Exam 1: Introduction to Federal Taxation in Canada

Daniel Bourne is a U.S. citizen who lives in Fargo, North Dakota. For many years, he has had a cottage on Manitoba's Lake Winnipeg . In recent years, however, he has made little use of this property and, given this, he has sold the property. While there was a gain of $50,000 on the sale, Daniel assumes that he will not pay Canadian taxes on this amount as he is a U.S. citizen. Is he correct? Explain your conclusion.

When an individual is absent from Canada for some period of time, the length of their absence is an important factor in determining whether they continued to be a Canadian resident during the period of their absence.

Jamal, his wife and two teenage children are all Canadian citizens. For the last 2 years he and his family have been living in Mexico while he works for the Mexican subsidiary of a Canadian company. Jamal still owns his house in Canada. His wife and children stay there for 2 months in the summer and he spends 4 weeks a year there. The rest of the time the house is empty as his wife visits family in Canada regularly. Jamal has no definite plans to return to Canada and loves living in Mexico. However, since his mother-in-law is very ill, it is possible that his wife will have to return to Canada for at least 6 months to nurse her mother. Which of the following statements is correct?

Barton Vader is a Canadian citizen who has always lived in London, Ontario. He has a spouse and two school-aged children. As of May 2019, he accepts a new employment position in Akron, Ohio. On October 1, 2019, he moves to Akron to locate housing for his family. In order for his children to finish the school term, his family remains in London until January 1, 2020. When they move, John severs all residential ties with Canada other than the family residence. The residence is placed on the market in January, 2020. However, it has not been sold as of December 31, 2020. While Barton was scheduled to begin working in the U.S. in early 2020, he is unable to obtain the required residency documents until July 1, 2020. Explain Barton's Canadian tax status for the years 2019 and 2020.

The residency of a trust depends on the country in which the central management and control of the trust takes place, not where the beneficiaries reside.

Which of the following will always result in tax avoidance?

Mary is a Canadian citizen who is employed by a corporation operating in Canada and the U.S. While she has worked for many years in the Canadian office of this organization, she agreed to transfer to the corporation's U.S. head office in New York City. Before leaving , she disposed of her residence and other personal property that she did not wish to move. She canceled her Saskatchewan driver's licence and health care card, and closed all of her Canadian banking and brokerage accounts. Because her boyfriend remained in Regina, she found herself flying back to Canada at least once a month. After two years, she concluded that between the high cost of living in New York City and the travel required to maintain the relationship with her boyfriend, she would return to Canada. Would Mary be considered a Canadian resident during the two years that she was absent from Canada? Explain your conclusion.

Distinguish between horizontal equity and vertical equity as these terms are used in describing tax systems.

Of the following statements related to liability for Canadian income tax, which statement is NOT correct?

Karla Ho has Taxable Income of $26,700. For the current year her federal tax rate is 15 percent and the corresponding provincial rate is 10 percent. Determine Ms. Ho's combined federal and provincial Tax Payable, before consideration of any available credits against Tax Payable.

Provide an example of how taxation policy can be used to influence resource allocation.

What is the importance of residence in Canadian income taxation?

Ms. Sonia Nexus is a computer specialist with net employment income of $66,000. During the current year she has: • a taxable capital gain on the sale of land of $13,500, • an allowable capital loss on the sale of shares of $24,000, • interest income of $10,250, • net rental losses of $6,750, and • a loss from her unincorporated business of $28,000. In addition, she makes spousal support payments of $14,000 and makes a deductible contribution to her RRSP of $3,000 (these are Subdivision e deductions). Determine her minimum Net Income For Tax Purposes for the current year and indicate the amount and type of any loss carry overs that are available at the end of the year. Show all of your calculations.

Part I of the Income Tax Act is the largest and most important part.

Briefly describe the procedures used in calculating provincial income taxes for individuals in provinces other than Quebec.

"We should not have a tax system which encourages investment in particular assets or in specific areas of the country." This statement reflects which of the following qualitative characteristics of an effective tax system?

Which of the following statements accurately describes the Income Tax Act view of income?

At the end of the current year, Michael Resner departed from Canada in order to take a permanent position in Mexico. He was accompanied by his common-law partner and their children, as well as what personal property he had not sold. Due to the intent of his neighbour to start a pig farm, he was unable to sell his residence at a satisfactory price. However, he was able to rent it for a period of two years. He also retained his membership in the CPA (Chartered Professional Accountants)Alberta. After his departure, would he still be considered a Canadian resident for tax purposes? Explain your conclusion.

Ms. Sarah Bloom convinces her employer to provide her with a private drug plan in lieu of additional salary. What type of tax planning is involved in this transaction? Explain your conclusion.

Which of the following items does not result in tax avoidance?