Chapter 2 Flashcards
What is a tax treaty?
A tax treaty is an agreement on taxation between Canada and another country. Tax treaties override the provisions of the Income Tax Act (TA) and are relevant to both residents and non-residents of Canada with respect to international transactions.
What is the main purpose of tax treaties?
To avoid double taxation.
What do tax treaties define?
Tax treaties define which taxes are covered.
How do tax treaties affect tax withholding?
Tax treaties often reduce the amount of tax withheld by a resident of one country on payments made to residents of another country (for example, interest, dividends, or royalties).
What circumstances do tax treaties define regarding income taxation?
Tax treaties define circumstances in which income of individuals who are resident in one country will be taxed in the other country, including salary, income from self-employment, pension, and other income.
How do tax treaties limit taxation on business income?
Tax treaties limit the tax imposed by one country on the business income of a resident of the other country. The taxing country can only impose tax on the income of the non-resident related to its permanent establishment in that country.
What exemptions may tax treaties provide?
Tax treaties may provide for exemption of certain types of organizations or individuals.
What procedural frameworks do tax treaties provide?
Tax treaties provide procedural frameworks for enforcement and dispute resolution.
What is tax planning?
Arrangement where tax reduction is consistent with intent of the tax law.
What is tax avoidance?
Arrangement where tax reduction is inconsistent with the overall intent of the tax law.
What is tax evasion?
Tax reduction that is illegal and ignores the provisions of tax law.
What does GAAR stand for?
General anti-avoidance rule.
What may apply to prevent tax avoidance?
General anti-avoidance rules may apply.
What are the three tests that must be met for GAAR to apply and onus to prove is on?
- Benefit: a tax benefit has arisen as a result of a transaction.
- Avoidance transaction: the transaction or series of transactions is a tax avoidance transaction without any bona fide purpose other than tax.
- Avoidance transaction: the transaction or series of an abusive tax transaction that is not consistent with the object, spirit, or purpose of the Income Tax Act.
1 & 2 Onus is on tax payer
3 Onus is on CRA
