Chapter 2: Income Tax Concepts

Question 0

Ability to pay

Answer 0

The tax levied on the taxpayer should be an amount the taxpayer can pay

The tax base is a net income number and recognizes the different deductions of each taxpayer

Deductions in the income tax base recognize the taxpayers varying ability to pay

Question 1

General Tax Concepts

Answer 1

Provide general guidance on the overall operation and implementation of the income tax system

Ability to pay
Administrative convenience
Arms length transaction
Pay as you go

Question 2

Administrative convenience concept

Answer 2

Items can be omitted from the tax base whenever the cost to keep records or govern the tax are greater than the payment the tax would generate

Question 3

Arms Length Transaction

Answer 3

An arms length transaction is one in which all parties have bargained in good faith for their individual benefits,not for the benefit of the transaction group

Related party provisions:

• individuals and their families
• individuals and a corporation (if the individual owns more than 50% of the corporation)