Chapter 1: Federal Taxation in Canada Flashcards
Resource Allocation
tax revenues used to provide public goods and services.
What are the four reason to why we have tax in Canada?
1) Resource Allocation
2) Distribution Effects
3) Stabilization Effects
4) Fiscal Federalism
Distribution Effects
federal tax system redistributes income and wealth.
Stabilization Effects
tax policy used to encourage economic expansion, increate employment and maintain inflation level.
Fiscal Federalism
allocate resources among different government levels.
What are the four services or programs that are funded by the Canadian government?
1) Healthcare
2) Education
3) Railroads
4) Investment Tools
Who is liable to pay tax?
1) Individuals
2) Corporations
3) Trusts
Who charges and collects the tax revenues?
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.
Progressive Tax System
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.
Regressive Tax System
flat tax rates. less complex but higher income earners benefits more (lower overall proportion of taxes paid to income earned).
Tax Revenue
all potential taxes payable to the government.
Expenditures
all money paid out to programs/services and any reductions to tax liabilities such as income tax credits.
What are the eight qualitative factors of the Canadian Tax System?
1) Equity/Fairness
2) Simplicity
3) Certainty
4) Balance b/n Sectors
5) Neutrality
6) Adequacy
7) Flexibility
8) International Competitiveness
Equity Characteristics
Not well done because high-income individuals pay little or no tax.
Balance Between Sectors
Not well done because there is heavy reliance on personal income tax and low portion of revenues from corporate and GST/HST.
Simplicity
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.
International Competitiveness
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.
What are three main residential ties that will mean you have Canadian residency?
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.
What are the three other deciders of residency?
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.
What are the tie-breaker rules of residency status in the Canadian/US Income Tax Treaty?
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.
Sojourner Rule
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.
