Chapter 1 - Intro to Federal Income Tax in Canada

Question 1

Practice of Tax (4 things)

Answer 1

Compliance
Tax Planning
Legal Interpretations
Tax appeals and tax litigation

Question 2

Classification of Taxes

Answer 2

Head tax
Income tax
Wealth tax
Commodity tax
User tax
Tariff
Transfer tax
Business transfer tax

Question 3

Head tax

Answer 3

a tax on the existence of a particular type of taxpayer

Question 4

Income tax

Answer 4

tax on income of the taxpayer

Question 5

Wealth tax

Answer 5

tax on capital gains or succession duties, or a tax on the accumulated capital of a taxpayer

Question 6

commodity tax

Answer 6

tax on the consumption of the commodity subject to tax

Question 7

user tax

Answer 7

a toll for a bridge or road; a tax on the use of a facility or service

Question 8

tariff

Answer 8

tax or duty usually imposed on imported goods to increase the price of such goods relative to domestic goods

Question 9

transfer tax

Answer 9

tax on the value of property transferred from one owner to another

Question 10

business transfer tax

Answer 10

a value-added tax, or a multi-stage sales tax, such as the good and services tax or HST, is a tax on the increase in value of a commodity created by the taxpayer in moving it from one stage of production/distribution to another

Question 11

Horizontal Equity

Answer 11

persons at the same economic level are affected by the tax to the same degree in terms of the amount of tax, irrespective of the form of income generated (e.g. person earning $100,000 in salary should be taxed the same amount as one who earns $100,000 in investment income

Question 12

Vertical Equity

Answer 12

persons at a higher economic level pay a greater share of the tax based on their ability to pay than those at a lower economic level (e.g. person with income level of $100,000 should proportionally pay more tax than those who earn $25,000, because they have at their disposal more funds in excess of what’s required to satisfy their personal needs)

Question 13

Neutrality

Answer 13

an income tax should be neutral so that the tax doesn’t affect economic decisions. For a tax system to be considered neutral, a decision based on the after-tax results of an economic opportunity shouldn’t be any different than it would have been in the absence of taxation.

Question 14

Flexibility

Answer 14

system should be flexible to permit its use as an instrument of economic policy

Question 15

Certainty

Answer 15

taxpayers know in advance of the tax consequences of any transaction so that they may plan their affairs accordingly

Question 16

Simplified Computation of Income Under Division B, Section 3:

Answer 16

Analyze the above information and prepare an income statement for the year 2020, starting with income from continuing operations before income tax. Calculate earnings per share as it should be shown on the face of the income statement. (Assume a total effective tax rate of 25% on all items, unless otherwise indicated.) (Round per share answers to 2 decimal places, e.g. 52.75. Disclose Discontinued operations tax information separately.)