The tax treatment of employee stock options : generous to a fault

In the 2000 budgets, both the federal and Ontario governments introduced changes to the tax treatment of employee stock options for the explicit purpose of making their tax treatment in Canada similar to or more favourable than that in the United States. The federal budget added a deferral, similar to that currently applicable to options granted by Canadian-controlled private corporations, for up to $100,000 per year of public company stock options. The Ontario budget introduced an exemption from tax for employees involved in research and development on the first $100,000 per year of employee benefits arising on the exercise of qualified stock options or on eligible capital gains arising from the sale of shares acquired by the exercise of eligible stock options. These proposals reflect the apparent acceptance by the two governments that there is a “brain drain” from Canada to the United States of knowledge workers in the “new” economy and that reductions in Canadian taxes should stem this drain. In the author’s view, the tax treatment of employee stock options, even without these changes, is overly generous. Both the federal and provincial proposals ignore the fact that most employee stock options are taxed more favourably in Canada than in the United States in any event. In particular, most employee stock option benefits in Canada are taxed at capital gains tax rates, whereas in the United States most are taxed at full rates. While the US Internal Revenue Code does provide capital gains tax treatment for certain employee stock option benefits, a number of preconditions must be met. Most important, the shares acquired pursuant to the options must be held for a minimum of one year after the option is exercised. In addition, there are monetary limits on the amount of options that qualify for capital gains treatment. In Canada, there are generally no holding period requirements or monetary limits that apply in order for the option holder to benefit from capital gains tax rates. Empirical evidence indicates that the vast majority of employees in the United States exercise their options and immediately sell the shares acquired. These “cashless exercises” do not benefit from capital gains treatment in the United States, whereas similar cashless exercises in Canada generally do. This empirical evidence suggests not only that the 2000 budget proposals are unwarranted, but also that the existing treatment of employee stock options in Canada is already more generous than that in the United States. This article begins with a theoretical “benchmark” for the taxation of employee stock options. The author suggests that employee stock options should be treated in the same manner as other income from employment. In theory, the value of the benefit should be included in income when the option is granted or vests. However, owing to the practical difficulty of valuing employee stock options, the theoretical benchmark proposed is that the value of the benefit (the difference between the fair market value of the shares acquired and the strike price under the option) be taxed when the shares are acquired, and the employer be entitled to a corresponding deduction. The employee stock option rules in Canada and the United States are then compared and contrasted with each other and the benchmark treatment. The article then examines the arguments that have been made for favourable treatment of employee stock options. Included in this critique is a review of the recent empirical work on the Canadian brain drain. Empirical studies suggest that the brain drain—if it exists at all—is small and that, despite what many newspapers and right-wing think-tanks would have us believe, lower taxes in the United States are not the cause. One study, concluding that taxes do have an effect on migration, suggests that even if Canada adopted a tax system identical to that in the United States, the brain drain would be reduced by a mere 10 percent. Indeed, even if Canada eliminated income tax altogether, it would not stop the brain drain. If governments here want to spend money in order to stem the brain drain, they should focus on other areas. For example, Canada produces fewer university graduates in the fields of mathematics, sciences, and engineering than any other G7 country except Italy. The short supply of university graduates in these fields, the apparent loss of top-calibre academics to US
universities, and the consequent lower levels of university research in these areas (an important spawning ground for new ideas in the “new” knowledge-based economy) suggest that Canada may be better served by devoting more resources to its university institutions, particularly in post-graduate programs, rather than continuing the current trend of budget cuts that universities have endured and may further endure if taxes are reduced.
As far as employee stock options are concerned, if Canada does want to look to the United States for guidance on tax reform (which it seems to do with increasing frequency of late), it should adopt the US rules applicable to nonstatutory options, which are close to the proposed benchmark treatment. In the absence of preferential tax treatment, employee stock options would still be included in compensation packages provided that there were sound business reasons for their use. No persuasive evidence has been put forward that the use of stock options, in the absence of tax incentives, is suboptimal. Indeed, the US experience suggests quite the opposite.

Exempt treatment of financial intermediation services under a value-added tax: an assessment of alternatives

Most countries with a value-added tax (VAT) exempt financial intermediation services from the tax. While exemption is generally perceived to be undesirable, it is also widely regarded as unavoidable because of technical difficulties in applying VAT to these services. This article reviews the standard rationale for exempt treatment and then considers the relative merits of two recent challenges raised in the tax literature. The first challenge involves the application of cash flow taxation to financial intermediation services in a manner that is consistent with an invoice/credit VAT (which is the dominant form). The second challenge proposes a comprehensive system of zero-rating of financial intermediation services, which is supported by a characterization of the household consumption of such services as non-taxable. The author argues that each of these alternatives to an exemption system suffers from both theoretical and practical implementation difficulties that make maintenance of exempt treatment the preferred approach, at least in the short term. There is, however, a simpler alternative to these fundamental reform options, involving modification of just one aspect of an exemption system to relieve some of its more problematic aspects. Many of the interpretative problems and associated inefficiencies that plague an exemption system arise from the need to distinguish between taxable and exempt financial services. The author argues that these difficulties can be eliminated, to a large extent, by basing the distinction on the form of prices. In support of this approach, he points out that it is consistent with the underlying reasons for the application of exempt treatment. The author considers a number of other possible modifications, but these are either rejected outright or viewed with a healthy skepticism. For example, the author is critical of the apparent rationale for the application of cash flow taxation to property and casualty insurers. He also rejects proposals that accept some looseness in the formulaic allocation by financial intermediaries of the costs of business inputs between exempt and taxable services for input credit purposes. In his view, an explicit reliance on pricing structures to draw the boundary between exempt and taxable services is preferable to the provision of relief for blocked input tax credits of financial intermediaries. Finally, the author is skeptical of the case for a policy response intended to address the tax bias under an exemption system for financial intermediaries to insource supplies.

The legacy of Australia's treatment of onshore asylum seekers

The Australian government's response to the 'unlawful' arrival of asylum seekers has been characterised by a host of draconian measures - most notably mandatory detention and a punitive 'temporary protection visa' with severely limited access to settlement services. This hard stance was seen as important in stemming the tide of 'illegal' asylum seekers - most of whom seek protection in Australia from their war-torn countries in the Middle East. However, the government's own statistics suggest that this strategy is not working, as the number of asylum seekers has not decreased since these tough measures were adopted in October 1999. Moreover, as this study [2] argues, the restricted access to social services and income support imposed on TPV holders is causing significant economic hardships and unnecessarily traumatic settlement experiences. Many non-government agencies (most notably community organizations and ethnic associations) are left with the daunting challenge of meeting both practical and special needs of traumatized refugees.

Response : A defensible and workable approach to the income tax treatment of financial instruments

It is a privilege to have the opportunity to respond to the comments on my monograph1 provided by Mark Gergen, Glenn May, and Gordon Longhouse. Their comments, which are inevitably coloured by their very different perspectives, reflect the considerable expertise that each one of them has in the area of the income taxation of financial instruments. Indeed, it is with some hesitation that I offer a response in defence of various portions of the analysis presented in my monograph in support of some pretty modest proposals in this extremely difficult area of income tax law. Although I spent considerable time exploring some necessary first principles and their implications for the design of a system for the income taxation of financial instruments, I made several concessions to certain practical constraints that led me to support, in some measure, the status quo reflected in certain of the existing literature, as well as the legislation in a select group of countries. On the assumption that many readers may be unfamiliar with the monograph, I propose to respond by outlining much of my analysis in the monograph and the proposals that are the logical outcome. Throughout the outline, I will highlight and respond to what I see as the important points of difference emphasized by Gergen, May, and Longhouse.

Anaerobic treatment of juice and fruit-processing effluents

Effluents from the juice and fruit processing industries have high organic matter content. Discharge of these effluents without appropriate treatment would therefore have a negative impact on the environment. High organic contents and low contamination levels make such effluents suitable for biological treatment, especially anaerobic digestion. In the latter process, significant amounts of digester gas can be produced, turning a waste stream into a source of renewable energy that can be used for electricity and heat production, leading to financial benefits.This paper investigates the feasibility of anaerobic digestion and the gas generation potential of five different effluents from the carrot-juice, orange-juice and sultana processing industries. Benefits are assessed in terms of digester gas production and organic matter reduction. The results show that the specific gas production ranges between 665 and 860 m3 per tonne of effluent treated (as organic dry matter). Furthermore, nearly 100% of the organic matter is converted into gas in the case of the carrot- and orange-juice processing residues, while a 84.5% reduction of the organic matter was found to be achievable in the case of the sultana wastes. While these results are promising, further testing will be required to validate them in a larger scale.

The treatment of multicultural issues in contemporary forensic psychology textbooks

This article examines whether practice issues relating to clients from different cultural or ethnic groups are adequately addressed in a wide selection of contemporary forensic psychology textbooks. Specifically, we examine the extent to which cross-cultural issues are engaged within these texts, and how well the information provided informs forensic practice. While most of the reviewed texts acknowledged the need to consider cultural issues, there was relatively little discussion of specific issues, and practical guidelines were rarely offered. It is argued that without more widespread acknowledgment of the direct implications of cultural issues for forensic practice, it is unlikely that a fair and reliable system for the investigation and treatment of complaints made by and against people from different cultural groups will be obtained.

Is the treatment of economic loss by the Australian courts in torts cases anomalous?

The well developed economic theory of tort liability has never been able to comfortably accommodate negligence cases causing pure economic loss as opposed to physical damage or injury. In fact, contrary to received opinion, Australian Courts at least, are increasingly allocating pure economic losses to achieve predominantly an efficiency objective, with corrective justice notions relegated into the background. Consequently, it is difficult to classify these cases as anomalous in the sense of falling outside the efficiency paradigm.

Does successful treatment of constipation or faecal impaction resolve lower urinary tract symptoms? A structured review of the literature

Consensus guidelines advocate the treatment of constipation and faecal impaction in order to improve symptoms of urinary frequency, urgency and urinary incontinence and to promote bladder emptying in the absence of urinary tract obstruction. This structured review of the literature was undertaken to search for and appraise evidence to support or negate the hypothesis of this relationship. The search strategy was comprehensive and identified six relevant studies. Two of these had been conducted on an adult population and four studies involved children with constipation. These studies were appraised for methodological quality. It was found that sample sizes were small and evidence was inconsistent. Variable methods of reporting meant that data were not able to be pooled for meta-analysis.
Based on the limited and conflicting evidence, it is recommended that further research be undertaken to identify any correlation between bowel and bladder function.

The utility of the trans-theoretical model of behavior change in the treatment of sex offenders

This paper discusses the use of the Trans-theoretical Model of Behavior Change in the treatment of sex offenders. Constructs within this theory are the Stages of Change, Processes of Change and Decisional Balance. The first section of this paper provides a brief description of these constructs. The second section provides a brief review of research related to these constructs and discusses the implications of this research in relation to the treatment of sex offenders. The third section of this paper provides a practical description of the use of the constructs of the Trans-theoretical Model of Behaviour Change in the treatment of sex offenders. Although the validity of this model among sex offenders requires further investigation, the Trans-theoretical Model of Behavior Change appears to have considerable utility as an overarching theoretical model to conceptualize and facilitate behavior change among sex offenders.

Satisfaction with general practitioner treatment of depression among residents of aged care facilities.

Objective: This article investigates consumer perspectives on the treatment for depression among older people in residential facilities. Method: Aged care residents who were aware of being treated for depression in the past 6 months (24 women and 7 men, mean age = 83 years) participated in an interview that assessed their perspective on treatments. Results: Although more than half of the participants in the sample reported overall satisfaction with the medical treatments received for depression, qualitative data provided indications of unsatisfactory service delivery, including perceptions of low treatment efficacy, short consultation times, the failure to assess affective symptomatology, and negative responses to residents’ disclosure of symptoms. Discussion: The findings are discussed in relation to previous research on consumer satisfaction with health services and issues that may be pertinent to the elderly depressed. Training for general practitioners providing treatment in aged care is indicated.

Local total and radiative heat-transfer coefficients during the heat treatment of a workpiece in a fluidised bed

The heat-transfer coefficients around a workpiece immersed in an electrically heated heat treatment fluidised bed were studied. A suspension probe designed to simulate a workpiece of complex geometry was developed to measure local total and radiative heat-transfer coefficients at a high bed temperature. The probe consisted of an energy-storage region separated by insulation from the fluidised bed, except for the measuring surface, and a multi-thermocouple measurement system. Experiments in the fluidised bed were performed for a fluidising medium of 120-mesh alumina, a wide temperature range of 110–1050 °C and a fluidising number range of 1.18–4.24. It was found that the workpiece surface temperature has a more significant effect on heat transfer than the bed temperature. The total heat-transfer coefficient at the upper surface of the workpiece sharply decreased at the start of heating, and then steadily increased as heating progressed, while a sharp decrease became a rapid increase and then a slow increase for the radiative heat-transfer coefficient. A great difference in the heat-transfer coefficients around the workpiece was observed.

Conservative treatment of patellar tendinopathy

Patellar tendinopathy disrupts athletic careers in several sports and is resistant to many forms of conservative treatment. Outcome after conservative treatment has been minimally investigated, and the effect of these treatments on the pathology of overuse tendinopathy are not well understood.

The clinical assessment of patellar tendinopathy appears straightforward, but evidence suggests that the importance of imaging and palpation in diagnosis and ongoing assessment may be overestimated. There is a lack of clinically relevant research on which to base treatment. However, the principles of management for patellar tendinopathy derived from clinical experience include load modification, musculotendinous rehabilitation, and intervention to improve the shock absorbing capacity of the limb. The role of electrophysical agents, massage, and stretching in the treatment of patellar tendinopathy are also discussed. The progression of treatment is based on clinical grounds due to a lack of reliable subjective and objective tools to assess recovery.

The failure of some conservative programs could be due to either athlete compliance or practitioner expertise. The management of patellar tendinopathy is complex, and if the physiotherapist addresses all the principles of treatment, the chance of success could be increased.

Additive effect of interferential therapyover pelvic floor exercise alone in the treatment of female urinary stress and urge incontinence: A randomized controlled trial

This pilot study attempted to examine the additional efficacy of interferential therapy in reducing the symptoms of urinary stress and urge incontinence. Twenty-four subjects were randomly allocated to the experimental group, which received interferential therapy plus pelvic floor exercises, or the control group, which received pelvic floor exercises only. Treatment was given three times a week for 4 weeks. Subjects were given urinary diaries to record urinary symptoms (including frequency of passing urine and number of times woken by desire to pass urine) for 5 days prior to and after treatment. Perineometer readings, pad weighing test and start/stop test were also performed in a physiotherapy clinic before and at completion of treatment regimes. Significant improvements were observed in all the outcome variables in the experimental group, but in only the perineometer readings in controls. When the changes from pre- to post-treatment were compared between the two groups, four of the dependent variables did not reach statistical significance. Power analysis indicated that the sample size for each group needed to be 70 for all results to be statistically significant. This study shows that interferential therapy plus pelvic floor exercise appears to be a more effective treatment modality than pelvic floor muscle strengthening exercise alone for incontinence, but a larger trial with longer followup is needed before definitive conclusions can be reached.