Workers who received stock options from their employers could be hit hard with an unexpected tax bill, even if they never benefited from the stock's profit.

According to Canada's tax laws, people who cash in stock options that once climbed and later plummeted will be taxed on the paper profit of those stocks -- even if they never received any money from the profit.

Ex-Entrust employee Carolyn Jarvis made $2,000 when she cashed in her stock options. However, five years later the tax department told her she owed $50,000 in taxes and penalties.

"It caused me great emotional pain," Jarvis told CTV Ottawa. "It was a real struggle to pay; to take a second mortgage on my home. It nearly caused me personal bankruptcy."

Ron Varder, another former Entrust employee, had a similar experience. He cashed in his stock options and then paid the government more than $80,000 in taxes, plus the money he spent on nearly three years fighting the tax law in court.

"They garnished my wages; they seized my assets. I had to liquidate everything and take a second mortgage on my home. I had no choice; I had to pay them," said Varder.

Former employees at Nortel, Entrust, JDS and other companies set up a website about one year ago to start pushing the federal government to realize the consequences of the tax law.

Those consequences will be tough on Nortel employees if the company declares formal bankruptcy. If that happens, every stock option will be deemed to have been cashed, which means people who hold Nortel stock options will also be taxed.

"In my case, if Nortel declares bankruptcy, I will be facing a second tax bill. This one will be $600,000 and this will be the end of my financial life," said Ragui Kamel, a former Nortel employee and member of Canadians for Fair and Equitable Taxation.

"I don't know why someone thinks this is a reasonable approach to have a law that says someone must pay taxes that are beyond their abilities to pay," added Jim Thompson, an ex-JDS manager.

The group says most politicians, with the exception of those in the government, are sympathetic to their lobby efforts over the unfairness of the law.

"Everyone we talk to is sympathetic. Not a single person has said you are all wrong, the law should remain. They say this is not fair; how could this be, how could this law be in Canada?" said Kamel.

If the law remains, former Nortel worker Rob Morse, 69, will be forced to pay more than $200,000 in taxes on his Nortel stock options - options that would only pay him about $250.

To pay the bill, Morse said he will have to sell his home and cash his RRSP, which he will also have to pay taxes on. In all, he expects it will cost him close to $400,000.

"Checking a little box on a form has changed my life forever," he said.

The United States changed a similar law last fall, but so far that hasn't prompted any changes in Canada. The federal revenue minister did not return calls on the issue.

With a report from CTV Ottawa's Paul Brent