Chapter 14

Question 1

​________ involves structuring transactions to reduce the tax liability of the taxpayer consistent with the intent of the income tax legislation.

a) Tax avoidance
b) Tax evasion
c) Tax planning
d) Tax fraud

Answer 1

c) Tax planning

Question 2

Carl works for Sam. Sam pays Carl entirely in cash and does not issue any tax reporting documents to​ Carl, although both know they are supposed to submit reporting documentation. Carl does not file an income tax return. Carl and Sam are engaging in​ ________.

a) tax collection
b) tax evasion
c) tax planning
d) tax avoidance

Answer 2

b) tax evasion

Question 3

A transaction​ (or series of​ transactions) that results in a tax benefit and has no other bona fide purpose is​ ________.

a) a tax shelter
b) a general​ anti-avoidance rule​ (GAAR)
c) effective tax planning
c) an avoidance transaction

Answer 3

c) an avoidance transaction

Question 4

The largest single source of revenue for the Canadian government is​ ________.

a) personal property tax
b) corporate income tax
c) goods and services tax
d) personal income tax

Answer 4

d) personal income tax

Question 5

Which of the following taxes combines both federal and provincial sales taxes into a tax​ levy?

a) Harmonized Sales Tax​ (HST)
b) Combined Sales Tax​ (CST)
c) Provincial Sales Tax​ (PST)
d) Goods and Services Tax​ (GST)

Answer 5

a) Harmonized Sales Tax​ (HST)

Question 6

Which of the following​ elements, within the organization and structure of the Income Tax​ Act, refers to a subparagraph of the Income Tax​ Act?

a) lowercase Roman numeral in parentheses
b) uppercase Roman numeral
c) lowercase letter in parentheses
d) Arabic numeral

Answer 6

a) lowercase Roman numeral in parentheses

Question 7

Canadian individual income tax is an example of​ a(n) ________ tax system.

a) progressive
b) regressive
c) flat
d) aggressive

Answer 7

a) progressive

Question 8

The primary purpose for the federal government to collect tax revenues is to​ ________.

a) provide public goods and services
b) encourage economic expansion
c) provide funding for provincial and territorial government units
d) redistribute wealth from the wealthy to the poor

Answer 8

a) provide public goods and services

Question 9

Which of the following taxes is inherently a regressive tax​ system?

a) federal individual income tax
b) property tax
c) provincial individual income tax
d) sales tax

Answer 9

d) sales tax

Question 10

Income Tax Regulations​ ________.

a) are proposed changes to the Income Tax Act that are scheduled to be voted on
b) are established to provide specific details and procedural requirements necessary to enforce the Income Tax Act
c) are additions to the Income Tax Act that have not yet been passed into law
c) are established to adjust or change income tax rates on an annual basis

Answer 10

b) are established to provide specific details and procedural requirements necessary to enforce the Income Tax Act

Question 11

Division​ ________ of the Income Tax Act deals with computing the net income for a taxpayer resident in Canada.

A

B

C

D

Answer 11

B

Question 12

Administrative or informative guides that can assist with filing an individual income tax return can be found​ ________.

a) within the narrative of court cases
b) within the Income Tax Regulations
c) within the Income Tax Act
d) on Canada Revenue​ Agency’s website

Answer 12

d) on Canada Revenue​ Agency’s website

Question 13

CRA publications can best be described as​ ________.

a) extensions of the Income Tax Act that have the force of law
b) helpful interpretations of how the Income Tax Act applies to​ real-life scenarios;​ however, these interpretations do not have the force of law
c) internal government documents that are not intended for the public
d) established precedents for how a court will decide a tax case

Answer 13

b) helpful interpretations of how the Income Tax Act applies to​ real-life scenarios;​ however, these interpretations do not have the force of law

Question 14

If a Canadian taxpayer is unsure of the income tax consequences of a proposed​ transaction, he or she may choose to pay a fee for the CRA to issue​ a(n) ________.

a) Income Tax Folio
b) Advance Income Tax Ruling
c) Interpretation Bulletin
c) Information Circular

Answer 14

b) Advance Income Tax Ruling

Question 15

Section 3 of the Income Tax Act​ describes:

a) the liability for income tax for​ non-residents earning Canadian income
b) the computation of Net Income for a taxpayer for the current year
c) the liability for income tax for residents of Canada
d) the computation of Taxable Income for a taxpayer for the current year

Answer 15

b) the computation of Net Income for a taxpayer for the current year

Question 16

A Taxable Capital Gain is defined​ as:

a) Taxable Capital Gains minus​ 50% of Capital Losses in a taxation year
b) Capital Gains minus Capital Losses realized in a taxation year
c) Taxable Capital Gains minus Allowable Capital Losses in a taxation year
d) ​50% of a Capital Gain realized in a taxation year

Answer 16

d) ​50% of a Capital Gain realized in a taxation year

Question 17

When the Income Tax Act refers to a​ person, it refers to​ ________.

a) an individual​ person, corporation, or a trust
b) an individual​ person, partnership, or corporation
c) an individual person
d) a​ corporation, partnership, or trust

Answer 17

a) an individual​ person, corporation, or a trust

Question 18

If a Canadian citizen is subject to taxes as a resident of Canada and as a resident in another​ country, most often​ _______________.

a) the Canadian Income Tax Act will determine the​ individual’s residency
b) he or she will be subject to double taxation on his or her worldwide income
c) the taxpayer​ can’t choose which country he or she wants to claim residency for tax purposes
d) international tax treaties will determine the​ individual’s residency

Answer 18

d) international tax treaties will determine the​ individual’s residency

Question 19

Whether an individual is a resident or​ non-resident for Canadian tax purposes​ ________.

a) is determined solely on the basis of where an individual lives
b) is not easily determined for all individuals
c) is clearly defined in ITA 250 in the Income Tax Act
d) is determined by the​ individual’s citizenship

Answer 19

b) is not easily determined for all individuals

Question 20

Sam is an individual who is a Canadian citizen. On July 1 of the current​ year, Sam moves to Mexico. He sells his Canadian​ home, drives his car to​ Mexico, rents an apartment in Mexico​ City, and commences employment in Mexico. Sam is single and does not have any dependents or a​ spouse, and at the time he leaves​ Canada, he does not have any intent to return to Canada to live. What type of Canadian taxpayer will Sam be for the current​ year?

a) resident
b) ​non-resident
c) resident abroad
d) ​part-year/part-time resident

Answer 20

d) ​part-year/part-time resident

Question 21

Regarding the taxation of​ non-residents in​ Canada, ________.

a) ​non-residents who are employed in Canada are taxed on the same income as residents of Canada
b) ​non-residents are only subject to tax in Canada on employment income earned in Canada
c) ​non-residents are never subject to Canadian tax
d) ​non-residents are subject to tax on certain sources of income earned in Canada

Answer 21

d) ​non-residents are subject to tax on certain sources of income earned in Canada

Question 22

David is a French citizen who comes to Canada to attend a Canadian university. He also works part time during his stay in Canada. He arrives in Canada on May 1 of the current year and departs to return to France on February 1 of the following year. David never intended to stay in Canada permanently and is treated as a resident of France in the both the current and following years. What is​ David’s residency​ status, for tax​ purposes, in Canada in the current​ year?

a) as a resident
b) as a​ part-year resident
c) as a​ non-resident
d) as a resident alien

Answer 22

c) as a​ non-resident

Question 23

Mark is a U.S. resident who lives in Minnesota and who owns a second home in Winnipeg. His only income consists of wages from his U.S. employer. The second home is used only by Mark and his​ family, and he does not rent it out for any portion of the year. Given these​ circumstances, Mark is subject to Canadian taxes​ ________.

a) in the year he sells the second home for a profit
b) only if he becomes a permanent Canadian resident
c) on any income he earns while staying at the second home
d) each year he owns the second home

Answer 23

a) in the year he sells the second home for a profit

Question 24

Individual taxpayers are considered Canadian residents if​ ________.

a) they invest in the Canadian stock market or conduct business in Canadian dollars
b) they maintain primary residential ties in​ Canada, whether they live in Canada or abroad
c) they have ever filed a Canadian resident tax return
d) they are Canadian citizens

Answer 24

b) they maintain primary residential ties in​ Canada, whether they live in Canada or abroad

Question 25

Determining residency applies to​ ________.

a) ​individuals, corporations, and trusts
b) individuals and corporations
c) individuals only
d) individuals and trusts

Answer 25

a) ​individuals, corporations, and trusts

Question 26

As ITA​ 3(b) indicates Taxable Capital Gains exceed Allowable Capital​ Losses, which of the following statements is correct in the calculation of Net Income for tax purposes in a​ year?

a) The net amount reported under​ 3(b) cannot be zero
b) The net amount reported under​ 3(b) cannot be a positive amount
c) The net amount reported under​ 3(b) does not apply in the computation of net income for a year
d) The net amount reported under​ 3(b) cannot be a negative amount

Answer 26

d) The net amount reported under​ 3(b) cannot be a negative amount

Question 27

How is the collection of corporate income taxes​ handled?
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a) Canada Revenue Agency collects federal taxes and each province collects provincial income taxes.
b) Canada Revenue Agency collects federal and MOST provincial income taxes.
c) The applicable provincial finance and revenue agency collects both federal and provincial income taxes for corporations operating within the province.
d) Canada Revenue Agency collects both federal and ALL provincial income taxes.

Answer 27

b) Canada Revenue Agency collects federal and MOST provincial income taxes.

Question 28

If a taxpayer is unsure how to treat a particular transaction on his or her income tax​ return, the taxpayer could look to​ ________ to determine if a precedent has been established for the same or similar transactions.

a) international tax treaties
b) advance income tax rulings
c) draft legislation
d) court decisions

Answer 28

d) court decisions

Question 29

Publications that are currently issued by the CRA to provide detailed information about specific topics within the Income Tax Act are called​ ________.

a) Income Tax Folios
b) Income Tax Technical News
c) Electronic Libraries
d) Technical Interpretations

Answer 29

a) Income Tax Folios

Question 30

The forms that are required to file an income tax return can be found​ ________.

a) at municipal courthouses
b) on the​ CRA’s website
c) within the Income Tax Act
d) within Income Tax Regulations

Answer 30

b) on the​ CRA’s website

Question 31

A primary purpose of international tax treaties is to​ ________.

a) eliminate double taxation on the same income of a company
b) establish diplomatic relations between Canada and other countries
c) allow companies to operate​ tax-free outside of their home country
d) encourage companies to establish international operations

Answer 31

a) eliminate double taxation on the same income of a company

Question 32

The entities that are subject to income tax in Canada consist of​ ________.

a) ​individuals, corporations, and trusts
b) ​corporations, trusts, and estates
c) ​individuals, corporations, and estates
d) ​individuals, corporations, and partnerships

Answer 32

a) ​individuals, corporations, and trusts

Question 33

Corporate income taxes are imposed by​ ________.

a) the federal government and ALL provincial governments
b) ONLY the federal government
c) the federal government and SOME provincial governments
d) ONLY provincial governments

Answer 33

a) the federal government and ALL provincial governments

Question 34

Corporate income taxes in Canada are generally intended to be a​ ________ system.

a) progressive
b) single payer
c) regressive
d) flat tax

Answer 34

d) flat tax

Question 35

Which of the following underlying objectives of the income tax system in Canada ensures that taxpayers in similar scenarios are subject to similar amounts of income tax while taxpayers in different scenarios pay different amounts of income​ tax?

a) International Competitiveness
b) Equity
c) Simplicity
d) Neutrality

Answer 35

b) Equity

Question 36

The main objective behind taxing the income of corporations in Canada is​ ________.

a) to​ re-allocate funds from large corporations to Canadian citizens
b) to provide funding for the Canadian government
c) to discourage corporations from becoming excessively profitable
d) to deter the corporations from accumulating large profits without distributing them

Answer 36

b) to provide funding for the Canadian government

Question 37

​________ is/are intended to provide operational details for administration of the Income Tax Act.

a) International tax treaties
b) Court decisions
c) Draft legislation
d) Income tax regulations

Answer 37

d) Income tax regulations

Question 38

Of the​ following, which is the lowest level in the organizational format of the Income Tax​ Act?

a) Subclause
b) Subsection
c) Subparagraph
d) Division

Answer 38

a) Subclause

Question 39

Which of the following persons would be subject to tax in​ Canada?

a) a former Canadian citizen who has surrendered his citizenship and lived in the US for 5 years
b) a US citizen who visits Canada on vacation
c) a US corporation that employs Canadian citizens to work in its US facility
d) a US corporation that has a distribution facility located in Canada

Answer 39

d) a US corporation that has a distribution facility located in Canada

Question 40

The charging provision of the ITA deals with​ ________.

a) what amount of a​ taxpayer’s income is subject to tax
b) when a​ taxpayer’s taxes payable are due
c) the amount of tax a taxpayer owes
d) who is liable for payment of Canadian taxes

Answer 40

d) who is liable for payment of Canadian taxes

Question 41

Which of the following factors is MOST important when determining the residency of a corporation for Canadian tax​ purposes?

a) The​ corporation’s country of incorporation.
b) Whether or not a tax treaty exists with the other countries that the corporation has operations in.
c) The location in which the highest level of decision making for the corporation takes place.
d) The residence of the CEO and board of directors of the corporation.

Answer 41

c) The location in which the highest level of decision making for the corporation takes place.

Question 42

How is the residence of a company that is incorporated in Canada after April​ 27, 1965​ determined?

a) The company is deemed to be a resident of​ Canada, and a​ non-resident of any other countries within which it operates.
b) The company is deemed to be a resident of whatever country its headquarters and upper management is located within.
c) The company is deemed to be a resident of​ Canada, and can also be a resident or​ non-resident of other countries within which it operates.
d) The company is deemed to be a resident of Canada so long as any of its shareholders are Canadian residents.

Answer 42

c) The company is deemed to be a resident of​ Canada, and can also be a resident or​ non-resident of other countries within which it operates.

Question 43

The tax year for a corporation is​ ________.

a) a fiscal period not longer than 53 weeks chosen by the corporation
b) any 12 month period of the​ corporation’s choosing
c) a fiscal period of any length chosen by the corporation
d) the calendar year

Answer 43

a) a fiscal period not longer than 53 weeks chosen by the corporation

Question 44

Which of the following BEST describes the general nature of a​ corporation’s residence?

a) Residence is primarily determined based on the country of incorporation and which country the corporation desires to be a resident of.
b) Residence is primarily determined based on tax treaties that exist among countries within which a corporation does business.
c) Residence is a subjective test based on the particulars of a​ corporation’s operations, and is not easily manipulated.
d) Whether or not a company is a Canadian resident is easily determined by applying the rules within the ITA.

Answer 44

c) Residence is a subjective test based on the particulars of a​ corporation’s operations, and is not easily manipulated.

Question 45

Under section 3 of the​ ITA, the first step in determining a​ corporation’s net income is​ ________.

a) netting allowable capital losses against other sources of income
b) determining the excess of taxable capital gains over allowable capital losses
c) adding all positive sources of income
d) netting all positive and negative sources of income

Answer 45

c) adding all positive sources of income

Question 46

When computing Net Income for Tax​ Purposes, which of the following loss types are deductible against any type of income of a​ corporation?

a) property loss carry overs
b) current year business losses
c) employment loss carry overs
d) current year allowable business investment losses

Answer 46

d) current year allowable business investment losses

Question 47

BMO Financial Group is a Canadian resident corporation that also operates in the US. With respect to taxation of the income of BMO Financial​ group, it will​ ________.

a) be subject to Canadian taxation only on its income from sources within Canada
b) will NOT be subject to Canadian taxation on any of its income
c) be subject to Canadian taxation on its worldwide income
d) be subject to Canadian taxation on its Canadian and US​ income, but NOT on income from other global operations

Answer 47

c) be subject to Canadian taxation on its worldwide income

Question 48

The US​ company, Walmart, is a resident of the US and also has stores in Canada. How is the corporate income of Walmart taxed in​ Canada?

a) The worldwide income of Walmart is subject to Canadian taxation.
b) None of​ Walmart’s income is subject to Canadian taxation.
c) The income Walmart derives from its Canadian operations is subject to Canadian taxation.
d) The income Walmart derives from its US and Canadian operations is subject to Canadian taxation.

Answer 48

c) The income Walmart derives from its Canadian operations is subject to Canadian taxation.

Question 49

Corporations that are​ non-residents of Canada are required to file a Canadian income tax return if they​ ________.

a) have Tax Payable under Part I of the Income Tax Act
b) generate any revenues from operations within Canada
c) have any income from sources within Canada
d) have any Canadian resident shareholders

Answer 49

a) have Tax Payable under Part I of the Income Tax Act