Chapter 2 - Liability for Tax

Question 1

What is included under the definition of a person/taxpayer?

Answer 1

Individuals, corporations, and trusts

Question 2

On what income sources are non-residents taxed in Canada?

Answer 2

1. Employment in Canada
2. Carrying on business in Canada
3. Disposing of taxable Canadian property
4. 25% withholding tax for interest dividends, rent, CPP, RRSP withdrawls, etc

Question 3

In what case would income be taxed in a different year than it was earned?

Answer 3

For some income, if the income is received in the year after it is earned it may be taxed in the year it is received instead

Question 4

What is specified by subsection 2(1) of the ITA?

Answer 4

States that income tax will be applicable to taxable income every taxation year for every resident in Canada

Question 5

What is specified by subsection 2(2) of the ITA?

Answer 5

Defined the taxable income of a taxpayer as their income plus additions and minus deductions under Division C

Question 6

What are the 4 main residency statuses and how are they taxed on income?

Answer 6

1. Full-time resident (common law) - Taxed on worldwide income for the entire year
2. Full-time resident (deemed) - Taxed on worldwide income for the entire year
3. Part-time resident - Taxed on worldwide income for their period of residency. Taxed as a non-resident for the remainder
4. Non-resident - Taxed on income from employment in Canada, carrying on business, and disposing of taxable Canadian property

Question 7

What is the difference between a primary and secondary tie when determining residency?

Answer 7

A single primary tie may be enough to establish residency but a single secondary tie is not

Question 8

What are the primary ties when determining residency?

Answer 8

1. Dwelling - Any home available for occupancy by an individual
2. Immediate family - A spouse, common law partner, minor children, other dependents

Question 9

What are the secondary ties when determining residency?

Answer 9

1. Personal property - A leased dwelling, car, furniture, clothing
2. Recreational and religious memberships
3. Bank/investment accounts, credit cards
4. Canadian passport, driver’s licence, etc

Question 10

What are some special rules surrounding dwellings when establishing residency?

Answer 10

1. A dwelling primary tie may be broken if it is rented at non-arms length
2. A dwelling that cannot be occupied year-round like a cottage counts as a secondary tie

Question 11

What is the main way to be “deemed” resident in Canada?

Answer 11

If you sojourn in Canada for an aggregate of 183 days or more in the sense of establishing a temporary residence. Partial days count as full days

Question 12

To whom does the sojourning rule not apply for deemed residency?

Answer 12

1. Individuals commuting to and from Canada on a daily basis for work
2. Part-time residents

Question 13

How else can you be deemed a full-time resident under subsection 250(1)?

Answer 13

1. Members of the Canadian Forces
2. Ambassadors, ministers, high commissioners, officers, or servants of Canada
3. A child dependent on any one of the first two

Question 14

When is a part-time resident considered to have made a “clean break” from Canada?

Answer 14

On the latest date of when:
1. They leave Canada
2. Their spouse and dependents leave Canada
3. They become a resident of the country to which they are immigrating

Question 15

What is the opposite of a “clean break” where you become a part-time resident of Canada for a year?

Answer 15

A “fresh start”

Question 16

When is a corporation deemed resident under subsection 250(4)?

Answer 16

1. If they were incorporated in Canada after April 26, 1965
2. If they were incorporated in Canada before April 27, 1965 but at any time after April 26, 1965 they carried on business in Canada or was resident under common law

Question 17

When is a corporation a resident under common law?

Answer 17

When central management and control is in Canada meaning the board of directors meets there to make decisions

Question 18

How are resident and non-resident corporations taxed on their income?

Answer 18

Resident corporations are taxed on worldwide income for the whole year
Non-resident corporations are taxed on income from carrying on business in Canada