Core Curriculum Chapter 7 Flashcards
PRINCIPLES OF TAXATION - What is the purpose of taxation?
To fund government services, regulate economic activity, redistribute wealth, and incentivize/disincentivize certain behaviors.
TAX SYSTEM - How does Canada’s progressive tax system work?
Higher income is taxed at higher rates, but lower income is taxed at lower rates, ensuring a fairer distribution of tax burden.
TAX AVOIDANCE VS. TAX EVASION - What is the difference between tax avoidance and tax evasion?
Tax avoidance is legal tax planning, while tax evasion is illegal non-payment or underreporting of taxes.
TYPES OF TAXES - What are the main types of taxes in Canada?
Income tax, consumption tax (GST/HST), excise tax, property tax, payroll tax, capital gains tax, and land transfer tax.
INCOME TAX - What are the key types of income taxed in Canada?
Employment income, self-employment income, investment income (interest, dividends, capital gains), rental income, and pension income.
CAPITAL GAINS TAX - How are capital gains taxed in Canada?
50% of the gain is included in taxable income and taxed at the individual’s marginal rate.
TAX CREDITS - What is the difference between refundable and non-refundable tax credits?
Non-refundable credits reduce tax owed but cannot create a refund, while refundable credits can generate a tax refund even if no tax is owed.
TAX DEDUCTIONS - What are common tax deductions in Canada?
RRSP contributions, child-care expenses, moving expenses, and employment-related expenses.
TAX DEFERRAL - What are common tax deferral strategies?
Using RRSPs, delaying capital gains realization, and incorporating a business to defer personal income tax.
INCOME SPLITTING - What are common income splitting strategies?
Pension income splitting, spousal RRSP contributions, and paying family members a salary in a business.
TAX-FAVOURED ACCOUNTS - What are key tax-favoured savings accounts in Canada?
Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), Registered Education Savings Plan (RESP), and Registered Disability Savings Plan (RDSP).
TAX FILING - What are the main tax return types in Canada?
T1 General for individuals, T2 Corporate Return for corporations, and T3 for trusts.
TAX DEADLINES - What are the tax filing deadlines for individuals and corporations?
April 30 for individuals, June 15 for self-employed (taxes due April 30), and 180 days after year-end for corporations.
LATE FILING PENALTIES - What is the penalty for late tax filing in Canada?
5% of balance owing plus 1% per month (up to 12%) for first-time offenders; 10% plus 2% per month (up to 20%) for repeat offenders.
TAX INTEREST - How is interest on unpaid taxes calculated?
Prescribed interest rate plus 4%, compounded daily from the tax due date.
CRA DISPUTES - What is the process for disputing a tax assessment?
File a Notice of Objection, followed by an appeal to the Tax Court of Canada if unresolved.
TAX AUDITS - How long does the CRA have to reassess a tax return?
Four years from the original filing date, but can extend to eight years in cases of suspected fraud or misrepresentation.
VOLUNTARY DISCLOSURE PROGRAM - What is the purpose of the CRA’s Voluntary Disclosure Program (VDP)?
Allows taxpayers to correct past tax errors or omissions without penalties if they come forward voluntarily before CRA contacts them.
TAX WITHHOLDING - When are quarterly tax instalments required?
If taxes owed exceed $3,000 in two consecutive years (except for farmers and fishers).
TAX PLANNING - What are the four main tax planning tools?
Tax deferral, income splitting, tax-favoured accounts, and tax-efficient investing.
