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Taxation > Final Exam > Flashcards

Final Exam Flashcards

1
Q

What provides the government with it’s major source of revenue?

A

Taxes

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2
Q

What do taxes go towards?

A
  • Funding operating expenditures

- Paying federal & provincial debt

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3
Q

How much revenue did taxes provide the government with in the 2011-2012 fiscal year?

A

60%

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4
Q

Most importantly, what do taxes affect?

A

Everyday decisions for individuals, businesses & government

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5
Q

What is no longer possible?

A

Simple computation of taxes

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6
Q

When did the formal tax system in Canada begin?

A

In 1867 when Canada became an independent country

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7
Q

What did the Constitution Act 1867 grant?

A

It granted the federal government unlimited power to pass tax statutes and raise revenues using any system of tax

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8
Q

What are the objectives of taxation?

A
  • To redistribute wealth equitably
  • To strengthen federal-provincial relations
  • To be internationally competitive
  • To maximize the growth of output of goods & services that are in the public interest
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9
Q

What are the different types of taxes? (10)

A
  • Direct tax
  • Indirect tax
  • Value Added tax
  • Consumption tax
  • User tax
  • Head tax
  • Tariff
  • Transfer tax
  • Property tax
  • Income tax
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10
Q

What is Direct Tax?

A

Tax demanded by the government from the vary person to whom the tax applies

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11
Q

What is Indirect Tax?

A

Tax demanded from one person in the expectation that he will reimburse himself at the expense of another

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12
Q

What is Value Added Tax?

A

Tax levied on the increase in the value of a commodity that has been created by the taxpayer’s stage of the production or distribution cycle

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13
Q

What is Consumption Tax?

A

Tax levied on the consumption of some product or service

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14
Q

What is User Tax?

A

Tax levied on the user of some facility

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15
Q

What is Head Tax?

A

Tax levied on the existence of a classified group of people

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16
Q

What is Tariff?

A

Tax imposed on the importation or exportation of certain goods or services

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17
Q

What is Transfer Tax?

A

Tax imposed on the transfer of property from one owner to another

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18
Q

What is Property Tax?

A

Tax imposed on the ownership of some particular set of goods

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19
Q

What is Income Tax?

A

Tax imposed on the income of individuals, corporations and trusts

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20
Q

What are other sources of revenue?

A
  • Printing money
  • Borrowing money
  • Gambling
  • Increasing the tax rate
  • HST/GST
  • Customs and duty fees
  • Wealth/Death tax
  • Capital tax
  • Payroll tax
  • Provincial tax
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21
Q

What are the 3 taxable entities?

A
  • Individuals (T1)
  • Corporations (T2)
  • Trusts (T3)
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22
Q

What is a Resident?

A
  • Where a person normally lives
  • Everyone is a resident of some country
  • Some persons can be deemed to be residents of more than one country
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23
Q

How are residents taxed?

A
  • Taxed on world income for the entire year
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24
Q

What is the criteria of a Non-Resident?

A
  • A person who did not leave a dwelling in Canada available to return to
  • Did not leave a spouse or other dependents in Canada
  • Did not leave any personal property in Canada
  • Did not establish permanent residence somewhere else
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25
Q

What is a Part-time Resident?

A

A person who leaves or enters Canada once in that tax year

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26
Q

How are Part-time Residents taxed?

A
  • Taxed in Canada on world income for part of the year in which they were resident in Canada
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27
Q

Who is a Deemed Resident in Canada?

A
  1. Ambassadors, Ministers, high commissioners, officers of servants of Canada
  2. Agents general, officers or servants of Province
    - A spouse of 1 or 2 above if they were Canadian residents in some year
    - Children
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28
Q

How are Deemed Residents taxed?

A

Taxed on world income for the entire year

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29
Q

Describe the taxation of Employment Income

A

All salaries and wages (including gratuities) and taxable benefits received from an employer

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30
Q

What is the main taxation principle when dealing with corporate tax?

A

Tax payable on Profit

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31
Q

What is a sojourners?

A

A person who is temporarily present in Canada for more than 183 days during any calendar year

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32
Q

When are sojourners deemed to be residents?

A
  • Deemed to be resident for the entire year even if their actual home is outside of Canada
  • If present less than 183, not deemed a resident
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33
Q

What do Canada and the United States have with regards to taxation?

A

A tax treaty that shares tax revenue

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34
Q

How do you determine the residency of a Trust (T3)?

A

Trusts are deemed resident where the trustee, executor, administrator, beneficiary, heir or other legal representative resides

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35
Q

What is the taxation year end date for individuals?

A

December 31st

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36
Q

When is the taxation year end for corporations?

A

Corporations can choose their fiscal year end to suit the needs of their business
- Ex. Clothing stores are busiest at Christmas, may choose March 31st year end date

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37
Q

What class are partnerships taxed as?

A

Individuals (T1)

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38
Q

What two options do corporations have with regards to annual profit?

A
  1. Retain profit - share value increases

2. Distribute profit via dividends - share value decreases

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39
Q

To avoid having double taxation on corporate profits, what two tax breaks does the government provide to shareholders?

A
  1. Dividend Tax Credit

2. Capital Gain Tax Rate of 50%

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40
Q

What does CICA stand for?

A

Canadian Institute of Chartered Accountants

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41
Q

Who must abide by the rules of CICA?

A
  • Any publicly traded company (over 50 shareholders)

- Must adhere to mandatory audit provisions

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42
Q

What does IFRS stand for and who does it apply to?

A
  • International Financial Reporting Standards
  • small or private companies
  • no mandatory auditing
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43
Q

What is ASPE?

A

Accounting Standards for Private Enterprise

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44
Q

What is CCPC?

A

Canadian Controlled Private Corporation

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45
Q

What is the Small Business Deduction?

A
  • First $500,000 of annual income pays special reduced tax rate
  • any additional money made over that is taxed at the highest rate
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46
Q

What does ‘Revenue Recognition’ mean with regards to the GAAP rules?

A

Revenue must be recognized when it is earned

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47
Q

What is the concept of Accrual?

A

Revenue can be claimed when the money is still owing?

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48
Q

What is the concept of Matching?

A

Must match expenses to revenue recieved

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49
Q

What does GAAP stand for?

A

Generally Accepted Accounting Principles

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50
Q

How many federal tax rates are there?

A

Four

51
Q

What are the 6 exclusions from income?

A
  1. Gifts
  2. Inheritances
  3. TFSA (tax free savings account)
  4. Life insurance proceeds
  5. Lotteries and Gambling
  6. Accident or sickness insurance benefits
52
Q

What is the exception to gambling being excluded from income?

A

Professional gamblers

53
Q

What is the taxation issue with regards to accident and sickness insurance?

A

Proceeds are deemed taxable if the premium was paid in part, or the whole amount by the employer

54
Q

How does a tax-deferred sale differ from a taxable sale?

A
  • A tax-deferred sale involves payment in the form of shares issued by the purchasing corporation
  • Taxable sales involve cash payments or a deferred payment of cash secured by notes bearing interest
55
Q

What needs to be done when arranging a tax-deferred sale of a corporate business?

A

Utilize the special provisions of the Income Tax Act that are designed to provide tax relief when corporations are reorganized

56
Q

What are the alternate courses of action available when arranging a tax deferred sale of a business?

A
  1. A sale of assets by one corporation to another at an elected transfer price equal to the assets’ tax values
  2. A sale of the corporation’s shares to a corporate purchaser at an elected transfer price equal to the tax value of the shares
  3. An amalgamation of two or more corporations
  4. A reorganization of share capital
57
Q

What are a limited partners role in a corporation?

A
  • Not liable, no role in the company

- Only liable for the amount of money they invested in the company

58
Q

What are high risk ventures?

A
  • Tax shelters
  • Oil and gas exploration and drilling
  • Mining exploration
  • Hotel, condo and apartment construction
59
Q

What do high risk ventures have in common?

A
  • A high risk of failure
  • A need for significant amount of initial capital
  • A likelihood of substantial losses in the early years
  • If successful, a long wait before profits are realized
  • Special incentives with respect to the timing of deductions for tax purposes
60
Q

What are the liability issues when selling a business?

A

Can be held liable for previous issues with employees, taxes, fraud and criminal activity

61
Q

What is the difference between a partnership and a joint venture?

A
  • Separate tax calculation
  • Each gets the small business deduction of $500,000
  • Limited purpose
  • One time only thing
62
Q

What is a joint venture?

A

Not a partnership but an association of two or more entities for a given limited purpose without the usual powers and responsibilities of a partnership

63
Q

What are the tax implications for joint ventures?

A
  • Not a taxable entity
  • Individuals, corporations are the taxable entities
  • Separate tax calculation
64
Q

What statute is used for limited partnerships?

A

Limited Partnership Act

65
Q

What are the two different partners in a limited partnership?

A
  • General partners

- Limited partners

66
Q

What are general partners?

A
  • Fully liable for obligations of partnership
  • Responsible for managing business affairs
  • Treated in the same fashion as a partner in standard partnership
67
Q

What are limited partners?

A
  • Responsible for obligations of limited partnership only to extent of their involvement in the partnership
68
Q

What is a partnership?

A
  • Relationship between entities

- Agreement to divide or apportion

69
Q

What are the rules of capital contribution?

A
  • Can be decided however the parties wish

- Should be in writing

70
Q

What are the rules of management?

A
  • Can be assigned by an agreement of the partners

- Often a “managing partner” who is voted in by a committee vote

71
Q

What are the rules of profit?

A
  • Can be divided however agreed upon by partners
  • In writing - follows basic contract law
  • Based on their ownership interest
72
Q

What are the rules of a partnership?

A
  • NOT a separate legal entity like a corporation
  • Partnership name cannot be sued as if it’s a legal entity - partners must be named individually
  • NOT a taxable entity, however net income is calculated for the partnership
73
Q

What are the Federal Tax Credits?

A
  • Dividend Tax Credit
  • Personal Tax Credit
  • Tuition, textbook, education Credit
  • Medical Expenses
  • Charitable donations
  • Pension Income
  • CPP & EI Premiums
  • Foreign Tax Credit
  • Political Contributions
  • Investment Tax Credits
  • Public Transit Credits
  • Pension Income Splitting Credit
  • Children’s Fitness Credit
74
Q

What is the difference between a tax credit and tax deduction?

A
  • Tax credits are things paid for that assist with amount of return you’ll receive from your income tax
  • Tax deductions are things paid for that reduce the amount of taxes you may have to pay to the government
75
Q

What are some sources of other income?

A
  • RRSP (Registered Retirement Savings Plan)
  • RRIF (Registered Retirement Income Fund)
  • RPP (Registered Pension Plan)
  • CPP (Canada Pension Plan)
  • OAS (Old Age Security)
  • EI (Employment Insurance)
  • RESP (registered Education Savings Plan)
  • Awards, scholarships, bursaries over $500.00
  • Spousal support
  • Child support payments from spouse
76
Q

What are students eligible for when claiming awards, scholarships and bursaries as other income?

A

Education Tax Credit exemption

77
Q

What are the rules on claiming spousal support as other income?

A

Only if periodic payments, lump sum doesn’t apply

78
Q

What is the rule on claiming child support payments?

A
  • Before May 1st 1997 it was taxable

- After May 1st 1997 it’s not deductible by payor or taxable to payee unless court order says otherwise

79
Q

Describe a Registered Retirement Savings Plan (RRSP).

A
  • Tax sheltered investment (taxable when cashed)
  • Terminates at age 71
  • Guaranteed monthly payment until death
  • Fixed term annuity
  • Ability to transfer funds to spouse’s RRSP tax free
80
Q

What is the rule regarding transferring funds from one spouse’s RRSP to the others?

A

Money must not be cashed within 3 years of the date of the transfer or it will be deemed taxable in the giving spouse’s name

81
Q

What is the annual contribution limit for RRSP’s?

A

If an individual does NOT belong to an employer’s registered pension plan, the annual contribution limit is 18% of the individual’s prior year’s earned income

82
Q

What happens to funds in an RRSP upon retirement?

A

Funds accumulated in an RRSP can be paid out in a lump sum or gradually over a period of time in the form of a pension

83
Q

What are retirement options for an RRSP?

A
  • Life annuity
  • Guaranteed fixed-term annuity
  • Registered retirement income fund
84
Q

Describe a Registered Education Savings Plan (RESP).

A
  • Purpose is to help families save funds for their children’s post secondary education
  • Individuals can contribute funds at any time before the child reaches 31 years of age
  • Life time contribution limit of $50,000
  • Normally taxed as income of the student when the funds are withdrawn
85
Q

Describe a Canada Education Savings Grant.

A
  • A grant given annually by the federal government to children under the age of 17
  • Maximum lifetime grant per child - $7,200 but is not limited to an annual amount of 20% of the contribution to a maximum of $2,500 per year
  • If the child does not pursue post-secondary education, the CESG is returned to the government
86
Q

What are withdrawals from RESP’s called, describe them.

A
  • Educational Assistance Payments (EAPs)
  • Students can be enrolled as a full-time student or part-time students who are at least 16 years of age
  • For the first 13 consecutive weeks of study, payments are limited to $5,000 for full-time and $2,500 for part-time students
  • No limit on payments following the initial 13 week period
  • Partly taxable
87
Q

What is recapture?

A
  • Catch all
  • When dispositions make the account go negative - expensed too much
  • Brings accounts out of negative
  • Must pay tax on the recapture
88
Q

What are the rules of G.A.A.P.?

A
  • Revenue recognition
  • Concept of accrual
  • Concept of matching
  • Concept of conservatism
89
Q

What is the special rule of involuntary disposition?

A

Taxpayer is permitted to defer recognition of recapture if a property with a similar use is acquired within 24 months of the year of forced disposition

90
Q

When do the ‘special rules’ of Capital Cost Allowance apply?

A
  • Involuntary disposition
  • 2 year rule for insurance proceeds
  • Change in use
  • Disposition at fair market value
  • Recapture
  • First year of acquisition and year of disposition – ½ normal rate of CCA applies
  • Terminal loss
91
Q

What is the special rule for change in use?

A

If fair market value (fmv) of asset lower than original cost, then fmv is cost for tax purposes and capital cost allowance can be claimed on that amount

92
Q

What is the special rule for disposition at fair market value?

A

May cause a recapture of capital cost allowance or a terminal loss

93
Q

What does income from property include?

A
  • Dividend income
  • Interest income
  • Rental income
  • Royalty income
94
Q

What are the tax rules on income from property?

A
  • Pay tax on the profit

- Income minus expenses

95
Q

What is dividend income?

A

The return on the investment in capital shares of public and private corporations

96
Q

What is interest income?

A

The return on the investments in bank deposits, loans, mortgages, bonds, and debentures

97
Q

What is rental income?

A

The return on the ownership of real estate or other tangible property

98
Q

What is royalty income?

A

The income on the ownership of properties, such as patents and mineral rights

99
Q

What are the tax rules on capital depreciation?

A
  • Capital Cost Allowance
  • Opening Balance
  • Add + New Purchases – Subtract – Dispositions
  • Multiply by Applicable CCA rate set by Act
  • Recapture
100
Q

What is a capital gain (or capital loss)?

A
  • The gain (loss) realized on the disposition of capital property
  • The intended purpose of acquisition was long term or enduring to achieve benefits
101
Q

What is ‘benefit’ to capital gains (loss)?

A

Financial or personal enjoyment

102
Q

What is ‘intention’ of a capital gain (loss)?

A

For resale versus enduring benefit

103
Q

What are factors to be considered for intention of capital gains (loss)?

A
  • Period of ownership
  • Nature of transaction
  • Number or frequency of transaction
  • Relation to taxpayers’ business
104
Q

What are the categories of capital property?

A
  • Personal use property
  • Listed personal property
  • Financial property
105
Q

What is personal use property?

A

Property owned by the taxpayer that is used primarily for the personal use or enjoyment of the taxpayer and does not generate financial returns

106
Q

What is listed personal property?

A

Property for personal use that also has some element of investment value (ex. art, jewellery, stamps, coins)

107
Q

What is financial property?

A

All capital property that was acquired primarily to generate a benefit through a financial reward (ex. bonds, shares, loans, land etc.)

108
Q

What are the tax implications for non-residents?

A

25% of tax withheld at source

109
Q

What is the principal residence exemption?

A

May be subject to capital gain on sale, but it cannot realize a capital loss

110
Q

What is the formula used to reduce the capital gain on the sale of a principal residence?

A

1 + Number of Years as Principal Residence/ Number of Years Owned x Gain

111
Q

What is meant by the special clawback on old age security?

A

What is given is fully returned

112
Q

What losses carry over?

A
  • Capital losses
  • Non-capital losses
  • Farm losses
113
Q

What are capital gain exemptions?

A
  • Abolished for individual (formerly $100,000)
  • Small business corp. ($800,000 for 2014 + index)
  • Qualified farm property ($800,000 for 2014 + index)
114
Q

What are capital losses?

A

Allowable capital losses incurred in a current year - if they cannot be utilized in arriving at net income because of insufficient taxable capital gains

115
Q

What are non-capital losses?

A

Business, employment, and property losses- if they cannot be used because of insufficient income in the year

116
Q

What are farm losses?

A

Business, employment, and property losses whose chief income is farming and fishing - if they cannot be used because of insufficient income in the year

117
Q

In income from business, what is taxed?

A

Tax payable on profit only - pay tax only once by corporation

118
Q

How many years can you go back for loss carry overs?

A

3 years

119
Q

What happens if a corporation retains the profit?

A

Share values will increase

120
Q

What happens if a corporation distributes the profit?

A

Share values decrease

121
Q

What happens when share value increases?

A

Capital gain (50% taxable)

122
Q

What needs to be done if you want dividends?

A

Invest in a company that pays out dividends

123
Q

What is the dividend tax credit?

A

Dividends are taxed lower as a reflection of them already being taxed once

124
Q

What is the rule with inter corporate dividends?

A

Public corporations pay the highest rate of tax

Taxation (1 decks)

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