Exam 1: Introduction to Federal Taxation in Canada

Wolfhowl Ltd. was incorporated in Banff, Alberta in 1961. Despite its Canadian charter, the Company has never carried on business in Canada. However, until 1971, all meetings of the Board of Directors were held in Banff. Since 1971, all board of directors meetings have been held in Wyoming . Determine the residency status of Wolfhowl Ltd.

"Taxpayers who earn $100,000 in dividends should pay the same amount of tax as taxpayers who earn $100,000 in capital gains." This statement reflects which of the following qualitative characteristics of an effective tax system?

Veronica Simms has Taxable Income for the current year of $843,000. Because of her modest life style, only $162,000 of this amount is spent on goods and services that are subject to the Harmonized Sales Tax (HST)at a rate of 13 percent. Her sister is currently attending university on a full time basis and lives in the same city. Her Taxable Income for the current year is $8,000. Because she is able to use savings accumulated during several years of employment, she spends $36,000 on goods and services that are subject to HST at 13 percent. Determine the effective HST rate as a percentage of the income of the two sisters.

Which of the following types of income earned by a non-resident is NOT subject to Canadian income tax under Part I of the Income Tax Act?

Which of the following forms of taxation provides the largest component of federal government taxation revenues?

What is income splitting? Under what circumstances will it provide tax benefits to an individual?

Fadel Ghanem has the following sources of income and deductions: What is Fadel's Net Income or Loss for Tax Purposes?

John Acheever is employed by Research In Limbo. He has worked for a number of years in their office in Kitchener, Ontario. However, he has become convinced that he would have quicker advancement if he transferred to their office in New York City. He requests this transfer and moves to that location in September, 2019. Before leaving he cancels his apartment lease, sells all of the personal property that he does not wish to move, and cancels his Ontario driver's licence. However, he retains his Canadian banking and brokerage accounts and, because of concerns about the cost of U.S. health care, he does not cancel his Ontario health care card (he changes the address to that of his parents in Waterloo, Ontario). He has also left his dog , Bart with his parents. After the move, he is shocked to realize how much he misses Bart. He finds himself flying back to Kitchener at least twice a month to spend the weekend caring for Bart. By February, 2021, after not being able to find a suitable dog-friendly apartment in New York City, John returns to his position in Kitchener. He has no plans to return to the U.S. Would John be considered a Canadian resident during the 18 months that he was absent from Canada? Explain your conclusion.

If an individual leaves Canada, the three most significant factors in determining whether he has ceased to be a resident are: • Whether he continues to own a dwelling in Canada. • Whether he is accompanied by his spouse or common-law partner. • Whether he maintains social ties in Canada.

ITA 3(b)requires the taxpayer to "determine the amount, if any, by which taxable capital gains exceed allowable capital losses". The rule that is established by this phrase is:

Since it came into power in 2015, the Liberal government has made a number of changes in the Canadian tax system. A brief description of three of these changes follows. Reduction To Tax Free Savings Account (TFSA)Contributions Limit - The TFSA provision allows non- deductible contributions to be made to a registered account where earnings accumulate on a tax free basis. Withdrawals from these accounts are not taxed. For 2016 and subsequent years, the maximum annual contribution has been reduced from $10,000 to $5,500. Small Business Tax Rate - For many years, the federal tax rate on active business income earned by Canadian Controlled Private Corporations was 11 percent, 4 percentage points less than the rate applicable to most other corporate income. In 2015, the Conservative government announced that the rate would gradually be reduced to 9 percent. The rate was reduced to 10.5 percent for 2016 but the further planned reductions were cancelled. However, in 2017, the planned reductions were re -instated, with the rate going to 10 percent for 2018 and 9 percent for 2019. Early Child Educator School Supply Tax Credit - The government introduced a new tax credit equal to 15 percent of eligible expenditures for supplies (e.g ., paper, glue, paint for art projects, etc.). The maximum base for the credit will be $1,000 of eligible supplies in each year. To qualify, the taxpayer must have a certificate or diploma in early childhood education. Required: Analyze each of the described changes using two of the qualitative characteristics of tax systems that are listed in your text. For your convenience, the list of qualitative characteristics presented in the text is as follows: • equity or fairness • neutrality • adequacy • elasticity • flexibility • simplicity and ease of compliance • certainty • balance between sectors • international competitiveness

Of the following publications, indicate the one that is NOT a legislative source.

Of the following individuals, who would be a resident or deemed resident of Canada for tax purposes this year? • Alex is a U.S. citizen who commutes each day to Canada for employment purposes. • Bob is a U.S. citizen who lives in Canada during the week for employment purposes, but returns to the U.S. on weekends to the house he shares with his wife and children. • Charles is a Canadian citizen who lived in Toronto until March of last year, at which time he left for a four year aid mission in Africa under an agreement with the Canadian International Development Agency. • Dick is a Canadian citizen who goes to school in the U.S. for eight months of each year but returns to Canada to live with his parents each summer.

The following two Cases make different assumptions with respect to the amounts of income and deductions of Ms. Leslie Burke for the current taxation year: Case A - Ms. Burke had employment income of $17,000 and net rental income of $8,500. Her unincorporated business lost $12,300 during this period. As the result of dispositions of capital property, she had taxable capital gains of $17,400 and allowable capital losses of $19,200. Her Subdivision e deductions for the year totalled $6,300. Fortunately for Ms. Burke, she won $1,000,000 in a lottery on March 3. Case B - Ms. Burke had employment income of $42,100, interest income of $8,200, and a loss from her unincorporated business of $51,000. As the result of dispositions of capital property, she had taxable capital gains of $22,400 and allowable capital losses of $19,200. Her Subdivision e deductions for the year amounted to $4,200. Required: For both Cases, calculate Ms. Burke's Net Income For Tax Purposes (Division B income). Indicate the amount and type of any loss carry overs that would be available at the end of the current year, or state that no carry overs are available.

Ms. Michelle Walker, a U.S. citizen, has Canadian employment income of $42,000 and U.S. employment income of $40,000 Canadian. She lives in Seattle, Washington and is a resident of the United States for the entire year. Ms. Walker does not believe that she is subject to taxation in Canada. Is she correct? Explain your conclusion.

There are a number of common areas of litigation involving the CRA. Indicate which type of transaction is least likely to be in dispute.

The following four Cases make different assumptions with respect to the amounts of income and deductions of Kirsten for the current year: Required: For each Case, calculate Kirsten's Net Income For Tax Purposes (Division B income). Indicate the amount and type of any loss carry overs that would be available at the end of the current year, or state that no carry overs are available.

Tanya Turek has the following sources of income and deductions: What is Tanya's Net Income for Tax Purposes?

Which of the following items would be deducted in converting Net Income For Tax Purposes to Taxable Income?

The Canadian income tax system is often used to achieve various economic objectives. Give three examples that illustrate this point.