Deck 3: Liability for Tax, Income Determination, and Administration of the Income Tax System

Question 1

Allison Hill moved to Canada on April 30^th, 20x8. She was born and raised in Belgium and moved to Canada to start a career in architecture. She earned $45,000 from May to December in 20x8 from her new employer. Allison earned $10,000 of employment income from January to March in 20x8 while still living in Belgium. She also received $1,000 in dividends in March, 20x8 and $1,000 in dividends in September, 20x8 from stocks in a European corporation. Allison's parents sent her a cheque for $2,000 as a gift for her 25^th birthday in August, 20x8.
Required:
a) Determine Allison's residency status for Canadian tax purposes for 20x8.
b) How much income is Allison required to report on her T1 tax return for the 20x8 taxation year?
c) Explain why any items have been excluded from your calculations.

Answer 1

a) 'Part-year or part-time resident' or 'Resident as of April 30^th or April 30^th to December 31^st (or wording indicating knowledge of the concept) b) $45,000 (Canadian employment income) + $1,000 (dividend received while a Canadian resident for tax purposes) = $46,000 c) The following items have been omitted: Income from employment in Belgium prior to Allison becoming a Canadian resident Dividends received prior to becoming a Canadian resident Birthday gift from parents is not taxable

Question 2

Which of the following type of payment is NOT subject to Canadian withholding tax when paid to a non-resident?

A) Dividends Interest paid to an arm's length party
C) Pension benefits
D) Registered retirement income fund payments

Answer 2

B

Question 3

Of the following individuals, which would not be considered a full-time or deemed resident of Canada for the entire 20x1 taxation year?

A) John lived in Canada all of his life prior to moving to Germany in 20x1, where he was assigned to a seven-month assignment to set up the international operations for his Canadian employer. He did not sell his home on Vancouver Island, as his wife and children remained in Canada for work and schooling reasons.
B) Marie is a Swiss citizen who lived in Canada from February to October of 20x1. While in Canada, she joined the local fitness club, gained part-time employment, and opened an account in a Canadian bank.
C)Prasham is a citizen of India, where he has lived his entire life prior to moving to Canada on April 30^th, 20x1. Upon arriving in Canada, he began full-time work and purchased a home.
D) June moved to Canada three years ago from the United States, and has maintained her American citizenship.

Answer 3

C

Question 4

Your neighbor, Mrs. White, has heard that you are studying personal tax. She has come to you with her financial information for 20xx. In 20xx, Mrs. White had employment income of $40,000, property income of $3,000, a business loss of $22,000, an allowable business investment loss of $5,000, income from an RRSP withdrawal of $2,000, and a capital loss of $40,000 on the sale of shares in a public corporation.
Mrs. White hopes that her losses will result in a net income for tax purposes of $0.
Required:

A) Determine Mrs. White's net income for tax purposes in accordance with Section 3 of the Income Tax Act.
B) Based on your answer in Part A, explain to Mrs. White why she will or will not have a tax liability this year, assuming that her taxable income will be equal to her net income for tax purposes.
C) How would your answer change in Part A if Mrs. White realized a taxable capital gain of $30,000 in 20xx? .

Question 5

George and Gina Anderson, (Canadian citizens), moved to Europe on August 15^th, 20x1 to open and incorporate a café in a small Italian village. Prior to moving, George earned $65,000 in 20x1 as a computer programmer and Gina earned $67,000 in 20x1 as a registered nurse. (The couple did not have any other income besides their salaries prior to moving.)
They are both in their 60s and plan to retire in Italy, which is Gina's birthplace. They sold their home prior to moving to Europe. As the couple only expects to return to Canada every second year, they cancelled their bank accounts and driving licenses. Their café was successful in 20x1 and earned a pre-tax profit of $25,000 by year's end.
Required:
Determine the residency status of George and Gina and their café for Canadian tax purposes in 20x1 and discuss the Canadian tax treatment, if any, of their personal and business income. (Assume there were no assets with realizable gains upon their move.)