HOW TO SUCK AND BLOW..

HOW TO SUCK AND BLOW CONCURRENTLY
A physically impossible feat easily accomplished by the Canada Revenue Agency.
Because the CRA is not bound by logic, decency, or man-made laws,and/or natural laws of physics.

A commentary by Victor Drummond ©
February 2010

Here is how the Canada Revenue Agency works their magic.

First they create a tax rationale that obliges one specific item to have two physical forms completely independent of each other. For example a share in an employer’s corporation can be both a taxable benefit and a Capital investment at the same time. Although there is only one physical item the two deemed forms are treated completely independent of each other.

Taxes are then levied on any theoretical gain the holder might have received if he, or she, disposed of their holdings while in the deemed taxable benefit physical form and these taxes are then said to be immune to any loss suffered by the holder due to their holdings not producing the imaginary gain already taxed on these holdings even when in fact they actually produced a loss.

A clear case of sucking the financial life out of a taxpayers pocket while simultaneously blowing off any appeal the victim may submit for fair tax treatment.

About the only human that considers this outrageous tax policy to be justified is Canada’s Minister of Finance the Hon. James M. Flaherty CP, MP. Not only does Mr. Flaherty consider this tax policy to be justified he even goes so far as to say it is actually “fair” because after the tax victim has been taxed, on money never seen, he or she is then treated the same as all other Canadian investors/speculators.

That is the equivalent of saying a citizen mugged and robbed is being treated fairly because they now receive the same police protection as all other Canadian citizens.

This legalized robbery rationale is based upon is a specific sequence of events between a corporate employer and their employees who happen to participate in an Employee Shares Purchase Plan (ESPP) or an Employee Shares Option (ESO) agreement.

The CRA claims that in spite of the fact the employer’s equities are “purchased” by an employee because they are acquired through an employer incentive program they somehow become a taxable award or gift. This takes a bit of logic stretching because if you pay for something it is neither an award nor a gift.

To illustrate just how idiotic this rationale is consider an identical situation using an item every household shopper is familiar with, i.e. iceberg lettuce will be our equity.

Following a truth in fiction.

Mr William Smith is an employee of the Evergreen Farms Produce Corporation (EFPC). He holds the position of the EFPC warehouse manager in Trenton Ontario and he has full operating authority to order farm produce from his employer corporation or any other farm produce marketer that he chooses. For purpose of this illustration he receives all profit and loss transactions as personal income.

Williams’s boss, Walter Windbag is located in the Canadian Headquarters of EFPC in Toronto Ontario and he periodically sends William contract offers to supply iceberg lettuce in fixed quantities of 1000 heads at six month intervals over the future 24 months at a premium cost compared to the Wholesale Fair Market Value, (WFMV).

William signs on to this Iceberg Lettuce Purchase Plan (ILPP) because he predicts he will want at least that many units and possibly more.

William also receives flyers from other wholesale vegetable market producers and decides he will back up his ILPP contract by placing an identical order with an outside supplier. William signs a second iceberg lettuce contract with the Farm Produce Broker (FPB) for the same delivery schedule at the same premium to the original WFMV as his EFPC/ILPP contract.

William pays both suppliers the full cost of these ILPP contracts at the agreed WFMV.

Six months later two tractor trailer trucks arrive at Williams EFPC warehouse each delivering 1000 heads of iceberg lettuce. By good fortune the WFMV, by that date, has skyrocketed and is now ten times the cost William paid for his ILPP lettuce heads.

Although William hasn’t sold one head of lettuce, to anyone, his employer reports to the CRA that William has received “Earned Income” ten times higher than the price he was charged by his employer EFPC and William is now deemed to have received an “earned income” inflated by a nonexistent “taxable benefit”.

By comparison the 1000 heads of iceberg lettuce William received – on the same date – from
his FPB supplier does not generate a tax action of any kind, at that time, even though the monetary events are identical.

Unfortunately the supply of iceberg lettuce soon exceeded the demand and the WFMV crashed. William took a huge loss on both his ILPP contracts, i.e. with his employer and his FPB outside supplier.

The CRA refused to allow William to offset the taxes levied on his nonexistent “earned income”
with the real losses he suffered which the CRA deems is a “capital loss”. They insist the loss is not related to the taxes levied on those same heads of lettuce at the time of delivery, i.e. “exercise date”.

This analogy should make it clear to everyone that basing a tax, of any kind, levied on a purely imaginary gain at the moment of exercise is totally outrageous, unjustified and grossly unfair.

There need be no distinction made between a person purchasing their employer’s corporation shares by way of an Employee Share Purchase Plan (ESPP), or an Employee Share Option (ESO) agreement and the same employee buying those same shares from their broker. A purchase is a purchase.

A purchase is not a gift or an award regardless of any premium the employee may receive at the time of purchase.

If an employee happens to pay a bit less, than the Fair Market Value for the employer corporation shares, at the time of purchase then it merely improves the prospect the investor employee will receive a profit at the time of sale. This gives the CRA a better prospect of the employee having a gain to be taxed and the tax would be justified and fair.

It is time to put an end to the CRA violating the laws of reason and the laws of physics and put them on the same limitations as the rest of us.

No more concurrent sucking the financial life out of honest, hard-working Canadians while blowing off their appeals for justice.

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

Victor Drummond ©