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

Question 1

Segment A of the aggregate formula includes which of the following?

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

Answer 1

D

Question 2

Allison Hill moved to Canada on April 30th of this year. 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 of this year from her new employer.
Prior to leaving Belgium, Allison earned $10,000 of employment income. She also received $1,000 in dividends in March and $1,000 in dividends in
September from stocks in a European corporation. Allison's parents sent her a cheque for $2,000 as a gift for her 25th birthday in August.
Required:
Determine Allison's residency status for Canadian tax purposes for the current year. How much income is Allison required to report on her T1 tax return?
Explain why any items have not been included in your calculations.

Answer 2

'Part-year resident' or 'Resident as of April 30th'
$45,000 + $1,000 = $46,000
The following items have been omitted:
-Income from employer 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 3

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 the aggregating formula.
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?

Answer 3

A)
A) Mrs. White does not have a taxable income of $0 that she had hoped for as she is unable to use the capital loss (since she had no capital gains in the year).
B) If Mrs. White had realized a taxable capital gain of $30,000 in 20XX she would have been able to apply an allowable capital loss of $20,000 ($40,000 × .5). This would add $10,000 to her income, resulting in a net income for tax purposes of $28,000.

Question 4

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

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

Question 5

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

A) Individual taxpayers may choose any twelve month period as their taxation year.
B) The taxation year for an individual taxpayer ends on April 30th.
C) Corporate taxpayers must use the calendar year 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.

Question 6

Joe is a Canadian citizen. In March of 20X1, Joe was transferred to the United States with his company. His wife and child moved with him at that time. Joe chose not to sell his house, and instead, lends it to his 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 family return to Canada and stay in their house. Joe did not cancel his country club membership in order 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 might be considered to have a continuing state of relationship with Canada.
D) Joe is considered a part-time resident of Canada for the five weeks he vacations in the country.

Question 7

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

Question 8

ABC Corporation purchased inventory from Galaxy Wholesalers. The cost on th invoice was $25,000. The inventory was marked up by 35% and sold to a retailer The retailer subsequently marked the goods up 45% and sold the products to its consumers. (Pre-GST costs were used to calculate marked up prices.)
Required:
Calculate how much GST was collected and remitted by a) the wholesaler, and
b) the retailer.

Question 9

George and Gina Anderson, (Canadian citizens), moved to Europe on August 15th, 20X1 to open a café in a small Italian village. The restaurant was called
'Gina's Italian Eatery Inc.'. Prior to moving, George earned $65,000 in 20X1 as a computer programmer and Susan earned $67,000 in 20X1 as a registered nurse. They are both in their 60s and plan to retire in Italy, which is Gina's birthplace.
They sold their prior to moving to Europe. As the couple only expects to return to Canada every second year, they cancelled their bank accounts and driver's
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.

Question 10

Of the following individuals, which would not be considered a resident of Canada for the entire 20XX taxation year?

A) Prasham is a citizen of India, where he lived his entire life prior to moving to Canada on April 30th, 20XX. Upon arriving in Canada, he began full-time work and purchased a home.
B) June moved to Canada three years ago from the United States, and has maintained her American citizenship.
C) John had lived in Canada all of his life, prior to moving to Germany in 20XX, 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.
D) Marie is a Swiss citizen who lived in Canada from February to October of 20XX. While in Canada, she joined the local fitness club, gained part-time employment, and opened an account in a Canadian bank.