Chapter 1 Flashcards
Residency
Progressive Approach
The more you earn, the higher the amount of taxes as a proportion of total income
What happens if you don’t declare the true income?
Heavily punished: 1. Will be on their watch list forever 2. You will have to pay back the amount you owe plus interest and a fine
How many parts does the Income Tax Act have?
17 parts (all broken into subdivisions)
How to find Division B income?
3a: all types of income + 3b; net taxable capital gains - 3c: Deductions - 3d: negative amounts of 3a = Diviion B income
What is taken in 3A income
Net employment income + net business income + net property income + other income
What is taken in 3B income
Net taxable capital gains (taxable capital gains - allowable capital losses)
What is taken in 3C income
Other deductions(-): moving expenses+attendant care+childcare expense+RRSP contributions
What is taken in 3D income
The negative amounts of 3A
Specified deductions to remove from Income Division B
Employee stock option deduction, home relocation loan deduction, life time capital gain deduction, losses from prior years
Division B - specified deductions =
Taxable Income
Resident is taxed on
worldwide income
Non-resident is taxed on
only Canadian income
Criteria to determine residency
1) Primary social and economic ties
2) Secondary residential ties
3) Temporary absences
Primary Social and Economic Ties
- Dwelling (house; except if it is being rented out at arms length
- Spouse or Common Law: except if they didn’t live together before he leaves
- Dependents: kids under 18
Secondary residential Ties
- Personal belongings: car, furniture
- Economic ties: working outside but with a Canadian employer, or investing Canadian income in Canada
- Social ties: active member of a class or club
- Drivers license and medicare card, if you still renew them
Temporary absences
- intention
- Frequency of visits
- Residential ties outside of Canada
What are deemed residents?
Physically not in Canada, but still subject to Canadian taxes (children follow the mother) + Do not live in a particular province, hence do not pay provincial taxes but instead 1.48 * federal taxes
Types of deemed resident
Ambassadors, members of armed forces and sojourners
Ambassadors and members of armed forces
If spouse and children move with the worker: they are all Canadian residents.
If worker meets someone abroad, that person will still be resident of their own country unless otherwise specified
Sojourner’s rule
If someone spends more than 183 days of a calendar year in Canada, they will be automatically considered a deemed Canadian resident and have to pay Canadian taxes for the whole year.
Part-Year residents
An individual coming/leaving Canada throughout the year will be considered a part time resident and will be taxed on Canadian income while he’s a non-resident and worldwide income while he is a resident
The date to for Part-year resident is the latest of:
- The date the individual leaves
- The date the common law or spouse and dependent leave
- the date the individual becomes resident of the country where he emigrated
Non-residents are taxed on:
employment income made in Canada
Business income earned in Canada
Taxable capital gains from the disposition of Canadian property
Who withholds taxes on non-residents?
The bank is the only agent who has access to the income earned by a non-resident so they are responsible for withholding 25% of their income
