who had appealed for a tax re-assessment in an effort to have taxes levied on money never seen cancelled?
Answer: No.

Well then what information did the letter from the Minister of Finance provide to FINA for their consideration?

The letter’s opening paragraph merely states why this letter was written.

Paragraph 2, side steps addressing the specific information requested and diverges into a long diatribe on the tax treatment of employee stock options – etc. etc. and how employees who have been levied horrendous taxes on phantom income may obtain tax relief via applying for tax deferral via form T1212.
No one asked for this lesson in phantom tax history so why fill three pages with this well known information?

Then near the bottom of page three the letter informs the reader that many investors lost money when the downturn in the technology sector struck in the middle of the year 2000.

“REALLY” So what? That is general information that anyone following the economy already knows.

Page three provides a review of how “Capital Gains” and “Capital Losses” are treated. Information that is provided in every T1 General Tax Guide. Information that was not requested in the first place.

The letter then goes on to regurgitate the way that taxes levied on a “deemed” ESPP/ESO taxable benefit are immune to any real losses generated by those same equities and attempts to equate a taxpayer financially devastated by taxes levied on the fictitious gain at time of taking possession of their ESPP/ESO shares – and who failed to dispose (sell) those shares at the time of delivery -- are then treated the same as all other stock market investors/speculators.

In the bottom paragraph on page three, the letter (accidently?) confuses allowing “Capital Losses” to be applied against all other forms of income – which is not the proposed tax treatment – and fails to address the real proposal to allow losses generated by the equities already taxed on fictitious gains to offset each other.

In the same paragraph is the confusing comment: “As a result, individual investors would be able to receive tax relief for their capital losses even though the overall value of their portfolio is increasing.”

Since when does the value of an investors “portfolio” have any bearing upon the tax treatment of the equities the investor actually traded?

Equities in an investor “portfolio” are holdings for which the gain or loss to be generated has not yet been established and therefore have no influence on the tax treatment of the loss or gain actually realized by the investors buy and sell activities.

Page four has a pitch for the Conservative “Canada’s Economic Action Plan” declaring “we are taking action to support Canadians affected by the global recession, to create jobs for the future, and to equip our country for success in the years ahead, We are making the investments that are needed to ensure our long-term quality of life.

signed by the Honourable James M. Flaherty with a copy to Ted Menzies, M.P.

While the same government is holding horrendous, unfair, unjustified taxes levied on fictitious “Earned Income” it is a hollow mockery to make a pitch for the Conservative “Economic Action Plan” that makes a show of concern for Canadians affected by the global recession while applying a tax policy that creates more financial distress than the economy.

There is no more effective and fair way to implement a Canadian Economic Recovery Plan than to abolish taxing honest, hard-working Canadians on a fictitious taxable benefit, based on an arbitrary moment in time and a volatile Fair Market Value.

The Ball is now back in FINA’s court.

How will they view this response to their request for impact information which was never provided?

Who does the FINA Committee really report to?
Their title suggests they report to the House of Commons.

Will they now introduce a bill to follow the U.S.A. government lead to amend our equivalent defective, unfair, unjust, outrageous taxable benefit legislation and fairly compensate those already victimized by it?

It will be very interesting to witness the show-down on Parliament Hill when FINA next reports to the HOC.

Will FINA fold as Canada’s PM’s have done in the face of opposition by senior bureaucrats in Canada’s Department of Finance?

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

Victor Drummond ©