Chapter 1: Federal Taxation in Canada

Question 1

Resource Allocation

Answer 1

tax revenues used to provide public goods and services.

Question 1

What are the four reason to why we have tax in Canada?

Answer 1

1) Resource Allocation
2) Distribution Effects
3) Stabilization Effects
4) Fiscal Federalism

Question 2

Distribution Effects

Answer 2

federal tax system redistributes income and wealth.

Question 3

Stabilization Effects

Answer 3

tax policy used to encourage economic expansion, increate employment and maintain inflation level.

Question 4

Fiscal Federalism

Answer 4

allocate resources among different government levels.

Question 5

What are the four services or programs that are funded by the Canadian government?

Answer 5

1) Healthcare
2) Education
3) Railroads
4) Investment Tools

Question 6

Who is liable to pay tax?

Answer 6

1) Individuals
2) Corporations
3) Trusts

Question 7

Who charges and collects the tax revenues?

Answer 7

1) Federal Government: often collects both the federal and provincial portions and redistributes to provinces (except Quebec). Income, sales, excise.
2) Provincial Government: income, sales, excise.
3) Municipal Government: property taxes.

Question 8

Progressive Tax System

Answer 8

graduated series of tax rates, perceived as fairer as higher income earners pay a higher proportion of tax but more complicated, especially with anti-avoidance rules.

Question 9

Regressive Tax System

Answer 9

flat tax rates. less complex but higher income earners benefits more (lower overall proportion of taxes paid to income earned).

Question 10

Tax Revenue

Answer 10

all potential taxes payable to the government.

Question 11

Expenditures

Answer 11

all money paid out to programs/services and any reductions to tax liabilities such as income tax credits.

Question 12

What are the eight qualitative factors of the Canadian Tax System?

Answer 12

1) Equity/Fairness
2) Simplicity
3) Certainty
4) Balance b/n Sectors
5) Neutrality
6) Adequacy
7) Flexibility
8) International Competitiveness

Question 13

Equity Characteristics

Answer 13

Not well done because high-income individuals pay little or no tax.

Question 14

Balance Between Sectors

Answer 14

Not well done because there is heavy reliance on personal income tax and low portion of revenues from corporate and GST/HST.

Question 15

Simplicity

Answer 15

It is actually complexity because compliance is difficult due to complex tax system, administration of legislation difficult due to large number of provisions, potential for conflicting interpretations.

Question 16

International Competitiveness

Answer 16

Corporations: compare favourably with most foreign jurisdictions.

Individuals: increase to 33% (highest federal tax bracket) made Canada less competitive with other countries particularly U.S.

Question 17

What are three main residential ties that will mean you have Canadian residency?

Answer 17

1) Dwelling: if you maintain a property in Canada.
2) Spouse or Partner: if your spouse or partner remain in Canada.
3) Dependants: if you have children that remain in Canada.

Question 18

What are the three other deciders of residency?

Answer 18

Intent: if an individual left for an employment contract for a limited period of time they will be seen as not severing ties.

Frequency of Visits: if they continue to visit Canada on a regular basis they are seen as not severing ties with Canada.

Residential Ties Outside Canada: if they are trying to sever ties with a country they have no ties to they are seen as severing ties with Canada.

Question 19

What are the tie-breaker rules of residency status in the Canadian/US Income Tax Treaty?

Answer 19

1) Permanent Home: if the individual has a permanent home available in only one country the individual will be considered a resident of that country.

2) Centre of Vital Interest: look at in which country in individual’s personal and economic relations are greatest.

3) Habitual Abode: if the two first test don’t work, the country where the individual spends the most time.

4) Citizenship: If above three don’t work, then the individual will be considered a resident of the country in which the individual is a citizen.

5) Competent Authority: if none work, you open dialogue between the two countries for them to figure it out.

Question 20

Sojourner Rule

Answer 20

If an individual lives in either Canada or the United States for more than 183 they are deemed a citizen of that country. If a treaty rules occurs then it overrides the sojourner rule.