Test #1

Question 1

What are the objectives of Taxation?

Answer 1

• To maximize the growth of output of goods & services that are in the public interest
• To redistribute wealth equitably
• To protect the liberty and rights of the individual
• To strengthen Federal-Provincial relations
• To be internationally competitive

Question 2

Define Direct and Indirect tax.

Answer 2

1. Direct Tax - Tax demanded by the gov’t from the very person to whom the tax applies
2. Indirect Tax - Tax demanded from one person in the expectation that he will reimburse himself at the expense of another

Question 3

What are the types of taxes?

Answer 3

• Direct Tax and Indirect Tax
• Value Added Tax
• Consumption Tax
• User Tax
• Head Tax
• Tariff
• Transfer Tax
• Property Tax
• Income Tax

Question 4

Define Direct Tax.

Answer 4

Tax demanded by the gov’t from the very person to whom the tax applies

Question 5

Define Indirect Tax.

Answer 5

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

Question 6

Define Value Added Tax.

Answer 6

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.

Question 7

Define Consumption Tax.

Answer 7

Tax levied on the consumption of some product or service

Question 8

Define User Tax.

Answer 8

Tax levied on the user of some facility

Question 9

Define Head Tax.

Answer 9

Tax levied on the existence of a classified group

Question 10

Define Tariff.

Answer 10

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

Question 11

Define Transfer Tax.

Answer 11

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

Question 12

Define Property Tax.

Answer 12

Tax imposed on the ownership of some particular set of goods.

Question 13

Define Income Tax.

Answer 13

Tax imposed on the income of individuals, corporations and trusts.

Question 14

Describe 3 areas of Taxation.

Answer 14

1. Tax Planning
2. Tax Evasion
3. Tax Avoidance

Question 15

Define Tax Planning.

Answer 15

• Shifting Income from one time period to another
• Transfer Income to another Entity
• Converting Income from one type to another

Question 16

What does GAAR stand for?

Answer 16

General Anti Avoidance Rule

Question 17

Who are Taxable Entities?

Answer 17

• Individuals (T1)
• Corporations (T2)
• Trusts (T3)
• Unincorporated businesses are taxed as individuals

Question 18

What are the Tax implications for Individuals (T1), Describe the basic taxation perimeter.

Answer 18

“An Income Tax shall be paid as hereinafter required upon the TAXABLE INCOME for each TAXATION YEAR of every PERSON RESIDENT in Canada at any time in the year”

• 183 day rule

Question 19

What are the Tax Implications for Individuals in regards to residence.

Answer 19

Resident & Deemed Resident - taxed on world income for the entire year
Non-Resident - 25% of tax withheld at source
Part-Time Resident - Taxed in Canada on world income for the part of the year in which they were resident in Canada.
U.S. Citizens - Taxed based on residency and citizenship

Question 20

What are the Tax Implications for Corporations (T2)?

Answer 20

1. All corporations which are incorporated in Canada after April 26, 1965 are deemed to be resident in Canada
2. Corporations incorporated prior to April 26, 1965, treated as residents if:
   a) they reside in Canada
   b) they carried on business in Canada in any tax year ending after April 26, 1965
3. Mind and management of operations are located in Canada.

Question 21

Define Trusts.

Answer 21

Resident where the trustee, executor, administrator, heir or other legal representative resides

Question 22

What is the Fiscal Year End for Individuals?

Answer 22

December 31st

Question 23

What is the Fiscal Year End for Corporations?

Answer 23

Can choose Fiscal Year End

Question 24

What is the Fiscal Year End for Trusts?

Answer 24

• Intervivos - December 31st

- Testamentary can choose Fiscal Year End

Question 25

What are the Fiscal Year Ends for all Taxable Entities?

Answer 25

Individuals - December 31st
Corporations - Can choose Fiscal Year End
Trusts - Intervivos - December 31st
- Testamentary can choose Fiscal Year End

Question 26

What are the 4 Primary Tests to determine Employee or Contractor?

Answer 26

1. Control Test - Do they have someone who they answer to or are they responsible for the hours that they choose to work
2. Ownership of Tools Test - Does the person use a company’s computer, telephone, tools, etc.
3. Chance of Profit or Loss Test - An employee shows up for work and is guaranteed a pay cheque for the hours worked but an independent contractor isn’t guaranteed payment
4. Integration Test - How important is the employee to the business? Are they a core member of the business?

Question 27

Define Employment Income.

Answer 27

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

Question 28

Define Income From Businesses.

Answer 28

Income earned from “a profession, calling, trade, manufacture, or undertaking of any kind whatever and an adventure or concern in nature of trade”W

• Tax Payable on Profit only
• Income minus Expenses = Profit

Question 29

What does C.I.C.A stand for?

Answer 29

Canadian Institute of Chartered Accountants’

Question 30

What does I.F.R.S stand for?

Answer 30

International Financial Reporting System (2011)

Question 31

What does A.S.P.E stand for?

Answer 31

Accounting Standards for Private Enterprise

Question 32

What does G.A.A.P stand for?

Answer 32

Generally Accepted Accounting Principles

Question 33

What are all the principles affecting calculation of income from businesses?

Answer 33

C.I.C.A - Canadian Institute of Chartered Accountants
I.F.R.S - International Financial Reporting System (2011)
A.S.P.E - Accounting Standards for Private Enterprise
G.A.A.P - Generally Accepted Accounting Principles

Question 34

What are the Rules of G.A.A.P

Answer 34

• Revenue Recognition
• Concept of Accrual
• Concept of Matching
• Concept of Conservatism

Question 35

What are the 5 basic sources that an entity’s world income is derived from?

Answer 35

1. Employment Income
2. Business Income
3. Property Income
4. Capital gains and losses
5. Other specific sources

Question 36

Identify Employment Expenses

Answer 36

1. Legal Expenses
2. Salesman’s Expenses
3. Traveling Expenses
4. Dues and other expenses
5. Home Office (principle residence)
6. RPP (Registered Pension Plan)

Question 37

What questions does the General Anti-Avoidance Rule (GARR) raise?

Answer 37

1. What is an avoidance transaction; and

2. What is the nature of the benefit referred to in the rule?

Question 38

Define a Tax Benefit.

Answer 38

A reduction, avoidance, or deferral of tax or an increase in the refund of tax

Question 39

Define Tax Avoidance

Answer 39

The use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.

Question 40

Define Tax Evasion

Answer 40

An illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties.