Taxation

Question 1

Taxable and exempt supplies

Answer 1

Property n services
taxable = taxed at 5% or hst
basic groceries, drugs and exports = 0% tax rate
exempt = used real estate, insurance, childcare services

Question 2

Input Tax Credits

Answer 2

tax paid for taxable supplies

Question 3

Options for small suppliers

Answer 3

Have to earn less than 30000 to be a small supplier = if exceed then thats a problem

Question 4

On January 1, 20X1, Chuck started a landscaping and snow removal business in Alberta as a sole proprietor. Sales of taxable supplies per quarter for 20X1 and 20X2 are as follows:

January 1 to March 31, 20X1	$  7,500
April 1 to June 30, 20X1	6,900
July 1 to August 31, 20X1	4,800
September 1 to December 31, 20X1	3,900
January 1 to March 31, 20X2	10,800
April 1 to June 30, 20X2	11,600
July 1 to August 31, 20X2	2,300
September 1 to December 31, 20X2	4,900
Which of the following statements regarding goods and services tax (GST) is true?

a)

As Chuck is engaged in a commercial activity, he must become a GST registrant on January 1, 20X1.
Incorrect Response
b)

Chuck is considered a small supplier on December 31, 20X2.

c)

Chuck will be required to formally register for GST by August 1, 20X2.
Correct Answer
d)

Chuck is not considered a small supplier on June 30, 20X2.

Answer 4

Answer b) is incorrect. The determination is not based on calendar year (total sales of taxable supplies in 20X2 are $29,600 [$10,800 + $11,600 + 2,300 + 4,900]. Answer d) is correct. Chuck ceases to be a small supplier at the end of June 20X2 because sales of taxable supplies in the preceding four quarters are greater than $30,000. [$4,800 + $3,900 + $10,800 + $11,600] = $31,100.

Question 5

Tax Administration:Filing Reqs

Answer 5

Individual:
tax to pay, has capital gain, disposes of Cdn taxable property, has a “demand to file”, positive Home buyers planor lifelong Learning Plan balance @y/e

Fill out a T1
BY:
April 30
or June 15, if u or spouse have a business
or six months after date of death
Balance is due at April 30.
Interest if paid after this

Corporation:
Tax is to be paid, during year, are resident, carrying business in Cda, Have a taxable cap gain or dispose of property

T2, six months after year end to file and balance due 2months after y/e, or 3 months for certain CCPCs

Question 6

Assessment, Notice of objection and appeals

Answer 6

CRA Reassess up to 3 years after original NOA, corps = 4yrs
CCPCs = 3yrs

If taxpayer disagrees with assessment = filing a note of objection

Question 7

Assessment, Notice of objection and appeals

Answer 7

CRA Reassess up to 3 years after original NOA, corps = 4yrs
CCPCs = 3yrs

If taxpayer disagrees with assessment = filing a note of objection by:
one yr after filing due date
90 days after mailing of the NOA
CORPS = 90 days after mailing of NOA

Make obj. online etc
Appeal to Tax Court of Canada if still unsatisfied within 90 days of mailing out or if CRA NO REPLY AFTER 90 DAYS.

Question 8

What determines residency in Canada

Answer 8

Individual:
dwelling place in Cda maintained
spouse in Cda
dependents in Cda
Secondary:
personal property like clothes 
social n other ties
Deeming, if here for 182+ days and pay tax on worldwide income

Corporation
Inc. after 1965, April 26

Question 9

Jamie is single, has no children, and does consulting work for multinational corporations. From January 1 to September 30, Jamie lived in Canada but spent 1.5 weeks per month in the United States doing consulting work there. In early September, Jamie secured a large contract that required her to spend more time in the United States. On September 30, Jamie severed ties with Canada and moved to the United States. She still travels to various Canadian cities one week each month to work. Jamie earns $3,000 per week. Which of the following statements is true? (Assume that one month equals four weeks.)

a)

Jamie will pay tax in Canada on $76,500 of income.

b)

Jamie will pay tax in Canada on $108,000 of income.
Correct Answer
c)

Jamie will pay tax in Canada on $117,000 of income.

d)

Jamie will pay tax in Canada on $144,000 of income.

Answer 9

Answer a) is incorrect. This is the income she earned in Canada (2.5 weeks × 9 months) + (1 week × 3 months) = 25.5 weeks × $3,000. However, while Jamie is a resident of Canada from January 1 to September 30, she must pay tax on her worldwide income including income earned in the United States.

WORLDWIDE INCOME
Answer c) is correct. Until September 30, Jamie is a resident of Canada and pays tax on her worldwide income (4 weeks × 9 months × $3,000 per week = $108,000). After September 30, she is not a resident but still must pay tax in Canada on income earned in Canada (3 months × 1 week per month × $3,000 = $9,000).

Question 10

Sources of Income

Answer 10

Employment - salary
Business - profit
Property Income - interest/dividend/rental income
Other Income - RRSP, CPP, spousal etc
Cap gains(losses) - proceeds - ACB
50%

Question 11

It is now March 2, 20X3, and Regan estimates that she will owe tax of $4,000 when she files her 20X3 personal tax return. She owed tax of $5,000 when she filed her 20X2 tax return and $2,000 when she filed her 20X1 tax return.

What is the minimum payment for her March 20X3 instalment?

a)

$0
Correct Answer
b)

$500
Incorrect Response
c)

$1,000

d)

$1,250

Answer 11

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Answer c) is incorrect. This is the tax instalment based on the estimated current-year tax payable. It is not the lesser of the three instalment options available. Answer b) is correct because the minimum instalment amount for March 20X3 is $500. This is the least of the following three options:

¼ × 20X3 taxes owing of $4,000 = $1,000
¼ × 20X2 taxes owing of $5,000 = $1,250
first two instalments: ¼ × $2,000 = $500, based on the tax owing for the second preceding year; last two instalments: ½ × [$5,000 – (2 × $500)] = $2,000, based on the tax owing in the preceding year

Question 12

Instalments

Answer 12

lesser of:
1/4 this year
1/4 past year

(1/2* (this year - (2* 1/4 of second past yr)

Question 13

Employee Vs contractor

Answer 13

Who has:

control, owns tools, has the most risk or profit, integrated in org, specific results req?, intent

Question 14

If an individual is classified as a contractor, that individual MUST:
Incorrect Response
a)

Register for goods and services tax (GST).
Correct Answer
b)

Track all revenues earned.

c)

Apply for unemployment benefits once the contract is terminated.

d)

Incorporate and receive a business licence.

Answer 14

Answer a) is incorrect. A contractor must register for GST only when his or her annual income exceeds $30,000. Answer b) is correct because a contractor must include a statement of revenue and expenses in his or her personal tax return.

Question 15

Sole Proprietor

Answer 15

individual = unlimited liability

all income and taxes of individual too

Question 16

CCA

Answer 16

ucc beg + add - disposal - half year rule = base * the rate
1/2 if additions are greater than disposals

UCC END includes the full amount for additions

Terminal loss if last asset and remaining UCC is +ve
Deduct from business income

Question 17

For business income:

Answer 17

Add back donations, amortization, 1/2 M&E, Golf club dues and club dues n golf fees, personal life insurance, financing fees, interest on lease,

Less: CCA, past Gains, cap div CCPC, Amortize finance fee over 5 yrs, lease pmts

Question 18

Public Co., a publicly traded corporation, compensates key management with stock options.

On January 2, Year 1, Peter was granted options to purchase up to 1,000 shares for $20; Public’s shares were trading for $20 at this time.
On March 31, Year 2, Peter exercised his option and purchased 1,000 shares; Public’s shares were trading for $25 at this time.
Peter sold 500 shares on June 28, Year 3, for $27.
What are the tax consequences of the above transactions to Peter?

a)

Net income of $2,500 in Year 2 and net income of $500 in Year 3
Incorrect Response
b)

Net income of $5,500 in Year 3

c)

Net income of $5,000 in Year 2 and net income of $1,750 in Year 3
Correct Answer
d)

Net income of $5,000 in Year 2 and net income of $500 in Year 3

Answer 18

Answer b) is incorrect. Year 3 net income is calculated as the $5,000 employment benefit plus the $500 taxable capital gain. On public company shares, the employment benefit is included in income in the year the options are exercised. Answer d) is correct because the employment income inclusion in Year 2 is: ($25 – $20) × 1,000 = $5,000. In Year 3, there is a taxable capital gain of $500: [($27 – $25) × 500 shares] × 50% capital gains inclusion.