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TAXX301 (ch.1)
Introduction to Federal Taxation in Canada
| Question | Answer |
|---|---|
| What are the three taxable entity types? | Individuals, Corporations, and Trusts |
| What are the four key steps in calculating income tax? | 1. Net Income 2. Taxable Income 3. Gross Tax 4. Personal Tax Credits |
| What is income tax? | A tax on the income of individuals, corporations, and trusts (federal & provincial) |
| What is property tax? | tax imposed on ownership of property (based on value assessment) |
| What is sales tax? | tax on the price of goods and services |
| What are the types of sales tax? | GST (goods and services tax), PST (provincial sales tax), HST (harmonized sale tax) |
| What are the types of payroll taxes? | CPP (Canada pension plan), EI (employment insurance), WCB (workers compensation board), and others |
| What are tariffs and customs duties? | Tax on import/export of goods and services |
| What is transfer tax? | Tax on transfer of property ownership from one person to another (sale of vacant land or residential home) |
| What is excise tax? | Charges on items like carbon emissions, tobacco, alcohol, insurance premiums, jewelry, gasoline, etc. |
| What is capital tax? | Tax on capital of large corporations like banks and insurance companies (not all provinces) |
| What is wealth/death tax? | Tax when someone dies based on value of property at time of death |
| Does Canada have inheritance tax? | No |
| What are the top three sources of federal revenue? | Personal income tax (47.2%), corporate income tax (17.4%), GST (10.7%) |
| What are the bottom three sources of federal revenue | Custom import duties (1.2%), non resident income tax (2.6%), other excise taxes (2.6%) |
| What is the Canada recovery dividend? | A proposed 15% one-time income tax on average taxable income from 2020 and 2021 on banks and insurance companies |
| What are the four tax entities? | Individuals, corporations, trusts, partnerships |
| What does ITA stand for? | Income Tax Act |
| What is the income tax return slip for each resident type? | Individuals - T1, corporations - T2, Trusts - T3 |
| Is a sole proprietorship a taxable entity? | No. Income is reported as personal business income on the T1 |
| How is business income reported in a partnership? | Each partner reports income allocated to them on a T1, T2, or T3 depending on resident type |
| What entities are tax exempt? | Municipal governments, registered charities, labor organizations, certain trusts (RRSP, RESP, TFSA, FHSA) |
| What is progressive income tax? | A method that applies a graduated series of tax rates to successively higher levels of income |
| What are the arguments in favor of progressive income tax | Equitability, Stability (self-regulating based on economic health) |
| What are the arguments against progressive income tax? | Complexity, discrimination against variable-income individuals, family unit problems, economic growth, tax concessions, tax avoidance, reduced tax revenues (between 40%-50% tax) |
| What is tax incidence? | The question of "who really pays a particular tax?" |
| What is statutory incidence? | The initial legal tax liability |
| What are tax expenditures? | Revenues given up by government (tax preferences, concessions, breaks) |
| What are the advantages of tax expenditures over Government funding programs? | Less costly to administer, reduce visibility of government actions, reduce tax system progressivity |
| What are the 8 desirable characteristics of tax systems? | Equity, neutrality (doesn't affect taxpayer decisions), adequacy, flexibility (can be adjusted), simplicity (ease of compliance), certainty (predictability), Balance between sectors (not reliant on corporate vs individual), international competitiveness |
| What is a tax haven? | A politically and economically stable country with flexible access, little or no tax, and don't share info with foreign tax authorities |
| Are all Canadian citizens subject to Canadian income tax? | No |
| What is an income tax treaty? | An agreement between two countries allocating tax rights and ensuring income is not taxed twice |
| What are the three types of residency? | Factual residency, deemed residency, deemed non-residency |
| What are the three most significant residential ties? | Dwelling (exception to renting out foreign dwelling), spouse/common law partner living in Canada, Dependents (minor children) |
| What are the 9 secondary residential ties? | Personal property, social ties (recreation/religious org's), economic ties, immigrant status/work permit, hospitalization/medical insurance coverage, drivers license/registered vehicle, seasonal dwelling, passport, union/professional org memberships |
| Are secondary ties sufficient in determining residency? | No. Not on their own |
| What are the 6 types of deemed residents? | Ppl in Canada <50% of year, stationed armed forces members, ambassadors/servants of CAN/province, ppl performing foreign services under prescribed gov program, dependent child of deemed resident (NI<BPA), ppl under ITT with 90%+ exemption to foreign tax |
| What are the tiebreakers rules of the CAN/USA income tax treaty? | 1. permanent home 2. centre of vital interests 3. habitual abode 4. citizenship 5. competent authority |
| What is the general analysis of determining residency? | 1. determine factual vs deemed residency 2. determine foreign residency 3. determine foreign country ITT w CAN 4. if ITT, apply tiebreaker rules 5. if ITT determines foreign residency, deem them non-resident, if otherwise deem them resident |
| Any company incorporated in Canada after ____ is automatically deemed a resident of Canada | April 26th, 1965 |
| What is the general analysis of determining corporation residency? | 1. determine factual vs deemed residency 2. determine dual residency 3. determine if foreign country has ITT w CAN 4. if ITT, apply tiebreaker rules 5. if ITT results in foreign residency, corp is deemed non-resident of Canada and vice versa |
| What does GAAP stand for? | Generally accepted accounting principles |
| What does ASPE stand for? | Accounting standards for private enterprises |
| what does IFRS stand for? | International financial reporting standards |
| What are the 3 important points to determine something a source of income? | 1. continuity (over period of time, not a one-time transaction) 2. capability to generate positive returns (profit motive, potential for profit) 3. income determined on net basis (gross income - related expenses) |
| What does net income consist of? | 1. sources of income 2. capital gains/losses 3. other income 4. other deductions |
| Do negative numbers exist in the ITA? | No. Negative numbers are always nil |
| What are the 3 sources of income? | 1. employment income (individuals only) 2. business income 3. property income |
| What is taxable capital gain? | The 1/2 of capital gain that is taxable |
| What is allowable capital loss? | The 1/2 of capital loss that is taxable |
| What is income splitting? | sharing family aggregate income among members to benefit under progressive income tax |
| What are the 3 goals of income tax planning? | Tax avoidance/reduction, tax deferral, income splitting |
| What does BPA stand for? | Basic personal amount (level of income that is tax-free) |
| What does CCA stand for? | Capital cost allowance |
| What does CCPC stand for? | Canadian controlled private corporation |
| What does FMV stand for? | Fair market value |
| What does IC stand for? | Information circular |
| What does IT stand for? | interpretation bulletin |
| What is a folio? | a CRA income tax folio (interpretations and provisions on the ITA) |
| What does RPP stand for? | Registered pension plan |
| What does TOSI stand for? | Tax on split income |
| What does UCC stand for? | Underappreciated capital cost |
| What does TIEA stand for? | Tax information exchange agreement |
| What is the structure of the ITA? | Part (1-XX) - section (1-295) - subsection (arabic numeral) - paragraph (lower case letter) - subparagraph (lower case roman numeral) |
| How do you calculate net income for taxes? | The amount by which: [(positive amounts of employment. business, property income) + (excess taxable capital gains - allowable capital losses) - deductions] exceeds losses from employment, business, property, allowable business investment losses |
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