APPEALS TO REASON – Part 6
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Parts – 2, 3,4,5 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes, in the year 2000, on money he never received, e.g. phantom income.
When asked did he know of any other people that had been taxed on money they hadn’t received he told me, yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had also fallen victim of Canada’s insidious taxable benefit legislation. (Not the victim’s real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
Mabel’s Letter to the CRA and members of Canada’s Government is presented in Part 3 of the APPEALS TO REASON series.
Part 4 begins with examples of the incorrect, and incomplete information given to ESPP participating employees of the JDS Optics Inc. Company as it evolved to become the JDSU Corporation in 1999.
Part 5 continues with the replies Mabel received from the office of the Hon Paul Martin Minister of Finance and the Minister of National Revenue et al.
Part 6: In the federal election of 2006 the Conservative Party was elected on the promise of fair and reduced taxation and their slogan “STAND UP FOR CANADA” Read below to see how this promise was perverted.
====================================
Shortly after Canada’s most corrupt government in history was defeated in the federal election of the year 2006, and a minority Conservative government took office, a well intended Member of Canada’s 39th Parliament – (perhaps actually believing those, if elected, promises to restore fair taxation in Canada) -- applied for a “Tax Remission Order” (TRO), to revoke phantom taxes levied on some 37 of his victimized constituents.
The Honourable Gary Lunn, Member of Parliament, for the riding of Saanich Gulf-Islands, British Columbia, applied for a TRO to revoke unfair taxation of 37 former employees of the, then defunct, SDL Optics/JDSU corporation plant in his riding.
Carol Skelton, Minister of National Revenue, was assigned the task of preparing the TRO document for approval and necessary signatures.
The Right Honourable, Stephen Harper, perhaps naively, signed the TRO request and passed it along to Her Excellency Micheal Jean, the Governor General for Canada, for her approval.
According to the November 14th, 2007 issue of the Canada Gazette, Vol. 141, No. 23.
“Certain Employees of SDL Optics, Inc. Remission Order” P.C. 2007-1635 October 25 2007: Her Excellency the Governor General in Council, considering that it is in the best interest, of all Canadian’s to do so, on the recommendation of the Minister of National Revenue, pursuant to subsection 23(2) (see footnote a) of the Financial Administration Act, hereby makes the annexed Certain Former Employees of SDL Optics Inc. Remission Order.
(skipping article 1: “Interpretation”)
2. Remission is granted to the taxpayers set out in column 1 of the schedule for the amount set out in column 2, in respect of the 1999 or 2000 taxation years as the case may be which represents:
(a) for those taxpayers set out in items 1 to 21 of the schedule, all or a portion of tax paid, or payable under Part 1 of the Income Tax Act in respect of an employment benefit; or
(b) for those taxpayers set out in items 22 to 42 of the schedule, all or a portion of interest paid, or payable under Part 1 of the Act, on tax paid or payable under that Part in respect of an employment benefit.
==================================
There are 34 people named in column 1, of the first issue of this TRO, with taxes in amounts ranging from $3.30 plus $2,641.04 for Sandra Woodward to $183,371.94 plus $179,260.64 for Christine Mollerud.
Presumably the separate dollar amounts, for the same victims, are based on taxable benefits reported as “Earned Income” for the two years, 1999 and 2000.
As it turned out there were three additional victimized SDL Optics employees who were not covered by the November 14, 2007 TRO so a second issue of the TRO was announced in the Canada Gazette of June 11 2008, Vol. 142, No. 12.
Issue 2 of the TRO brought the total number of victimized Canadian taxpayers, to be granted anything like the promised “Fair Taxation” to 37.
That left a huge majority of identically victimized honest, hard-working Canadians legally robbed via Canada’s defective income tax legislation, and application policy, to be treated likewise.
Until that happens the pre-election promise of fair taxation has not been kept and the outrageously unfair taxation of phantom income has only been compounded by discriminatory and selective favouritism.
This half-assed manoeuvre while attempting to deliver fair taxation actually makes the situation much worse. A job done by halves is never done right.
Of course some newspaper journalists recognized the boondoggle the government had committed and a few of them actually had the moxie, and support of their editors, to have their negative comments on the issue published in some widely read newspapers.
One of the first newspaper commentaries to appear was written by columnist Jamie Golombek, which
carried the title:- “What about the rest of us?”
Jamie’s article appeared in the January 13 2007 issue of the National Post Newspaper.
=======================
What about the rest of us?
By National Post January 13, 2007
Former employees of JDS Uniphase got a special Christmas present when MP Gary Lunn, Minister of Natural Resources, revealed his government would forgive all taxes and interest for a group of workers who were forced to pay taxes on stock-options gains -- profits they never actually realized.
"It took a change in government to get someone to listen, but the Prime Minister has come through and delivered tax relief on this issue," says Mr. Lunn, who is the MP for Saanich-Gulf Islands in B.C., where the now defunct JDS plant was located.
The issue, which affects many employees who exercise stock options only to see the price of the shares plummet afterward, can best be illustrated with an example.
Let's say Jay, an employee of Hi Tech Inc., was given the option to purchase 1,000 shares of Hi Tech at $2 per share through the company's stock option plan.
Two years later, Jay exercises his options with the share price at $402. Under Canadian tax law, Jay has received an employment benefit equal to the difference between what he paid and what the stock was worth, or $400,000.
After the tech crash, the shares of Hi Tech drop back down to $2, and Jay sells his shares, realizing a capital loss of $400,000 ($2,000 minus $402,000). The tax problem stems from the fact that this loss is considered to be a capital loss and as such, can only be offset against other capital gains, not against the employment benefit of $400,000 reported on his T4 slip.
It is this mismatch of employment income with a capital loss that has created a harsh economic reality for employees, such as those at the Saanich JDS plant, who face massive tax bills on money they never received.
The former JDS employees' pleas for tax relief fell on deaf ears and some of the affected employees were forced to take out second mortgages and lines of credit to be able to meet the demands of the Canada Revenue Agency's collections department.
From a policy perspective, the CRA has traditionally been unsympathetic, arguing that the tax system was fair and "reflects the result that, at the point of acquisition, those employees who hold their shares have chosen to accept a market risk as an investor in the expectation of a return on that investment, including the future appreciation in the value of those shares."
Thus, they are subject to the same general income tax rules respecting capital gains and losses on the underlying shares as other investors, the CRA notes.
It took political action to make a difference in the JDS case, but what about other affected employees in similar situations? Will the CRA be granting tax relief to all?
"It's only for those specific employees" says Colette Gentes-Hawn, a spokeswoman for Canada Revenue Agency.
This is clearly unfair and the government should amend the Income Tax Act to grant relief to all affected taxpayers.
===================================
The above article tells it the way it really is. The Conservative government has fallen far short of delivering the “fair taxation” promised when they were campaigning to be elected in 2006. Their election slogan was: “STAND UP FOR CANADA”. They won the election on this slogan, and the promise to restore “fair” taxation, so why don’t they now STAND UP FOR ALL CANADIANS and deliver on that promise?
There is much more to this on-going government rip-off so read the next: “APPEALS TO REASON – Part 7” when it is posted.
Victor Drummond ©
Wednesday, April 22, 2009
Sunday, April 19, 2009
APPEALS TO REASON ..
APPEALS TO REASON – Part 5
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Parts – 2, 3,4 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes, in the year 2000, on money he never received, e.g. phantom income.
When asked did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had also fallen victim of Canada’s insidious taxable benefit legislation. (Not the victims real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
Mabel’s Letter to the CRA and members of Canada’s Government is presented in Part 3 of the APPEALS TO REASON series.
Part 4 begins with examples of the incorrect, and incomplete information given to ESPP participating employees of the JDS Optics Inc. Company as it evolved to become the JDSU Corporation in 1999.
Part 5 continues with the replies Mabel received from the office of the Hon Paul Martin Minister of Finance and the Minister of National Revenue et al.
Mabel D. Lamb’s letter was sent in April 2001 the reply, below, arrived in late September 2004.
=====================================
Canada Customs Agence des douanes
and Revenue Agency et du revenue du Canada
Assistant Commissioner Sous-commissonaire
Mrs. Mabel D. Lamb
Street & No.
Ottawa Ont.
Postal Code
Dear Mrs. Lamb
The Honourable National minister of Revenue has asked me to reply to your letter addressed to the Right Honourable Paul Martin, Prime Minister of Canada, concerning you year 2000 income tax and benefit return and employee stock purchase plans (ESPPs)
The office of the Prime Minister forwarded a copy of you letter to Minister of National Revenue in August 2004.
I note your comments concerning the tax treatment of employees who acquire shares under an ESPP: however the value of any benefit that an individual receives by virtue of his or her employment must be included in the individuals income in accordance with the provisions of the Income Tax Act.
The assessment of your 2000 return which included a benefit of $181,898.79 calculated in accordance with paragraph 7(1), (a), of the Act, was confirmed in a letter of July 2003 from the Chief of Appeals Officer.
The Canada Revenue Agency (CRA) is responsible for administering the tax system and applying the current legislation. The Department of Finance is responsible for developing Federal Tax Policy and Legislation. Any proposal to change tax policy or legislation would have to be considered by the Department of Finance, proposed by the Minister of Finance and approved by Parliament.
I note that Mr. Martin’s Office forwarded a copy of your letter to the Honourable Ralph E. Goodale, Minister of Finance so that he may be made aware of your concerns.
I assure you it is not the CRA’s intention to cause hardship to those involved in an ESPP: however, the CRA has a statutory obligation to collect these outstanding balances. I understand you have concluded a mutually acceptable payment arrangement with officials at the Ottawa Tax Services Office.
I trust the above information assists you in understanding the CRA’s position on this matter.
Yours sincerely
Signed
B.J.Slater
Assistant Commissioner
Assessment and Client Services Branch
==========================================
If it is not the CRA’s intention to cause "hardship” to those involved in an ESPP: what should an employee of the CRA do when they are informed by someone that the taxes levied on phantom income is creating hardship for the taxpayer?
Furthermore is it not a hardship on every taxpayer to be levied taxes that can only be paid by sacrificing previously existing personal property, of some kind, because there is no supply of income money from which to pay the tax levied? Of course it is.
In the sentence: you have concluded a mutually acceptable payment arrangement with officials at the Ottawa Tax Services Office.
What kind of mutually acceptable payment arrangement is it when Mabel and Arthur have to pay interest on money borrowed to pay the tax on money they never saw?
It certainly wasn’t an acceptable solution for the victims, Mabel and Arthur.
Doesn’t the unfairness and callous disregard for human distress mean anything to anyone in the Canadian government any more?
In the above letter, the Assistant Commissioner, CRA, explains the procedure for changing the tax laws of Canada. It states the procedure as follows:
The Department of Finance is responsible for developing Federal Tax Policy and Legislation. Any proposal to change tax policy or legislation would have to be considered by the Department of Finance, proposed by the Minister of Finance and approved by Parliament.
And the letter goes on to say:
I note that Mr. Martin’s Office forwarded a copy of your letter to the Honourable Ralph E. Goodale, Minister of Finance so that he may be made aware of your concerns.
I would like to review the action the Honourable Ralph E. Goodale took, in response to Mabel’s appeal, to make the phantom income tax situation fair and “Honourable”. There is, however, no letter of reply provided.
Suffice it to say, from the fact that no change has yet been introduced to correct the defective taxable benefit legislation, that the Honourable Ralph E. Goodale did absolutely nothing about it.
In the meantime the following correspondence arrived from the office of the Right Honourable Paul Martin, Prime Minister of Canada:
=======================================
Office of the Prime Minister Cabinet du Premier ministre
July xx 2004
Mrs. Mabel D. Lamb
Street and No.
Ottawa Ontario
Postal Code
Dear Mrs. Lamb
On behalf of the Right Honourable Paul Martin, I would like to thank you for your recent correspondence in which you raised an issue that falls within the portfolio of the Honourable Ralph Goodale, Minister of Finance.
Please be assured that the statements you made have been carefully reviewed. I have taken the liberty of forwarding your correspondence to Minister Goodale so that, he too, may be made aware of your comments. I am certain he will want to give your views every consideration.
Yours Sincerely
signed
L. A. Lavell
Executive Correspondence Officer.
========================================
The above letter says that the Honourable Ralph Goodale has been forwarded a second copy of Mabel’s letter. So let’s examine the response Mabel received from the office of the Honourable Minister of Finance. Wait a moment the next letter is again from the Office of the Right Honourable
Paul Martin, Prime Minister of Canada. We should see some real action this time.
========================================
Office of the Prime Minister Cabinet du Premier ministre
August xx 2004
Mrs. Mabel D. Lamb
Street and No.
Ottawa Ontario
Postal Code
Dear Mrs. Lamb
On behalf of the Right Honourable Paul Martin, I would like to thank you for your correspondence of June xx regarding Employee Stock Option Purchase Plans (ESPP). I regret the delay in replying.
Be assured that your comments have been given careful consideration. As the matter you have raised is of particular interest to the Honourable Minister of National Revenue and the Honourable Minister of Finance, I have taken the liberty of forwarding copies of your letter to them.
I am certain that the ministers will appreciate being made aware of your views.
Yours sincerely
signed
B. Funes
Executive Correspondence Officer
=======================================
The July 2004, and the August 2004, letters from the “Executive Correspondence Officers” (ECO) of the Right Honourable Paul Martin, Prime Ministers Office, were signed by two different ECO’s.
I received no further copies of letters of reply to Mabel’s appeal for fair taxation so I feel safe in saying the Honourable Ministers of Finance, and National Revenue did not reply.
As two different ECO’s stated they both sent copies of Mabel’s letter to those same Ministers attention it should also be safe to believe they did receive Mabel’s letter but were much too busy to acknowledge it and much too indifferent to the abuse and mental anguish caused by this unfair and unjust taxation to care.
Obviously no one in Canada’s Government in the year 2004 had any intention of correcting the defective taxable benefit legislation. No one in power cared whether or not Mabel and Arthur lost their home and/or life’s savings so long as the extortion money was paid.
The defective Canadian government and flawed taxable benefit legislation went on wreaking havoc on innocent, hard-working Canadian taxpayers until the federal election in the year 2006.
The Conservative Party, pre-election platform included a plank proclaiming Canadians would be given fair and reduced taxation if the Conservatives were elected.
That may have been the promise that enough Canadians believed because the Conservative Party, under the leadership of the Honourable Stephen Harper, won the election. Although with only enough seats to form a minority government.
Shortly after taking office the Conservative party almost made good on their promise to reduce taxes and provide fair taxation for honest, hard-working Canadians victimized by taxes levied on phantom income.
This New Government’s initial move in this direction was a half-assed deal to revoke taxes on phantom income for a favoured few victims in one riding held by a Conservative Member of Parliament.
For details of this deal and on-going screw-ups in the Conservative government’s “fair tax” initiative read the next posting APPEALS TO REASON – Part 6
Victor Drummond ©
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Parts – 2, 3,4 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes, in the year 2000, on money he never received, e.g. phantom income.
When asked did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had also fallen victim of Canada’s insidious taxable benefit legislation. (Not the victims real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
Mabel’s Letter to the CRA and members of Canada’s Government is presented in Part 3 of the APPEALS TO REASON series.
Part 4 begins with examples of the incorrect, and incomplete information given to ESPP participating employees of the JDS Optics Inc. Company as it evolved to become the JDSU Corporation in 1999.
Part 5 continues with the replies Mabel received from the office of the Hon Paul Martin Minister of Finance and the Minister of National Revenue et al.
Mabel D. Lamb’s letter was sent in April 2001 the reply, below, arrived in late September 2004.
=====================================
Canada Customs Agence des douanes
and Revenue Agency et du revenue du Canada
Assistant Commissioner Sous-commissonaire
Mrs. Mabel D. Lamb
Street & No.
Ottawa Ont.
Postal Code
Dear Mrs. Lamb
The Honourable National minister of Revenue has asked me to reply to your letter addressed to the Right Honourable Paul Martin, Prime Minister of Canada, concerning you year 2000 income tax and benefit return and employee stock purchase plans (ESPPs)
The office of the Prime Minister forwarded a copy of you letter to Minister of National Revenue in August 2004.
I note your comments concerning the tax treatment of employees who acquire shares under an ESPP: however the value of any benefit that an individual receives by virtue of his or her employment must be included in the individuals income in accordance with the provisions of the Income Tax Act.
The assessment of your 2000 return which included a benefit of $181,898.79 calculated in accordance with paragraph 7(1), (a), of the Act, was confirmed in a letter of July 2003 from the Chief of Appeals Officer.
The Canada Revenue Agency (CRA) is responsible for administering the tax system and applying the current legislation. The Department of Finance is responsible for developing Federal Tax Policy and Legislation. Any proposal to change tax policy or legislation would have to be considered by the Department of Finance, proposed by the Minister of Finance and approved by Parliament.
I note that Mr. Martin’s Office forwarded a copy of your letter to the Honourable Ralph E. Goodale, Minister of Finance so that he may be made aware of your concerns.
I assure you it is not the CRA’s intention to cause hardship to those involved in an ESPP: however, the CRA has a statutory obligation to collect these outstanding balances. I understand you have concluded a mutually acceptable payment arrangement with officials at the Ottawa Tax Services Office.
I trust the above information assists you in understanding the CRA’s position on this matter.
Yours sincerely
Signed
B.J.Slater
Assistant Commissioner
Assessment and Client Services Branch
==========================================
If it is not the CRA’s intention to cause "hardship” to those involved in an ESPP: what should an employee of the CRA do when they are informed by someone that the taxes levied on phantom income is creating hardship for the taxpayer?
Furthermore is it not a hardship on every taxpayer to be levied taxes that can only be paid by sacrificing previously existing personal property, of some kind, because there is no supply of income money from which to pay the tax levied? Of course it is.
In the sentence: you have concluded a mutually acceptable payment arrangement with officials at the Ottawa Tax Services Office.
What kind of mutually acceptable payment arrangement is it when Mabel and Arthur have to pay interest on money borrowed to pay the tax on money they never saw?
It certainly wasn’t an acceptable solution for the victims, Mabel and Arthur.
Doesn’t the unfairness and callous disregard for human distress mean anything to anyone in the Canadian government any more?
In the above letter, the Assistant Commissioner, CRA, explains the procedure for changing the tax laws of Canada. It states the procedure as follows:
The Department of Finance is responsible for developing Federal Tax Policy and Legislation. Any proposal to change tax policy or legislation would have to be considered by the Department of Finance, proposed by the Minister of Finance and approved by Parliament.
And the letter goes on to say:
I note that Mr. Martin’s Office forwarded a copy of your letter to the Honourable Ralph E. Goodale, Minister of Finance so that he may be made aware of your concerns.
I would like to review the action the Honourable Ralph E. Goodale took, in response to Mabel’s appeal, to make the phantom income tax situation fair and “Honourable”. There is, however, no letter of reply provided.
Suffice it to say, from the fact that no change has yet been introduced to correct the defective taxable benefit legislation, that the Honourable Ralph E. Goodale did absolutely nothing about it.
In the meantime the following correspondence arrived from the office of the Right Honourable Paul Martin, Prime Minister of Canada:
=======================================
Office of the Prime Minister Cabinet du Premier ministre
July xx 2004
Mrs. Mabel D. Lamb
Street and No.
Ottawa Ontario
Postal Code
Dear Mrs. Lamb
On behalf of the Right Honourable Paul Martin, I would like to thank you for your recent correspondence in which you raised an issue that falls within the portfolio of the Honourable Ralph Goodale, Minister of Finance.
Please be assured that the statements you made have been carefully reviewed. I have taken the liberty of forwarding your correspondence to Minister Goodale so that, he too, may be made aware of your comments. I am certain he will want to give your views every consideration.
Yours Sincerely
signed
L. A. Lavell
Executive Correspondence Officer.
========================================
The above letter says that the Honourable Ralph Goodale has been forwarded a second copy of Mabel’s letter. So let’s examine the response Mabel received from the office of the Honourable Minister of Finance. Wait a moment the next letter is again from the Office of the Right Honourable
Paul Martin, Prime Minister of Canada. We should see some real action this time.
========================================
Office of the Prime Minister Cabinet du Premier ministre
August xx 2004
Mrs. Mabel D. Lamb
Street and No.
Ottawa Ontario
Postal Code
Dear Mrs. Lamb
On behalf of the Right Honourable Paul Martin, I would like to thank you for your correspondence of June xx regarding Employee Stock Option Purchase Plans (ESPP). I regret the delay in replying.
Be assured that your comments have been given careful consideration. As the matter you have raised is of particular interest to the Honourable Minister of National Revenue and the Honourable Minister of Finance, I have taken the liberty of forwarding copies of your letter to them.
I am certain that the ministers will appreciate being made aware of your views.
Yours sincerely
signed
B. Funes
Executive Correspondence Officer
=======================================
The July 2004, and the August 2004, letters from the “Executive Correspondence Officers” (ECO) of the Right Honourable Paul Martin, Prime Ministers Office, were signed by two different ECO’s.
I received no further copies of letters of reply to Mabel’s appeal for fair taxation so I feel safe in saying the Honourable Ministers of Finance, and National Revenue did not reply.
As two different ECO’s stated they both sent copies of Mabel’s letter to those same Ministers attention it should also be safe to believe they did receive Mabel’s letter but were much too busy to acknowledge it and much too indifferent to the abuse and mental anguish caused by this unfair and unjust taxation to care.
Obviously no one in Canada’s Government in the year 2004 had any intention of correcting the defective taxable benefit legislation. No one in power cared whether or not Mabel and Arthur lost their home and/or life’s savings so long as the extortion money was paid.
The defective Canadian government and flawed taxable benefit legislation went on wreaking havoc on innocent, hard-working Canadian taxpayers until the federal election in the year 2006.
The Conservative Party, pre-election platform included a plank proclaiming Canadians would be given fair and reduced taxation if the Conservatives were elected.
That may have been the promise that enough Canadians believed because the Conservative Party, under the leadership of the Honourable Stephen Harper, won the election. Although with only enough seats to form a minority government.
Shortly after taking office the Conservative party almost made good on their promise to reduce taxes and provide fair taxation for honest, hard-working Canadians victimized by taxes levied on phantom income.
This New Government’s initial move in this direction was a half-assed deal to revoke taxes on phantom income for a favoured few victims in one riding held by a Conservative Member of Parliament.
For details of this deal and on-going screw-ups in the Conservative government’s “fair tax” initiative read the next posting APPEALS TO REASON – Part 6
Victor Drummond ©
Wednesday, April 15, 2009
APPEALS TO REASON ..
APPEALS TO REASON – Part 4
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Parts – 2 & 3 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes on money he never received, e.g. phantom income.
When asking did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had fallen victim of Canada’s insidious taxable benefit legislation. (Not the victim’s real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
Mabel’s Letter to the CRA and members of Canada’s Government is presented in Part 3 of the APPEALS TO REASON series.
Part 4 begins with examples of the incorrect, and incomplete information given to ESPP participating employees of the JDS Optics Inc. Company as it evolved to become the JDSU Corporation in 1999.
=====================================
For example here is an excerpt from a document issued to employees of the JDS Fitel Corporation in March of the year 1996,
JDS FITEL INC.
STOCK OPTION PLAN
PLAN DESCRIPTION
1. Purpose of the Plan
The purpose of the Stock Option Plan is to develop the interest and incentive of eligible employees and directors of JDS FITEL Inc. and its subsidiaries (the “Company”) in the Company’s growth and development by giving eligible employees and directors an opportunity to purchase common shares on a favourable basis, thereby advancing the interests of the Company, enhancing the value of the Common shares for the benefit of all shareholders and increasing the ability of the Company to attract and retain skilled and motivated individuals in the service of the Company.
(articles 2 through 14 are not listed here as they are not relevant to this report)
15. Administration Of The Plan
The Plan shall be administered by the committee. The Committee shall have the power to interpret and construe the terms and conditions of the Plan and the options. Any determination by the Committee shall be final and conclusive on all persons affected thereby unless otherwise determined by the Board of Directors. The day-to-day administration of the Plan may be delegated to such officers and employees of the Company or any subsidiary of the Company as the Committee shall determine.
(articles 16 through 22 are not listed as they are not relevant to this report.)
======================================
In 1999 the JDS Fitel Corporation completed their Initial Public Offering (IPO) and proceeded to merge with the Uniphase Corporation of San Jose California to form the JDS Uniphase Corporation with stock market ID JDSU.
Upon the merger the administration of JDSU ESPP/ESO plans were transferred from the foregoing internal JDS Fitel Corporation COMMITTEE to an independent U.S. Plan administration company named AST StockPlan, 250 Broadway, 14th Floor, New York, NY, USA (address at that time.)
Also around that time JDSU participating employees were provided the following document:
=======================================
An Introduction to AST StockPlan
(Skip to Page 7, What Happens If You Keep Your Shares.)
If you keep your shares, the current federal budget proposed will allow you to defer including the taxable portion of the stock option benefits in your income until you sell the shares.
You may realize a capital gain or loss on a subsequent sale. Generally the cost base for determining any future capital gain or loss will be the fair market value of the shares on the day they were acquired. For sales after February 27 2000, two thirds of any capital gain is generally included in income whereas two thirds of any capital loss is deductable only against taxable capital gains.
====================================
From the foregoing guideline, for ESPP/ESO participating employees, just what would you expect to happen if you held on to your shares after the day they were acquired?
Is there any mention of a difference between the “future capital gain or loss” and the inability to deduct a real future “capital loss” from the tax levied on the FMV capital gain as of the day they were acquired. No.
The term “taxable benefit” is never mentioned so how is a participating employee going to realized they will be taxed on phantom income against which there is no recovery?
To further complicate the situation the following document was also made available to JDSU participating employees:
======================================
QUESTIONS AND ANSWERS ON INCOME TAX CONSEQUENCES
FOR CANADIAN EMPLOYEES
(Skip to Item T4. on Page 2)
T4. How is my Income tax liability determined?
Your income tax liability will be determined based upon the fair market value of the shares at the time purchased and at the time disposed of.
Example 1:
Fair Market
Value of a Share
Start of Purchase Period $10.00
Purchase Date $12.00
Date of Disposition $15.00
You will pay $8.50 ($10.00 x 85%) for each share and will pay tax in the year of purchase on $3.50 which is the difference between the $8.50 paid and the $12.00 fair market value at the time of purchase. When you sell the share you will pay tax in the year of disposition on the difference between the $12.00 fair market value at the time of purchase and the $15.00 fair market value at the time of disposition, usually on a capital gains basis (i.e. ¾ of the amount is included in income). For capital gains purposes, the cost of all shares of the Company you own (whether or not purchased pursuant to the Plan) will be averaged.
Example 2:
Fair Market
Value of a Share
Start of Purchase Period $12.00
Purchase Date $10.00
Date of Disposition $8.00
You will pay $8.50 ($10.00 x 85%) for each share and will pay tax in the year of purchase on $1.50 which is the difference between the $8.50 paid and the $10.00 fair market value at the time of purchase. When you sell the share you will have a loss (usually on a capital loss basis) on the difference between the $10.00 fair market value at the time of purchase and the fair market value at the time of disposition.
A capital loss can be applied against capital gains realized in the year of disposition, carried back against capital gains realized in the previous 3 year or carried forward indefinitely against capital gains realized in a future year.
=====================================
From the above examples, and text, what would you expect to happen if you held your ESPP/ESO shares after the date of acquisition? Would you expect to be taxed out of your home and/or life’s savings on money that you never received? Not very likely.
No wonder Mabel D. was confused and misled into believing she should, and could, submit her actual gains and losses per her letter in APPEALS TO REASON Part 3.
The text in example 1 above also states the shares you acquired outside of the Plan would be lumped together with your shares acquired inside the plan and all would be calculated together to determine the tax liability.
That is not true. Shares an employee, or anyone else, acquires through a broker are a capital investment and not a taxable benefit. Therefore when it comes to “capital gains” the tax treatment is entirely different.
It is clear that employees who were enticed into participating in employer’s ESPP/ESO share/option plans back in the year 2000 were not properly informed of the booby-trap set for them and therefore most are innocent victims of an unjust, unfair abusive, financially destructive plan of legalized robbery.
So when Mabel’s Tax Return and letter arrived at the CRA and the office of the Hon Paul Martin, Minister of Finance and the office of Canada’s Minister of National Revenue, when and how, did they respond?
Read APPEALS TO REASON – Part 5 for the answers.
Victor Drummond ©
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Parts – 2 & 3 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes on money he never received, e.g. phantom income.
When asking did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had fallen victim of Canada’s insidious taxable benefit legislation. (Not the victim’s real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
Mabel’s Letter to the CRA and members of Canada’s Government is presented in Part 3 of the APPEALS TO REASON series.
Part 4 begins with examples of the incorrect, and incomplete information given to ESPP participating employees of the JDS Optics Inc. Company as it evolved to become the JDSU Corporation in 1999.
=====================================
For example here is an excerpt from a document issued to employees of the JDS Fitel Corporation in March of the year 1996,
JDS FITEL INC.
STOCK OPTION PLAN
PLAN DESCRIPTION
1. Purpose of the Plan
The purpose of the Stock Option Plan is to develop the interest and incentive of eligible employees and directors of JDS FITEL Inc. and its subsidiaries (the “Company”) in the Company’s growth and development by giving eligible employees and directors an opportunity to purchase common shares on a favourable basis, thereby advancing the interests of the Company, enhancing the value of the Common shares for the benefit of all shareholders and increasing the ability of the Company to attract and retain skilled and motivated individuals in the service of the Company.
(articles 2 through 14 are not listed here as they are not relevant to this report)
15. Administration Of The Plan
The Plan shall be administered by the committee. The Committee shall have the power to interpret and construe the terms and conditions of the Plan and the options. Any determination by the Committee shall be final and conclusive on all persons affected thereby unless otherwise determined by the Board of Directors. The day-to-day administration of the Plan may be delegated to such officers and employees of the Company or any subsidiary of the Company as the Committee shall determine.
(articles 16 through 22 are not listed as they are not relevant to this report.)
======================================
In 1999 the JDS Fitel Corporation completed their Initial Public Offering (IPO) and proceeded to merge with the Uniphase Corporation of San Jose California to form the JDS Uniphase Corporation with stock market ID JDSU.
Upon the merger the administration of JDSU ESPP/ESO plans were transferred from the foregoing internal JDS Fitel Corporation COMMITTEE to an independent U.S. Plan administration company named AST StockPlan, 250 Broadway, 14th Floor, New York, NY, USA (address at that time.)
Also around that time JDSU participating employees were provided the following document:
=======================================
An Introduction to AST StockPlan
(Skip to Page 7, What Happens If You Keep Your Shares.)
If you keep your shares, the current federal budget proposed will allow you to defer including the taxable portion of the stock option benefits in your income until you sell the shares.
You may realize a capital gain or loss on a subsequent sale. Generally the cost base for determining any future capital gain or loss will be the fair market value of the shares on the day they were acquired. For sales after February 27 2000, two thirds of any capital gain is generally included in income whereas two thirds of any capital loss is deductable only against taxable capital gains.
====================================
From the foregoing guideline, for ESPP/ESO participating employees, just what would you expect to happen if you held on to your shares after the day they were acquired?
Is there any mention of a difference between the “future capital gain or loss” and the inability to deduct a real future “capital loss” from the tax levied on the FMV capital gain as of the day they were acquired. No.
The term “taxable benefit” is never mentioned so how is a participating employee going to realized they will be taxed on phantom income against which there is no recovery?
To further complicate the situation the following document was also made available to JDSU participating employees:
======================================
QUESTIONS AND ANSWERS ON INCOME TAX CONSEQUENCES
FOR CANADIAN EMPLOYEES
(Skip to Item T4. on Page 2)
T4. How is my Income tax liability determined?
Your income tax liability will be determined based upon the fair market value of the shares at the time purchased and at the time disposed of.
Example 1:
Fair Market
Value of a Share
Start of Purchase Period $10.00
Purchase Date $12.00
Date of Disposition $15.00
You will pay $8.50 ($10.00 x 85%) for each share and will pay tax in the year of purchase on $3.50 which is the difference between the $8.50 paid and the $12.00 fair market value at the time of purchase. When you sell the share you will pay tax in the year of disposition on the difference between the $12.00 fair market value at the time of purchase and the $15.00 fair market value at the time of disposition, usually on a capital gains basis (i.e. ¾ of the amount is included in income). For capital gains purposes, the cost of all shares of the Company you own (whether or not purchased pursuant to the Plan) will be averaged.
Example 2:
Fair Market
Value of a Share
Start of Purchase Period $12.00
Purchase Date $10.00
Date of Disposition $8.00
You will pay $8.50 ($10.00 x 85%) for each share and will pay tax in the year of purchase on $1.50 which is the difference between the $8.50 paid and the $10.00 fair market value at the time of purchase. When you sell the share you will have a loss (usually on a capital loss basis) on the difference between the $10.00 fair market value at the time of purchase and the fair market value at the time of disposition.
A capital loss can be applied against capital gains realized in the year of disposition, carried back against capital gains realized in the previous 3 year or carried forward indefinitely against capital gains realized in a future year.
=====================================
From the above examples, and text, what would you expect to happen if you held your ESPP/ESO shares after the date of acquisition? Would you expect to be taxed out of your home and/or life’s savings on money that you never received? Not very likely.
No wonder Mabel D. was confused and misled into believing she should, and could, submit her actual gains and losses per her letter in APPEALS TO REASON Part 3.
The text in example 1 above also states the shares you acquired outside of the Plan would be lumped together with your shares acquired inside the plan and all would be calculated together to determine the tax liability.
That is not true. Shares an employee, or anyone else, acquires through a broker are a capital investment and not a taxable benefit. Therefore when it comes to “capital gains” the tax treatment is entirely different.
It is clear that employees who were enticed into participating in employer’s ESPP/ESO share/option plans back in the year 2000 were not properly informed of the booby-trap set for them and therefore most are innocent victims of an unjust, unfair abusive, financially destructive plan of legalized robbery.
So when Mabel’s Tax Return and letter arrived at the CRA and the office of the Hon Paul Martin, Minister of Finance and the office of Canada’s Minister of National Revenue, when and how, did they respond?
Read APPEALS TO REASON – Part 5 for the answers.
Victor Drummond ©
Sunday, April 12, 2009
APPEALS TO REASON..
APPEALS TO REASON – Part 3
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Part - 2 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes on money he never received, e.g. phantom income.
When asking did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had fallen victim of Canada’s insidious taxable benefit legislation. (Not the victims real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
(Read Part-2 of this “APPEALS TO REASON” series for previous details of this tax fiasco.)
Arthur was as good as his word.
A copy of the following correspondence arrived a short time later.
==================================
Ottawa xx April 2001
To: Canada Revenue Agency, Tax Appeals Officer
From: Mabel D. Lamb
SIN: ### ### ###
Subject: My year 2000 Tax Return
Dear Appeals Officer:
As an hourly rated employee of the JDSU Corporation in Ottawa my pay level started out at $12.00 plus per hour.
About mid 2000 I received a pay raise to $14.00 plus per hour. At this hourly rate I would have to work at least 40 hrs per week for the entire 52 weeks to receive as much as $28,000 in a full year.
I have completed my tax return in a way that makes sense although it doesn’t fully meet the terms of the Income Tax Return form.
After working diligently for my employer, for a decade, I thought the opportunity to participate in my employer’s Employee Shares Purchase Plans was a well deserved reward for my faithful service.
So on two occasions I received shares allotments, under an ESPP, and took possession of those shares on the date of “exercise”. This seemed at the time an excellent way to build up my retirement fund to help support myself and husband in our retirement years.
Now it appears if I follow the terms of the Income Tax Return form I will be obliged to pay Income Tax on money I never received and I do not have the financial resources to pay.
My year 2000 ESPP transactions have been as follows:
Jan xx 2000 I took delivery (exercised) and sold 148 shares of ESPP stock for which I had an Adjusted Cost Base (ACB) of $10.90 per share. I sold the shares for $300.20 each for a profit of (300.20 – 10.90) = $289.30 per share. The sale netted me a total gain of (289.30 x 148) = $42,816.55
As the Capital Gains inclusion rate for the year 2000 was 75% I reported a Capital Gains tax of (42,816.55 x 0.75) = $32,112.41 on my Tax Return.
On the same date that I exercised the above ESPP shares I exercised another 456 ESPP shares that I had vested at an ACB of $1.888 per share for a total cost of
(1.888 x 456) = $860.75
Hoping to avoid future problems, in reporting ESPP transactions, my husband consulted a tax specialist in your Canada Revenue Agency office at 333 Laurier Avenue, here in Ottawa, regarding the selling of my additional 456 ESPP shares.
My husband was told (that) if I sold these shares, at a profit, before the end of the year that I could report the gain as a “Capital Gain” on my year 2000 tax return.
I sold the 456 shares before the end of December 2000 at a price of $74.60 per share. My actual gain on this transaction was ((456 x 74.6) – 860.75) = $33,156.85
As the Capital Gains inclusion rate had been reduced to 50% I reported another $16,578.43 Capital Gains Tax in my Tax Return.
Jan xx + 4, 2000 I exercised 64 ESPP shares at an average ACB of $33.09 for a total cost of $2,117.54
If I sold those same 64 shares today the proceeds would not likely even cover the amount I paid for them.
On my year 2000 T4 slip my employer reported ESPP taxable benefits of $8,337.78 which was included in box 14, “earned” income.
(Note:- A CRA reply to this letter came back in Sep, 2003 indicating Mabel’s employer had reported a taxable income of more than $181,000 on her year 2000 T4.
This dollar amount appears in the next APPEALS TO REASON _ Part 4.
That would explain the statement in Arthurs’s letter, (APPEALS TO REASON – Part 2) regarding the CRA threat to seize and sell their home to collect the unpaid tax. It would also explain Mabel’s comment above where she states “we do not have the resources to pay.”)
I have already submitted the “Capital Gains” tax on those ESPP share transactions. This amounts to double taxation if I have to pay tax again on the ESPP taxable benefit reported by my employer.
I requested permission to use Form T1212 to defer payment of some of the taxes levied on my ESPP shares transactions. My request was essentially denied when my employer informed me I am not eligible to use this tax deferment option.
It might be to my advantage to donate the shares I have left to the government of Canada.
Please advise as to the action I should take. It is my belief the government of Canada is not intentionally taxing citizens unfairly. There is no better time to exercise good judgment than right now.
A copy of this letter has been sent to:- The Hon Paul Martin, Minister of Finance, and to my Member of Parliament, and to Canada’s Minister of National Revenue.
Your attention to this matter would be greatly appreciated.
signed
Mabel D. Lamb
(with street address)
(with Postal Code)
========================================
Note:- Some of the currency values in the original letter were given in U.S. dollars.
The U.S. dollar values have all been converted to Canadian currency at the year 2000 average conversion rate of 1.452
Also some alternative, but equivalent, wording has been used to make it more difficult for anyone to identify the original writers: who wish to remain anonymous for the present.
=============================================
The above letter should make it clear, to the reader, that this taxpayer had no idea of the way the government taxable benefit legislation actually operated.
Also judging by the advice she received from her employer’s ESPP administration personnel and the advice her husband received from the Canada Revenue Agency tax counselor, right there in Ottawa, it looks as though neither the plan administrator nor the CRA Tax counselor had a clear understanding of the taxable benefit legislation and application policy.
It is very obvious (that) in the year 2000 confusion reigned supreme in the area of taxing ESPP/ESO transactions and the advice provided by the CGA tax counselor was either totally wrong or at least not made clear to this taxpayer’s husband.
Many other taxpayers’ levied taxes on money they never received were just as surprised and just as shocked as Mabel Lamb, and for the same reason.
Background information provided in APPEALS TO REASON – Part 4 would help everyone to understand how this might come about.
The JDSU Corporation was the end result of mergers and takeovers beginning with the founding of the JDS Optics Company in 1981 by, former Bell-Northern Research Ltd and Northern Telecom, scientists Jozef Straus, Philip Garel-Jones, Gary Duck, and Bill Sinclair.
Almost from day-one there were inside contracts and agreements made to generate Company operating funds and establish profit sharing arrangements.
Initially JDS Optics’ was a Canadian-Controlled Private Corporation (CCPC) with specific tax legislation pertaining to CCPC organizations relative to internal profit sharing and shares profit and loss transactions none of which were classified as a “Taxable Benefit”.
Following a series of company take-over’s and mergers JDS Optics arranged an Initial Public Offering (IPO) and changed the organization name from JDS Optics to JDS Fitel, in June 1990.
JDS Fitel, having experienced a strong period of growth was looking for a strategic partner through which they could expand their access to fiberoptic markets technologies and applications.
In 1990 the Furukawa Electric Company of Tokyo Japan was one of Japan’s largest producers of fiberoptic cable and installation equipment. Also in 1990 Furukawa acquired a 50% equity position in JDS Fitel which they soon increased to over 75% resulting in JDS Fitel losing its CCPC classification.
Now, as a Corporation with majority foreign ownership, the Canadian income tax rules relating to employer to employee shares and shares-option purchase plans changed.
Then JDS Fitel employees who acquired shares via an ESPP/ESO plan were going to be taxed according to Canadian taxable benefits legislation which few people knew about and/or recognized the insidious aspects of this defective bit of legislation.
Later in 1999 JDS Fitel completed an Initial Public Offering (IPO) and then merged with the Uniphase Corporation of San Jose, California to form the JDS Uniphase (JDSU) Corporation.
Although profit sharing incentive plans had been coming and going, all the while the JDS Optics Inc. company was evolving to become the JDSU Corporation, few people in the organization(s) had a clue as to the how the ESPP/ESO tax rules were changed or recognized the tax booby-trap that was then coming into play.
To make this ridiculous situation clear, to all readers, a sample of the early ESPP documents and information supplied to participating employees will be presented in the Part 4 of this: “APPEALS TO REASON” series.
Victor Drummond ©
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 (preamble) & Part - 2 for more background information.
By Victor Drummond ©
April 2009
Synopsis of the events to the present
In November 2006 I discovered a member of my family had been levied horrendous taxes on money he never received, e.g. phantom income.
When asking did he know of any other people that had been taxed on money they hadn’t received he told me yes, quite a few. So I obtained the name of a co-worker, Mabel D. Lamb who had fallen victim of Canada’s insidious taxable benefit legislation. (Not the victims real name)
After contacting Mabel, via e-mail, I received an e-mail reply from Mabel’s husband, Arthur, who gave me the beginning of the events leading up to Mabel’s phantom tax and promised to send me copies of some of the correspondence that had taken place between Mabel and members of Canada’s federal government.
(Read Part-2 of this “APPEALS TO REASON” series for previous details of this tax fiasco.)
Arthur was as good as his word.
A copy of the following correspondence arrived a short time later.
==================================
Ottawa xx April 2001
To: Canada Revenue Agency, Tax Appeals Officer
From: Mabel D. Lamb
SIN: ### ### ###
Subject: My year 2000 Tax Return
Dear Appeals Officer:
As an hourly rated employee of the JDSU Corporation in Ottawa my pay level started out at $12.00 plus per hour.
About mid 2000 I received a pay raise to $14.00 plus per hour. At this hourly rate I would have to work at least 40 hrs per week for the entire 52 weeks to receive as much as $28,000 in a full year.
I have completed my tax return in a way that makes sense although it doesn’t fully meet the terms of the Income Tax Return form.
After working diligently for my employer, for a decade, I thought the opportunity to participate in my employer’s Employee Shares Purchase Plans was a well deserved reward for my faithful service.
So on two occasions I received shares allotments, under an ESPP, and took possession of those shares on the date of “exercise”. This seemed at the time an excellent way to build up my retirement fund to help support myself and husband in our retirement years.
Now it appears if I follow the terms of the Income Tax Return form I will be obliged to pay Income Tax on money I never received and I do not have the financial resources to pay.
My year 2000 ESPP transactions have been as follows:
Jan xx 2000 I took delivery (exercised) and sold 148 shares of ESPP stock for which I had an Adjusted Cost Base (ACB) of $10.90 per share. I sold the shares for $300.20 each for a profit of (300.20 – 10.90) = $289.30 per share. The sale netted me a total gain of (289.30 x 148) = $42,816.55
As the Capital Gains inclusion rate for the year 2000 was 75% I reported a Capital Gains tax of (42,816.55 x 0.75) = $32,112.41 on my Tax Return.
On the same date that I exercised the above ESPP shares I exercised another 456 ESPP shares that I had vested at an ACB of $1.888 per share for a total cost of
(1.888 x 456) = $860.75
Hoping to avoid future problems, in reporting ESPP transactions, my husband consulted a tax specialist in your Canada Revenue Agency office at 333 Laurier Avenue, here in Ottawa, regarding the selling of my additional 456 ESPP shares.
My husband was told (that) if I sold these shares, at a profit, before the end of the year that I could report the gain as a “Capital Gain” on my year 2000 tax return.
I sold the 456 shares before the end of December 2000 at a price of $74.60 per share. My actual gain on this transaction was ((456 x 74.6) – 860.75) = $33,156.85
As the Capital Gains inclusion rate had been reduced to 50% I reported another $16,578.43 Capital Gains Tax in my Tax Return.
Jan xx + 4, 2000 I exercised 64 ESPP shares at an average ACB of $33.09 for a total cost of $2,117.54
If I sold those same 64 shares today the proceeds would not likely even cover the amount I paid for them.
On my year 2000 T4 slip my employer reported ESPP taxable benefits of $8,337.78 which was included in box 14, “earned” income.
(Note:- A CRA reply to this letter came back in Sep, 2003 indicating Mabel’s employer had reported a taxable income of more than $181,000 on her year 2000 T4.
This dollar amount appears in the next APPEALS TO REASON _ Part 4.
That would explain the statement in Arthurs’s letter, (APPEALS TO REASON – Part 2) regarding the CRA threat to seize and sell their home to collect the unpaid tax. It would also explain Mabel’s comment above where she states “we do not have the resources to pay.”)
I have already submitted the “Capital Gains” tax on those ESPP share transactions. This amounts to double taxation if I have to pay tax again on the ESPP taxable benefit reported by my employer.
I requested permission to use Form T1212 to defer payment of some of the taxes levied on my ESPP shares transactions. My request was essentially denied when my employer informed me I am not eligible to use this tax deferment option.
It might be to my advantage to donate the shares I have left to the government of Canada.
Please advise as to the action I should take. It is my belief the government of Canada is not intentionally taxing citizens unfairly. There is no better time to exercise good judgment than right now.
A copy of this letter has been sent to:- The Hon Paul Martin, Minister of Finance, and to my Member of Parliament, and to Canada’s Minister of National Revenue.
Your attention to this matter would be greatly appreciated.
signed
Mabel D. Lamb
(with street address)
(with Postal Code)
========================================
Note:- Some of the currency values in the original letter were given in U.S. dollars.
The U.S. dollar values have all been converted to Canadian currency at the year 2000 average conversion rate of 1.452
Also some alternative, but equivalent, wording has been used to make it more difficult for anyone to identify the original writers: who wish to remain anonymous for the present.
=============================================
The above letter should make it clear, to the reader, that this taxpayer had no idea of the way the government taxable benefit legislation actually operated.
Also judging by the advice she received from her employer’s ESPP administration personnel and the advice her husband received from the Canada Revenue Agency tax counselor, right there in Ottawa, it looks as though neither the plan administrator nor the CRA Tax counselor had a clear understanding of the taxable benefit legislation and application policy.
It is very obvious (that) in the year 2000 confusion reigned supreme in the area of taxing ESPP/ESO transactions and the advice provided by the CGA tax counselor was either totally wrong or at least not made clear to this taxpayer’s husband.
Many other taxpayers’ levied taxes on money they never received were just as surprised and just as shocked as Mabel Lamb, and for the same reason.
Background information provided in APPEALS TO REASON – Part 4 would help everyone to understand how this might come about.
The JDSU Corporation was the end result of mergers and takeovers beginning with the founding of the JDS Optics Company in 1981 by, former Bell-Northern Research Ltd and Northern Telecom, scientists Jozef Straus, Philip Garel-Jones, Gary Duck, and Bill Sinclair.
Almost from day-one there were inside contracts and agreements made to generate Company operating funds and establish profit sharing arrangements.
Initially JDS Optics’ was a Canadian-Controlled Private Corporation (CCPC) with specific tax legislation pertaining to CCPC organizations relative to internal profit sharing and shares profit and loss transactions none of which were classified as a “Taxable Benefit”.
Following a series of company take-over’s and mergers JDS Optics arranged an Initial Public Offering (IPO) and changed the organization name from JDS Optics to JDS Fitel, in June 1990.
JDS Fitel, having experienced a strong period of growth was looking for a strategic partner through which they could expand their access to fiberoptic markets technologies and applications.
In 1990 the Furukawa Electric Company of Tokyo Japan was one of Japan’s largest producers of fiberoptic cable and installation equipment. Also in 1990 Furukawa acquired a 50% equity position in JDS Fitel which they soon increased to over 75% resulting in JDS Fitel losing its CCPC classification.
Now, as a Corporation with majority foreign ownership, the Canadian income tax rules relating to employer to employee shares and shares-option purchase plans changed.
Then JDS Fitel employees who acquired shares via an ESPP/ESO plan were going to be taxed according to Canadian taxable benefits legislation which few people knew about and/or recognized the insidious aspects of this defective bit of legislation.
Later in 1999 JDS Fitel completed an Initial Public Offering (IPO) and then merged with the Uniphase Corporation of San Jose, California to form the JDS Uniphase (JDSU) Corporation.
Although profit sharing incentive plans had been coming and going, all the while the JDS Optics Inc. company was evolving to become the JDSU Corporation, few people in the organization(s) had a clue as to the how the ESPP/ESO tax rules were changed or recognized the tax booby-trap that was then coming into play.
To make this ridiculous situation clear, to all readers, a sample of the early ESPP documents and information supplied to participating employees will be presented in the Part 4 of this: “APPEALS TO REASON” series.
Victor Drummond ©
Wednesday, April 8, 2009
APPEALS TO REASON
APPEALS TO REASON – Part 2
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 preamble for more background information.
By Victor Drummond ©
April 2009
In 2005 while I was assisting a family member update his income tax return, for the year 2000, I was astonished to discover he had been levied income tax well in excess of his gross annual salary.
The T4 issued by his employer stated the “earned” income for the year 2000 was several times greater than the approximately $120,000 annual salary he actually earned that year.
I also knew this was money that he had never received as his home was mortgaged to the hilt and he had borrowed a substantial amount of money from the family which had not yet been repaid.
Not only had he not received the so-called income but most of the equities, (shares in his employer corporation), that these outrageous taxes are based upon were still in his stock market broker account.
So I asked him: how was this horrendous tax levy generated?
He explained that while he was still an employee of the JDSU corporation he was offered the opportunity to participate in the corporation’s “Employee Share Purchase Plans” (ESPP’s) which gave him the privilege of buying corporate stock at a 15% discount from a, calculated, current Fair Market Value (FMV).
The ESPP and Employee Share Option (ESO) plans operated in the following way. When the corporation announced a plan start date participating employees could apply to purchase corporate shares, up to a fixed upper limit such as 5000 shares, at the FMV discounted price. The date the employee’s purchase order became effective was called the date of “vesting”.
Shares vested could be paid for in several ways: such as payroll deduction, all cash if the buyer had that kind of cash on hand, or by borrowing the cash from a lender.
Many participating employees borrowed money to buy their maximum allotment of shares, at each opportunity because the corporation’s shares had an almost unbroken series of price increases over the previous fifteen years.
Furthermore share splits of two new shares for one old share and even one split of three new for one old had been taking place periodically. The new shares quickly reached, and often exceeding, the pre-split share price.
In other words a dollar invested in ESPP shares today soon doubled to become two dollars and doubled again to become four dollars and tripled to become twelve dollars etc.
As of January 2000 there was no reason to suspect this hi-tech boom would not keep on going into the foreseeable future. It looked as though holders of shares in corporations such as JDSU and Nortel Networks would continue to receive outstanding real, and/or paper, profits from their share holdings indefinitely.
My family member had opted for the borrow and buy option to build up his holdings in JDSU shares and at one time, had he cashed in his equities, at their peak trading value, he would have been a real millionaire instead of being taxed into financial devastation.
Hindsight however is 20/20 and few, if any, participating employees actually cashed in their stock holdings at anything like the peak of the hi-tech boom or at a profit of any kind.
Even when the hi-tech stock market began to turn down, in mid July of the year 2000, few people, market advisors included, suggested it might become a complete crash in hi-tech stock values and holders of these equities should quickly take their profit and run.
Actually a rush to sell high volumes of Hi-tech corporation shares as of July 1, 2000 when the hi-tech market peaked would only have accelerated the market crash and few sellers would actually be able to walk away with real gains.
OK, I said, what happened in your case? Your ESPP shares are mostly still in your broker account so how could you be levied taxes on them?
He replied, do a search of the Canadian Government publications dealing with “Taxable Benefits” and you will discover that shares acquired via an ESPP and/or an ESO plan that shows a paper FMV, as of their date of “exercise” greater than their ACB then the paper value difference is reported as real “Earned Income” and a taxable benefit regardless of whether or not the shares have been sold or produced a real gain of any kind.
Fine if the ESPP/ESO equities are a “taxable benefit” from your employer and added to your “earned income” at the time you received them then by the same logic they are an employer’s penalty on your “Earned Income” when you actually suffer a loss when you sell them.
He answered, you might think so but that is not the way the taxable benefit law operates. Even though you are levied income tax on the calculated FMV paper profit of those shares if you later sell them, below the level you have been taxed for, they are no longer classified as a “taxable benefit”. The government then changes their classification to a “Capital equity” and any real loss you suffer is classed as a capital loss and is not allowed to offset any of the theoretical, unrealized gain, you paid taxes on when they were classed as a taxable benefit.
Capital losses are only allowed to be applied to offset capital gains he said in conclusion
When it finally sank in that he was telling me like it really is I asked: “What kind of Machiavellian logic is that?” “By what magic does an inanimate object be one thing one moment and something else a moment later?”
“If it is capital equity when you sell it then it was capital equity when you bought it.” “Period, full stop.”
“It is nothing short of legal extortion for the government to rule any unrealized gain is real and taxable while a real, loss produced by the very same object, is not applicable to offset the imaginary gain.”
I had a difficult time believing the government of Canada would deliberately cheat taxpayers on such a lame excuse. So I ask him: Are there any other of your former co-workers at JDSU who have been taxed on fictitious “earned income” like yours? Money that was neither “earned”, nor, “income” of any kind.
His answer again surprised me. He said “yes there are quite a few of my co-workers who have been taxed this way.”
So I asked for some names: as I wanted to find out just how widespread this outrageous money grab had been applied.
The first former co-worker’s name I received was that of a young married woman who I will call Mabel D. Lamb. (Not her real name).
I contacted Mabel via e-mail and asked her about her situation relative to being taxed on money she never received.
A short while later Mabel’s husband, who I have renamed Arthur, sent me a copy of correspondence that had taken place between Mabel and various Canadian government authorities.
Following is the gist of the e-mail Arthur sent: (Names have been changed and dates omitted to protect the writers ID)
Appeal document No 1 in my files:-
===============================================
Ottawa November xx 2006
Hi Vic,
I am Arthur, Mabel’s husband. Ssorry for the delay on replying to you but I wanted to refresh my memory of what had happened, this is something I am not very proud of.
Mabel bought shares under the Employee Stock Purchase Plan (ESPP) and when her shares were delivered (exercised) I advised to just keep them until old age as I am not a very greedy individual... ...well the CRA did not consider this as a share purchase.
As a purchase it would have been considered an investment and as such tax would had been calculated on a difference between the initial cost and the final sale value. Taxes would have been calculated and levied after the sale had been completed.
For Canada Revenue Agency (CRA) this was a taxable employee benefit so tax was due on the difference between the actual cost and what Mabel might have received if the shares purchased had been sold on the date of delivery (exercise date) in the stock market.
Her offer to donate the shares to the government of Canada was not accepted, her appeal was unsuccessful, her objection was unsuccessful. Finally under duress and after being threatened to have our house (which is in both our names) seized and liquidated we got a bank loan and paid the taxes with interest.
We wrote to the Prime Minister, the Minister of Finance and the Minister of Natural Revenue to no avail, all responded that the CRA had followed the Income Tax Act.
Anything you can do to help would be appreciated.
I shall send you related correspondence by separate email
Arthur Lamb
==============================================
Arthur was as good as his word and I received copies of some messages exchanged between Mabel and various Canadian Government authorities.
To read these messages watch for the next issue of the series: “APPEALS TO REASON” - Part 3.
It should be clear to everyone who has read APPEALS TO REASON Parts 1, and 2, that the Canadian Government treatment of shares acquired via ESPP/ESO programs was not made clear to:
(1) Employees who were eligible to participate in these plans, and
(2) Corporate payroll employees who were administering these plans and advising participating employee’s and
(3) Possibly even the Revenue Canada Income Tax Counselors who gave advice to taxpayers.
Read APPEALS TO REASON -- Part 3 to see how confused Arthur was after asking the advice of a Revenue Canada Tax Counselor regarding Mabel’s final ESPP transactions in the year 2000.
This is only the beginning of a series of eye opening events revealing the failure, of Canada’s elected representatives to Canada’s House of Commons, to actually represent and protect the best interests of all Canadians especially the best interests of their constituents.
Victor Drummond ©
A series of letters and E-mail messages from Canadian victims
of taxes on phantom income to Canadian Government Authorities, at all levels,
appealing for fair treatment and the, often idiotic, replies they received.
Read: Appeals To Reason Part – 1 preamble for more background information.
By Victor Drummond ©
April 2009
In 2005 while I was assisting a family member update his income tax return, for the year 2000, I was astonished to discover he had been levied income tax well in excess of his gross annual salary.
The T4 issued by his employer stated the “earned” income for the year 2000 was several times greater than the approximately $120,000 annual salary he actually earned that year.
I also knew this was money that he had never received as his home was mortgaged to the hilt and he had borrowed a substantial amount of money from the family which had not yet been repaid.
Not only had he not received the so-called income but most of the equities, (shares in his employer corporation), that these outrageous taxes are based upon were still in his stock market broker account.
So I asked him: how was this horrendous tax levy generated?
He explained that while he was still an employee of the JDSU corporation he was offered the opportunity to participate in the corporation’s “Employee Share Purchase Plans” (ESPP’s) which gave him the privilege of buying corporate stock at a 15% discount from a, calculated, current Fair Market Value (FMV).
The ESPP and Employee Share Option (ESO) plans operated in the following way. When the corporation announced a plan start date participating employees could apply to purchase corporate shares, up to a fixed upper limit such as 5000 shares, at the FMV discounted price. The date the employee’s purchase order became effective was called the date of “vesting”.
Shares vested could be paid for in several ways: such as payroll deduction, all cash if the buyer had that kind of cash on hand, or by borrowing the cash from a lender.
Many participating employees borrowed money to buy their maximum allotment of shares, at each opportunity because the corporation’s shares had an almost unbroken series of price increases over the previous fifteen years.
Furthermore share splits of two new shares for one old share and even one split of three new for one old had been taking place periodically. The new shares quickly reached, and often exceeding, the pre-split share price.
In other words a dollar invested in ESPP shares today soon doubled to become two dollars and doubled again to become four dollars and tripled to become twelve dollars etc.
As of January 2000 there was no reason to suspect this hi-tech boom would not keep on going into the foreseeable future. It looked as though holders of shares in corporations such as JDSU and Nortel Networks would continue to receive outstanding real, and/or paper, profits from their share holdings indefinitely.
My family member had opted for the borrow and buy option to build up his holdings in JDSU shares and at one time, had he cashed in his equities, at their peak trading value, he would have been a real millionaire instead of being taxed into financial devastation.
Hindsight however is 20/20 and few, if any, participating employees actually cashed in their stock holdings at anything like the peak of the hi-tech boom or at a profit of any kind.
Even when the hi-tech stock market began to turn down, in mid July of the year 2000, few people, market advisors included, suggested it might become a complete crash in hi-tech stock values and holders of these equities should quickly take their profit and run.
Actually a rush to sell high volumes of Hi-tech corporation shares as of July 1, 2000 when the hi-tech market peaked would only have accelerated the market crash and few sellers would actually be able to walk away with real gains.
OK, I said, what happened in your case? Your ESPP shares are mostly still in your broker account so how could you be levied taxes on them?
He replied, do a search of the Canadian Government publications dealing with “Taxable Benefits” and you will discover that shares acquired via an ESPP and/or an ESO plan that shows a paper FMV, as of their date of “exercise” greater than their ACB then the paper value difference is reported as real “Earned Income” and a taxable benefit regardless of whether or not the shares have been sold or produced a real gain of any kind.
Fine if the ESPP/ESO equities are a “taxable benefit” from your employer and added to your “earned income” at the time you received them then by the same logic they are an employer’s penalty on your “Earned Income” when you actually suffer a loss when you sell them.
He answered, you might think so but that is not the way the taxable benefit law operates. Even though you are levied income tax on the calculated FMV paper profit of those shares if you later sell them, below the level you have been taxed for, they are no longer classified as a “taxable benefit”. The government then changes their classification to a “Capital equity” and any real loss you suffer is classed as a capital loss and is not allowed to offset any of the theoretical, unrealized gain, you paid taxes on when they were classed as a taxable benefit.
Capital losses are only allowed to be applied to offset capital gains he said in conclusion
When it finally sank in that he was telling me like it really is I asked: “What kind of Machiavellian logic is that?” “By what magic does an inanimate object be one thing one moment and something else a moment later?”
“If it is capital equity when you sell it then it was capital equity when you bought it.” “Period, full stop.”
“It is nothing short of legal extortion for the government to rule any unrealized gain is real and taxable while a real, loss produced by the very same object, is not applicable to offset the imaginary gain.”
I had a difficult time believing the government of Canada would deliberately cheat taxpayers on such a lame excuse. So I ask him: Are there any other of your former co-workers at JDSU who have been taxed on fictitious “earned income” like yours? Money that was neither “earned”, nor, “income” of any kind.
His answer again surprised me. He said “yes there are quite a few of my co-workers who have been taxed this way.”
So I asked for some names: as I wanted to find out just how widespread this outrageous money grab had been applied.
The first former co-worker’s name I received was that of a young married woman who I will call Mabel D. Lamb. (Not her real name).
I contacted Mabel via e-mail and asked her about her situation relative to being taxed on money she never received.
A short while later Mabel’s husband, who I have renamed Arthur, sent me a copy of correspondence that had taken place between Mabel and various Canadian government authorities.
Following is the gist of the e-mail Arthur sent: (Names have been changed and dates omitted to protect the writers ID)
Appeal document No 1 in my files:-
===============================================
Ottawa November xx 2006
Hi Vic,
I am Arthur, Mabel’s husband. Ssorry for the delay on replying to you but I wanted to refresh my memory of what had happened, this is something I am not very proud of.
Mabel bought shares under the Employee Stock Purchase Plan (ESPP) and when her shares were delivered (exercised) I advised to just keep them until old age as I am not a very greedy individual... ...well the CRA did not consider this as a share purchase.
As a purchase it would have been considered an investment and as such tax would had been calculated on a difference between the initial cost and the final sale value. Taxes would have been calculated and levied after the sale had been completed.
For Canada Revenue Agency (CRA) this was a taxable employee benefit so tax was due on the difference between the actual cost and what Mabel might have received if the shares purchased had been sold on the date of delivery (exercise date) in the stock market.
Her offer to donate the shares to the government of Canada was not accepted, her appeal was unsuccessful, her objection was unsuccessful. Finally under duress and after being threatened to have our house (which is in both our names) seized and liquidated we got a bank loan and paid the taxes with interest.
We wrote to the Prime Minister, the Minister of Finance and the Minister of Natural Revenue to no avail, all responded that the CRA had followed the Income Tax Act.
Anything you can do to help would be appreciated.
I shall send you related correspondence by separate email
Arthur Lamb
==============================================
Arthur was as good as his word and I received copies of some messages exchanged between Mabel and various Canadian Government authorities.
To read these messages watch for the next issue of the series: “APPEALS TO REASON” - Part 3.
It should be clear to everyone who has read APPEALS TO REASON Parts 1, and 2, that the Canadian Government treatment of shares acquired via ESPP/ESO programs was not made clear to:
(1) Employees who were eligible to participate in these plans, and
(2) Corporate payroll employees who were administering these plans and advising participating employee’s and
(3) Possibly even the Revenue Canada Income Tax Counselors who gave advice to taxpayers.
Read APPEALS TO REASON -- Part 3 to see how confused Arthur was after asking the advice of a Revenue Canada Tax Counselor regarding Mabel’s final ESPP transactions in the year 2000.
This is only the beginning of a series of eye opening events revealing the failure, of Canada’s elected representatives to Canada’s House of Commons, to actually represent and protect the best interests of all Canadians especially the best interests of their constituents.
Victor Drummond ©
Sunday, April 5, 2009
APPEAL TO REASON..
APPEAL TO REASON – PART 1
Letters and E-Mail messages sent by innocent, hard-working
Canadians that have been legally robbed of property, and money
intended for their children’s education, and/or retirement comfort.
By Victor Drummond © -- April 2009
Preamble
Because several victims, of phantom taxation, have expressed concern that by speaking out against the treatment they have received from the Canadian Government they may find themselves the target of persecution, or at least denial of future government support of the tax relief they have requested and so richly deserve they have asked that I do not provide any information that might identify them.
Whether or not their concerns are justified I have promised to omit all identifying information from their messages and the sparse replies some of them received in return. The lack of the originators identity should in no way diminish the immoral aspect of the government authorities conduct in response.
Messages and replies are in chronological order from earliest to most recent.
The defect in Canada’s taxable benefit legislation was rather obscure while the hi-tech boom was on-going during the years 1980 through 1999 but became painfully apparent when the hi-tech boom went bust in the year 2000.
Canadians employed in the hi-tech communications sector were riding a wave of seemingly endless growth in their industry and could take their pick of the many jobs available and many offered by companies that had engaged head-hunters to entice key people away from their original employer.
To stem the flow of top level scientific personnel from Canadian Corporations to the United States, and to other (off-shore) countries, U.S. and Canadian, hi-tech corporations, with the blessing of the Canadian Government, initiated Employee Share Purchase Plans (ESPP’s) and Employee Share Option (ESO plans.
Employer’s encouraged their key personnel to participate in these plans for two reasons:
(1) to give the employee a sense of ownership and sharing in the corporations success and
(2) to swell the share trading volume on the stock market and thereby make the shares of corporation appear to be in greater demand by investors.
As time went on these plans were often expanded to include every employee of the corporation from the janitors to the CEO. Then many of the people participating in these plans were neither market wise investor/speculators or in a solid financial situation to play the markets.
All the majority of them knew was that their employer wanted them to participate and that the corporate track record implied they would make money by participating.
ESPP and ESO plans usually gave the participating employees an opportunity to acquire their employer corporation shares at a small premium below the average trading price of the shares on the open market.
This premium was usually in the order of a 15% discount from the derived Fair Market Value (FMV) of the shares which was an average value of the shares closing price over a brief period (e.g. 20 trading days) immediately prior to the date of the employee’s ordering of the ESPP/ESO shares.
Depending upon the high and low swings of the corporations shares on the open market the 15% discount may not have been of any advantage to the employee as in many cases the low swing of the shares, in the FMV averaging interval could easily be 15% or more below the average closing price.
Regardless, of that fact, Revenue Canada used the premium discount as a basis for calculating the participating employee’s so-called taxable benefit. Some measure of fairness was applied here as if a tax was levied on the initial purchase discount it was allowed to be included in the adjusted cost base of the shares if further taxes were levied on those same shares later.
What was not taken into account was the trade-off(s) participating employees made which also are a factor in the real cost of those shares to the employee.
Had the employee not participated in the ESPP/ESO plans they could be entitled to more paid vacation credits, and/or increases in basic salary, and/or promotions to higher paid positions.
These are all probable, but intangible, hidden costs to the employee due to participating in their employers ESPP/ESO plans.
ESPP/ESO plans varied in the amount of shares, and the payment plans, and the term between placing an order for their share purchase, (vesting date), and the date the fully paid for shares were scheduled for delivery to the employee’s account, (exercise date).
Plan participants were usually given the option of:-
(1) Selling their ESPP/ESO shares on the date of exercise and were usually guaranteed, by their employer, to receive the FMV, or the closing price of the corporate shares on the open market, whichever was higher, on the date of delivery,
or,
(2) taking delivery of their shares/options and leaving them in their account, with their employer or stock broker, if they had a stock broker account.
The treatment of the ESPP/ESO stock acquisitions, by the Canada Revenue Agency (CRA) was as a being a taxable benefit from the employer to the employees as of the date of exercise regardless of whether or not the employee held or sold their shares/options.
In the years 1980 through 1999, while hi-tech corporations were enjoying a field day of rising share values and shareholders receiving large paper gains due to rising share prices and share splits, and corporate take over’s of one corporation by another, all was well.
During this period employees participating in their employer’s ESPP/ESO plans could meet the taxes levied on the paper gain of their shares/options, as of the date of exercise, by either selling a few of their fast rising stock or by using the shares as collateral to borrow money to pay the tax.
Many honest, hard-working Canadians, not realizing that stock markets have a history of booms going bust, and not anticipating their governments callous attitude towards those who might have made a gain but decided they had a good thing and wanted to keep it, fell into an insidious tax trap.
Practically overnight Canadians who had been millionaires, on paper, became financial paupers and debtors, to their own government for hundreds of thousands of tax dollars they might have actually received but in fact they never actually received.
Although the paper gain that they might have realized, if they had sold their shares on the date of exercise, had vanished like the ghost (phantom) that it actually was, the taxes levied are very real and to many financially devastating.
To many victims of the phantom income tax came as a real shock. Few if any Canadians expected to be taxed on a missed opportunity to receive money which in reality never existed.
Several victims to appeal this tax on phantom income were informed the tax is justified on the basis of the CRA, ASSUMPTION; they made a conscious and deliberate decision to play the markets.
This raises the question: whose stock is it anyway? Did the Canadian government make it illegal for Canadians who paid for their equities, acquired via an ESPP/ESO plan, to play the market with their shares/options? If so when and where was it published?
Or is this a right ASSUMED by the government to punish Canadians who denied the government their pound of flesh by not taking a gain they might have realized IF they had sold their ESPP/ESO equities on the date of exercise?
Furthermore the gain an ESPP/ESO participant MIGHT have realized by selling their equities on the date of exercise can only be determined accurately for those who had a guarantee built into the plan of receiving the higher of the recent average FMV or the closing price of their shares on the date of exercise.
The possible gain of all other participants is dependant upon the market action on the date of exercise and is dependent upon the investors bidding for the volume of shares being offered at the instant of sale and whether or not the sell order was an “at-market” offer. “At Market” sell orders often trade at the low for the day which can be much lower than the mean value, or closing value, of the share trades that day.
Therefore the actual dollar value of the unrealized gain can not be accurately known but that bit of missing data made no difference to the theoretical FMV used to levy the tax.
It follows if taxes are to be levied on income that never actually existed then the unknown real value of the nonexistent transaction doesn’t matter either.
The whole rationale built into the legislation used for taxing corporate shares on anything other than the real selling price less the real adjusted cost base is the equivalent of using any excuse to levy taxes on any missed opportunity to make a gain.
It would be just as fair if the CRA levied taxes on every stock market investor/speculator who could have sold their investment at a profit but failed to do so – because they made a deliberate and conscientious decision to continue to play the market in hope of making an even greater gain.
Those investor/speculators have broken the same unwritten law, or rule, used to levy taxes on ESPP/ESO phantom gains.
This is the end of the “Preamble” to the “Appeal to Reason – Part 1”.
Appeal to Reason – Part 2 will begin a series of Letters of Appeal written by honest, hard-working Canadians, to Revenue Canada, Tax Appeals officer, and to their Members of Parliament, (MP) all the way from the Prime Minister, of the day all the way down to the victims own MP.
When a reply was received, to these letters of appeal, the reply will also be provided but the originator’s ID may be with-held to protect the guilty.
Victor Drummond ©
Letters and E-Mail messages sent by innocent, hard-working
Canadians that have been legally robbed of property, and money
intended for their children’s education, and/or retirement comfort.
By Victor Drummond © -- April 2009
Preamble
Because several victims, of phantom taxation, have expressed concern that by speaking out against the treatment they have received from the Canadian Government they may find themselves the target of persecution, or at least denial of future government support of the tax relief they have requested and so richly deserve they have asked that I do not provide any information that might identify them.
Whether or not their concerns are justified I have promised to omit all identifying information from their messages and the sparse replies some of them received in return. The lack of the originators identity should in no way diminish the immoral aspect of the government authorities conduct in response.
Messages and replies are in chronological order from earliest to most recent.
The defect in Canada’s taxable benefit legislation was rather obscure while the hi-tech boom was on-going during the years 1980 through 1999 but became painfully apparent when the hi-tech boom went bust in the year 2000.
Canadians employed in the hi-tech communications sector were riding a wave of seemingly endless growth in their industry and could take their pick of the many jobs available and many offered by companies that had engaged head-hunters to entice key people away from their original employer.
To stem the flow of top level scientific personnel from Canadian Corporations to the United States, and to other (off-shore) countries, U.S. and Canadian, hi-tech corporations, with the blessing of the Canadian Government, initiated Employee Share Purchase Plans (ESPP’s) and Employee Share Option (ESO plans.
Employer’s encouraged their key personnel to participate in these plans for two reasons:
(1) to give the employee a sense of ownership and sharing in the corporations success and
(2) to swell the share trading volume on the stock market and thereby make the shares of corporation appear to be in greater demand by investors.
As time went on these plans were often expanded to include every employee of the corporation from the janitors to the CEO. Then many of the people participating in these plans were neither market wise investor/speculators or in a solid financial situation to play the markets.
All the majority of them knew was that their employer wanted them to participate and that the corporate track record implied they would make money by participating.
ESPP and ESO plans usually gave the participating employees an opportunity to acquire their employer corporation shares at a small premium below the average trading price of the shares on the open market.
This premium was usually in the order of a 15% discount from the derived Fair Market Value (FMV) of the shares which was an average value of the shares closing price over a brief period (e.g. 20 trading days) immediately prior to the date of the employee’s ordering of the ESPP/ESO shares.
Depending upon the high and low swings of the corporations shares on the open market the 15% discount may not have been of any advantage to the employee as in many cases the low swing of the shares, in the FMV averaging interval could easily be 15% or more below the average closing price.
Regardless, of that fact, Revenue Canada used the premium discount as a basis for calculating the participating employee’s so-called taxable benefit. Some measure of fairness was applied here as if a tax was levied on the initial purchase discount it was allowed to be included in the adjusted cost base of the shares if further taxes were levied on those same shares later.
What was not taken into account was the trade-off(s) participating employees made which also are a factor in the real cost of those shares to the employee.
Had the employee not participated in the ESPP/ESO plans they could be entitled to more paid vacation credits, and/or increases in basic salary, and/or promotions to higher paid positions.
These are all probable, but intangible, hidden costs to the employee due to participating in their employers ESPP/ESO plans.
ESPP/ESO plans varied in the amount of shares, and the payment plans, and the term between placing an order for their share purchase, (vesting date), and the date the fully paid for shares were scheduled for delivery to the employee’s account, (exercise date).
Plan participants were usually given the option of:-
(1) Selling their ESPP/ESO shares on the date of exercise and were usually guaranteed, by their employer, to receive the FMV, or the closing price of the corporate shares on the open market, whichever was higher, on the date of delivery,
or,
(2) taking delivery of their shares/options and leaving them in their account, with their employer or stock broker, if they had a stock broker account.
The treatment of the ESPP/ESO stock acquisitions, by the Canada Revenue Agency (CRA) was as a being a taxable benefit from the employer to the employees as of the date of exercise regardless of whether or not the employee held or sold their shares/options.
In the years 1980 through 1999, while hi-tech corporations were enjoying a field day of rising share values and shareholders receiving large paper gains due to rising share prices and share splits, and corporate take over’s of one corporation by another, all was well.
During this period employees participating in their employer’s ESPP/ESO plans could meet the taxes levied on the paper gain of their shares/options, as of the date of exercise, by either selling a few of their fast rising stock or by using the shares as collateral to borrow money to pay the tax.
Many honest, hard-working Canadians, not realizing that stock markets have a history of booms going bust, and not anticipating their governments callous attitude towards those who might have made a gain but decided they had a good thing and wanted to keep it, fell into an insidious tax trap.
Practically overnight Canadians who had been millionaires, on paper, became financial paupers and debtors, to their own government for hundreds of thousands of tax dollars they might have actually received but in fact they never actually received.
Although the paper gain that they might have realized, if they had sold their shares on the date of exercise, had vanished like the ghost (phantom) that it actually was, the taxes levied are very real and to many financially devastating.
To many victims of the phantom income tax came as a real shock. Few if any Canadians expected to be taxed on a missed opportunity to receive money which in reality never existed.
Several victims to appeal this tax on phantom income were informed the tax is justified on the basis of the CRA, ASSUMPTION; they made a conscious and deliberate decision to play the markets.
This raises the question: whose stock is it anyway? Did the Canadian government make it illegal for Canadians who paid for their equities, acquired via an ESPP/ESO plan, to play the market with their shares/options? If so when and where was it published?
Or is this a right ASSUMED by the government to punish Canadians who denied the government their pound of flesh by not taking a gain they might have realized IF they had sold their ESPP/ESO equities on the date of exercise?
Furthermore the gain an ESPP/ESO participant MIGHT have realized by selling their equities on the date of exercise can only be determined accurately for those who had a guarantee built into the plan of receiving the higher of the recent average FMV or the closing price of their shares on the date of exercise.
The possible gain of all other participants is dependant upon the market action on the date of exercise and is dependent upon the investors bidding for the volume of shares being offered at the instant of sale and whether or not the sell order was an “at-market” offer. “At Market” sell orders often trade at the low for the day which can be much lower than the mean value, or closing value, of the share trades that day.
Therefore the actual dollar value of the unrealized gain can not be accurately known but that bit of missing data made no difference to the theoretical FMV used to levy the tax.
It follows if taxes are to be levied on income that never actually existed then the unknown real value of the nonexistent transaction doesn’t matter either.
The whole rationale built into the legislation used for taxing corporate shares on anything other than the real selling price less the real adjusted cost base is the equivalent of using any excuse to levy taxes on any missed opportunity to make a gain.
It would be just as fair if the CRA levied taxes on every stock market investor/speculator who could have sold their investment at a profit but failed to do so – because they made a deliberate and conscientious decision to continue to play the market in hope of making an even greater gain.
Those investor/speculators have broken the same unwritten law, or rule, used to levy taxes on ESPP/ESO phantom gains.
This is the end of the “Preamble” to the “Appeal to Reason – Part 1”.
Appeal to Reason – Part 2 will begin a series of Letters of Appeal written by honest, hard-working Canadians, to Revenue Canada, Tax Appeals officer, and to their Members of Parliament, (MP) all the way from the Prime Minister, of the day all the way down to the victims own MP.
When a reply was received, to these letters of appeal, the reply will also be provided but the originator’s ID may be with-held to protect the guilty.
Victor Drummond ©
Wednesday, April 1, 2009
SERVING CANADIANS..ERRATTUM
CANADA’S SYSTEM OF JUSTICE ERRATUM
A correction to the official Canadian Government Document
“Serving Canadians – Canada’s System of Justice” of which the original wording is now incorrect and provides Canadians with untrue and misleading statements.
By Victor Drummond ©
April 2009
A visit to the Government of Canada web page:
http://www.justice.gc.ca/eng/dept-min/pub/just/img/courten.pdf
provides the reader access to a document titled: “Serving Canadians -- Canada’s System of Justice”.
Possibly when first issued, as an official Canadian Government document, it faithfully expressed the intent of the Canadian Government regarding the operation of Canada’s legal system.
The description of Canada’s System of Justice, as originally written in this document was the highly ethical picture I held in my mind, of Canada’s government, for most of my adult life. But no longer.
Unfortunately the subject document is now outdated and provides a highly distorted word picture of Canada’s System of Justice. A system which has been corrupted, for the past seven or eight years, by defective personal income tax legislation that empowers the Canada Revenue Agency (CRA) to legally rob honest, hard-working Canadian citizens.
Adding insult to injury a discriminatory Tax Remission Order (TRO) was issued November 14, 2007 granting some relief of this legal extortion to a mere 44 former employees of the now defunct SDL Optics/JDSU corporation plant in Saanich-Gulf Islands riding in British Columbia.
For some reason(s), yet to be revealed, the remaining thousands of similar victims were excluded from this action.
Therefore as a caring, compassionate, Canadian citizen I feel it my duty to volunteer my time and talent to point out, and update incorrect, statements contained in this document for the benefit of all Canadians including the overtaxed resources of the Ministry of Justice who I am sure do not have the time to make these corrections.
No thanks, or reward of any kind, is expected by me for providing this service.
=======================================
For example the subject document states:
Why do we need laws – What else do laws achieve?
pdf page 8, document page 2 (selected paragraph)
Laws are also aimed at ensuring fairness.
By recognizing and protecting basic individual rights and freedoms, such as liberty and equality, our laws ensure that stronger groups and individuals do not use their powerful positions to take unfair advantage of weaker groups or people.
======================================
The true version of this declaration being:
Why do we need laws – What else do laws achieve?
(pdf page 8, document page 2) (selected paragraph)
Laws are also aimed at ensuring fairness with the glaring exception of personal income taxable benefit legislation pertaining to Employee Share Purchase Plans (ESPP’s) and Employee Share Option(ESO) plans where fairness does not apply.
By recognizing and protecting basic individual rights and freedoms, such as liberty and equality, our laws ensure that stronger groups and individuals do not use their powerful positions to take unfair advantage of weaker groups or people.
The CRA, however, in dealing with the matter of taxing Canadians on ESPP/ESO phantom income is granted permission to use its muscle, as required, to collect taxes levied on this money that rightfully belongs to the government whether or not the taxpayer ever received it.
This action is not recognized, by the Canadian Government, as a “Stronger” or “More powerful group” taking unfair advantage of a weaker group of people even though that is exactly what happens.
=========================================
Here is what the subject document has to say about “Equality Rights”:
Equality rights
(pdf page 20, document page 14)
Everyone, regardless of race, national or ethnic origin, colour, religion, sex, age, or mental or
physical disability, is equal before the law and has equal protection and benefit of the law.
This means that laws and government programs, such as pension plans, must not be discriminatory.
The true version of the document “Equality” statements are:
Everyone, except taxpayers who owe the government taxes on phantom income, regardless of race, national or ethnic origin, colour, religion, sex, or mental or physical disability, is equal before the law and has equal protection and benefit of the law.
Tax Remission Orders may be issued, to grant relief from phantom income taxation, and related penalties, to selected individuals, and/or selected groups of individuals, without concern for fairness or equal treatment under the laws of Canada, at the discretion of the government.
This means, in all other respects, that laws and government programs, such as pension plans, must not be discriminatory.
======================================
What does the subject document say about “Charter Rights”:
Charter Rights
(pdf page 18, document page 12) (selected text)
Under the agreement between the federal and provincial governments that resulted in the Constitution Act, both Parliament and the provincial legislatures keep some limited power to pass laws that may violate Charter rights. This is democratic because it gives the elected legislatures the last word. However, their power is still limited because Parliament or a provincial legislature must specifically declare that it is passing a law “notwithstanding” specified provisions of the Charter.
This declaration must be reviewed and re-enacted at least every five years or it will not remain in force.
What the document really means in regard to “Charter Rights”:
Charter Rights
(pdf page 18, document page 12) (selected text)
Under the agreement between the federal and provincial governments that resulted in the Constitution Act, both Parliament and the provincial legislatures keep some limited power to pass laws that actually do violate Charter rights. This is democratic because it gives the elected legislatures the last word. However, their power is still limited because Parliament or a provincial legislature must specifically declare that it is passing a law “notwithstanding” specified provisions of the Charter.
This declaration must be reviewed and re-enacted at least every five years or it will not remain in force.
Taxable benefit legislation and application, however, related to the levying and collection of taxes on nonexistent ESPP/ESO (phantom) income, really does violate every Canadians charter rights but is exempt from the “notwithstanding declaration” requirement of the Canadian Charter of Rights and freedoms because: As of March 2009 the practice of taxing ESPP/ESO phantom income has been in effect for eight years and there has been, no “notwithstanding declaration issued, or now need be, issued to keep it in operation.
Taxable benefit legislation, as it applies to ESPP/ESO taxation, is excluded from the Charter provisions because it has been on the law books a long time.(*)
Note:- (*) This statement is based upon a reply received from the office of the Hon. James Flaherty, Minister of Finance, (MOF), when an appellant requested relief from phantom income tax on the grounds Canada’s taxable benefit legislation was flawed and needed to be amended.
The reply, this appellant, received defended the defective legislation on the grounds (that) it had been on the law books for a long time and was therefore justified.
==================================
The above modifications bring the document: “Serving Canadians’ – Canada’s System of Justice” up to date and informs Canadians the way they are really being “Served” by Canada’s System of Justice”.
If you would like to see our Justice system restored to its originally intended condition then contact your local Member of Parliament (MP) and inform him, or her, you want Canada’s Government to follow the lead of the U.S.A. government and amend our defective taxable benefit legislation to put and end to taxing honest, hard-working Canadians on money they never saw.
To see what the U.S. Government has done in this regard visit: www.fair-iso.org and/or www.reformAMT.org
To see what the Canadian government has done in this regard visit: www.cfet.ca and follow the links: “Sign our Petition” and click on the “signatures” tab and read the comments posted there.
To find the contact address information for all federal MP’s visit:- www.yayacanada.com/MPs.html
See you at the next federal election polls O’Grady.
Victor Drummond ©
A correction to the official Canadian Government Document
“Serving Canadians – Canada’s System of Justice” of which the original wording is now incorrect and provides Canadians with untrue and misleading statements.
By Victor Drummond ©
April 2009
A visit to the Government of Canada web page:
http://www.justice.gc.ca/eng/dept-min/pub/just/img/courten.pdf
provides the reader access to a document titled: “Serving Canadians -- Canada’s System of Justice”.
Possibly when first issued, as an official Canadian Government document, it faithfully expressed the intent of the Canadian Government regarding the operation of Canada’s legal system.
The description of Canada’s System of Justice, as originally written in this document was the highly ethical picture I held in my mind, of Canada’s government, for most of my adult life. But no longer.
Unfortunately the subject document is now outdated and provides a highly distorted word picture of Canada’s System of Justice. A system which has been corrupted, for the past seven or eight years, by defective personal income tax legislation that empowers the Canada Revenue Agency (CRA) to legally rob honest, hard-working Canadian citizens.
Adding insult to injury a discriminatory Tax Remission Order (TRO) was issued November 14, 2007 granting some relief of this legal extortion to a mere 44 former employees of the now defunct SDL Optics/JDSU corporation plant in Saanich-Gulf Islands riding in British Columbia.
For some reason(s), yet to be revealed, the remaining thousands of similar victims were excluded from this action.
Therefore as a caring, compassionate, Canadian citizen I feel it my duty to volunteer my time and talent to point out, and update incorrect, statements contained in this document for the benefit of all Canadians including the overtaxed resources of the Ministry of Justice who I am sure do not have the time to make these corrections.
No thanks, or reward of any kind, is expected by me for providing this service.
=======================================
For example the subject document states:
Why do we need laws – What else do laws achieve?
pdf page 8, document page 2 (selected paragraph)
Laws are also aimed at ensuring fairness.
By recognizing and protecting basic individual rights and freedoms, such as liberty and equality, our laws ensure that stronger groups and individuals do not use their powerful positions to take unfair advantage of weaker groups or people.
======================================
The true version of this declaration being:
Why do we need laws – What else do laws achieve?
(pdf page 8, document page 2) (selected paragraph)
Laws are also aimed at ensuring fairness with the glaring exception of personal income taxable benefit legislation pertaining to Employee Share Purchase Plans (ESPP’s) and Employee Share Option(ESO) plans where fairness does not apply.
By recognizing and protecting basic individual rights and freedoms, such as liberty and equality, our laws ensure that stronger groups and individuals do not use their powerful positions to take unfair advantage of weaker groups or people.
The CRA, however, in dealing with the matter of taxing Canadians on ESPP/ESO phantom income is granted permission to use its muscle, as required, to collect taxes levied on this money that rightfully belongs to the government whether or not the taxpayer ever received it.
This action is not recognized, by the Canadian Government, as a “Stronger” or “More powerful group” taking unfair advantage of a weaker group of people even though that is exactly what happens.
=========================================
Here is what the subject document has to say about “Equality Rights”:
Equality rights
(pdf page 20, document page 14)
Everyone, regardless of race, national or ethnic origin, colour, religion, sex, age, or mental or
physical disability, is equal before the law and has equal protection and benefit of the law.
This means that laws and government programs, such as pension plans, must not be discriminatory.
The true version of the document “Equality” statements are:
Everyone, except taxpayers who owe the government taxes on phantom income, regardless of race, national or ethnic origin, colour, religion, sex, or mental or physical disability, is equal before the law and has equal protection and benefit of the law.
Tax Remission Orders may be issued, to grant relief from phantom income taxation, and related penalties, to selected individuals, and/or selected groups of individuals, without concern for fairness or equal treatment under the laws of Canada, at the discretion of the government.
This means, in all other respects, that laws and government programs, such as pension plans, must not be discriminatory.
======================================
What does the subject document say about “Charter Rights”:
Charter Rights
(pdf page 18, document page 12) (selected text)
Under the agreement between the federal and provincial governments that resulted in the Constitution Act, both Parliament and the provincial legislatures keep some limited power to pass laws that may violate Charter rights. This is democratic because it gives the elected legislatures the last word. However, their power is still limited because Parliament or a provincial legislature must specifically declare that it is passing a law “notwithstanding” specified provisions of the Charter.
This declaration must be reviewed and re-enacted at least every five years or it will not remain in force.
What the document really means in regard to “Charter Rights”:
Charter Rights
(pdf page 18, document page 12) (selected text)
Under the agreement between the federal and provincial governments that resulted in the Constitution Act, both Parliament and the provincial legislatures keep some limited power to pass laws that actually do violate Charter rights. This is democratic because it gives the elected legislatures the last word. However, their power is still limited because Parliament or a provincial legislature must specifically declare that it is passing a law “notwithstanding” specified provisions of the Charter.
This declaration must be reviewed and re-enacted at least every five years or it will not remain in force.
Taxable benefit legislation and application, however, related to the levying and collection of taxes on nonexistent ESPP/ESO (phantom) income, really does violate every Canadians charter rights but is exempt from the “notwithstanding declaration” requirement of the Canadian Charter of Rights and freedoms because: As of March 2009 the practice of taxing ESPP/ESO phantom income has been in effect for eight years and there has been, no “notwithstanding declaration issued, or now need be, issued to keep it in operation.
Taxable benefit legislation, as it applies to ESPP/ESO taxation, is excluded from the Charter provisions because it has been on the law books a long time.(*)
Note:- (*) This statement is based upon a reply received from the office of the Hon. James Flaherty, Minister of Finance, (MOF), when an appellant requested relief from phantom income tax on the grounds Canada’s taxable benefit legislation was flawed and needed to be amended.
The reply, this appellant, received defended the defective legislation on the grounds (that) it had been on the law books for a long time and was therefore justified.
==================================
The above modifications bring the document: “Serving Canadians’ – Canada’s System of Justice” up to date and informs Canadians the way they are really being “Served” by Canada’s System of Justice”.
If you would like to see our Justice system restored to its originally intended condition then contact your local Member of Parliament (MP) and inform him, or her, you want Canada’s Government to follow the lead of the U.S.A. government and amend our defective taxable benefit legislation to put and end to taxing honest, hard-working Canadians on money they never saw.
To see what the U.S. Government has done in this regard visit: www.fair-iso.org and/or www.reformAMT.org
To see what the Canadian government has done in this regard visit: www.cfet.ca and follow the links: “Sign our Petition” and click on the “signatures” tab and read the comments posted there.
To find the contact address information for all federal MP’s visit:- www.yayacanada.com/MPs.html
See you at the next federal election polls O’Grady.
Victor Drummond ©
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