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

Question 1

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

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

Answer 1

B

Question 2

Regarding taxation years,which of the following statements is TRUE?

A)Corporate taxpayers must use the calendar year as their taxation year.
B)The taxation year for an individual taxpayer ends on April 30^th.
C)Individual taxpayers may choose any twelve month period as their taxation year.
D)A corporation may have a taxation year less than twelve months during a year the corporation is formed, dissolved, or is granted a change in its year end.

Answer 2

D

Question 3

Answer the following questions which pertain to the administration of the Canadian Income Tax system.
1.Individuals (who do not carry on a business)must file an income tax return for the most recent calendar year by which date?
2.Individuals who carry on an unincorporated business must file an income tax return for the most recent calendar year by which date?
3.Who is responsible for the filing of a deceased taxpayer's tax return?
4.What is the taxation year for an inter vivos trust?
5.What type of trust is permitted to choose a non-calendar year for tax purposes?
6.A trust must file an income tax return within how many days of its taxation year?
7.What is the taxation year for a corporation (other than a professional corporation)?
8.A corporation is required to file an income tax return within how many months of its taxation year-end?

Answer 3

1.April 30
2.June 15
3.The deceased's legal representative
4.The calendar year
5.A testamentary trust that is designated a graduated rate estate
6.90 days
7.A chosen fiscal period,not exceeding 53 weeks
8.6 months

Question 4

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 in20x8 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 the 20x8.
b)How much income is Allison required to report on her T1 tax return?
c)Explain why any items have been excluded from your calculations.

Question 5

Section 3(a)of the Income Tax Act includes which of the following?

A)Income from: employment, property, and capital transactions.
B)Income from: employment, property, business, and capital transactions.
C)Income from: business, other items, and capital transactions.
D)Income from: employment, property, business, and other items.

Question 6

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 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.

Question 7

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 Susan 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.)

Question 8

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 9

Joe is a Canadian citizen.In March of 20x1,Joe was transferred to the United States by his employer.His wife and child moved with him at that time.Joe chose not to sell his house,and instead,lends it to his extended family during the winter months when they visit Canada from overseas.Joe has five weeks of vacation each summer,at which time he and his wife and child return to Canada and stay in their house.Joe did not cancel his country club membership so that he could golf with his friends on his vacations.He did close his bank accounts,however.Which of the following statements is true?

A)Joe is a Canadian citizen, and will therefore, automatically be considered a Canadian resident for tax purposes.
B)Joe no longer resides in Canada, and will therefore, automatically be considered a non-resident of Canada.
C)Joe is considered a part-time resident of Canada for the five weeks he vacations in the country.
D)Joe might be considered to have a continuing state of relationship with Canada.