Deck 17: The Personal Income Tax

Question 1

Flat tax

A)is the same tax rate to each component of the tax base.
B)is the same tax rate to everyone.
C)allows a tax base with no deductions with a few exemptions and expenses.
D)all of these answer options are correct.

Answer 1

all of these answer options are correct.

Question 2

If the tax burden for two individuals is the same as the tax burden for a married couple, then the tax system is marriage neutral.

A)True
B)False
C)Uncertain

Answer 2

True

Question 3

The Haig-Simons definition of income includes

A)employer pension contributions and insurance purchases.
B)income in kind.
C)transfer payments.
D)all of these answer options are correct.

Answer 3

all of these answer options are correct.

Question 4

The federal Income Tax Act defines the as the taxable unit.

A)individual
B)household
C)corporation
D)family

Question 5

are when benefits to taxpayers are cut back once income reaches a certain level.

A)Tax deductions
B)Tax credits
C)Clawbacks
D)None of the answer options is correct.

Question 6

Haig-Simons income includes both realized and unrealized capital gains.

A)True
B)False
C)Uncertain

Question 7

In Canada, tax returns are due at the end of every year by December 31.

A)True
B)False
C)Uncertain

Question 8

A nonrefundable tax credit is provided for medical expenses in excess of 15% of net income.

A)True
B)False
C)Uncertain

Question 9

Since its inception in 1917, there have been many revisions to the income tax law.

A)True
B)False
C)Uncertain

Question 10

Which of the following is an allowable deduction?

A)Alimony payments
B)Childcare expenses
C)Registered pension plan (RPP)contributions
D)All of these answers are correct.

Question 11

Inflation

A)has no impact on taxing strategies.
B)brings about an automatic increase in real tax burdens without any legislative action.
C)only became a tax problem in the late 1990s.
D)brings about an automatic increase in nominal tax burdens without any legislative action.

Question 12

A tax credit

A)is never calculated on federal tax returns.
B)is the same as a tax deduction.
C)is not the same as a tax deduction.
D)only applies to the CCTB.

Question 13

The Haig-Simons definition of income

A)is a net change measure.
B)measures an individual's power to consume.
C)is measured over a given time.
D)all of these answer options are correct.

Question 14

Marginal tax rates

A)always decrease as taxable income decreases.
B)always increase as taxable income increases.
C)may increase or decrease as taxable income increases.
D)none of these answers is correct.

Question 15

In Canada, tax credits include a credit for the taxpayer, spouse, and each child in the family.

A)True
B)False
C)Uncertain

Question 16

Tax expenditures are revenues that

A)are lost due to the exclusion of some items from the tax base.
B)only apply to large corporations.
C)are needed to get full exemptions.
D)are always recouped during tax season.

Question 17

In Canada, only realized capital gains are included in taxable income.

A)True
B)False
C)Uncertain

Question 18

The Haig-Simons criterion is not regarded as an ideal for policy-makers to strive towards.

A)True
B)False
C)Uncertain

Question 19

No province has a combined federal and provincial marginal tax rate greater than 50 percent.

A)True
B)False
C)Uncertain

Question 20

Flat taxes are more equitable than graduated tax schedules.

A)True
B)False
C)Uncertain

Question 21

Consider an individual who earns $95,000, pays $6,000 in child care expenses for one child, pays the maximum ($25,370)in Registered Pension Plan (RPP)contributions, makes charitable donations of $200 (15 percent credit)and pays $15,000 in medical expenses. Medical expenses in excess of 3 percent of one's net income are deductible at 20 percent. Her statutory marginal tax rate i 15 percent.
What is the federal tax payable? What is the individual's actual or effective marginal tax rate?

Question 22

Unlike the United States, Canadian citizens' tax liability depends on where they live in the world. How does this difference influence the decision on where to live? Which system is more efficient?

Question 23

If an individual is a resident of Canada, income earned abroad is subject to Canadian tax.

A)True
B)False
C)Uncertain

Question 24

The current federal tax structure has tax brackets.

A)6
B)4
C)5
D)7

Question 25

The province with the highest maximum combined tax rate is

A)Alberta.
B)Quebec.
C)New Brunswick.
D)Ontario.

Question 26

Suppose there is a simple tax system that says you pay 10% for income up to $40,000, 25% for income between $40,000 and $100,000, and 35% for all income above $100,000. Mr. Campbell has income of $122,000. Mrs. Campbell has income of $55,000.
What is Mr. Campbell's individual tax liability? Mrs. Campbell's?
Suppose that Mr. Campbell can transfer up to $50,000 in income to his wife. How much should Mr. Campbell transfer to minimize the income tax paid? How much tax could they save by transferring income?

Question 27

The lowest marginal tax rate used in Canada is

A)29 percent.
B)15 percent.
C)22 percent.
D)26 percent.

Question 28

According to the Haig-Simons definition of income, pensions are excluded from income.

A)True
B)False
C)Uncertain

Question 29

Investors considering switching capital assets may also consider the potential tax liability and decide not to switch. This is known as bracket creep.

A)True
B)False
C)Uncertain

Question 30

Capital gains are

A)taxed differently than other sources of income.
B)generally not associated with a "lock-in effect."
C)only realized at death.
D)treated exactly like other sources of income.

Question 31

Suppose you want to save for retirement. How do you decide between investing in a tax free savings account and an RRSP?

Question 32

Capital gains is taxed differently than ordinary income. What are some reasons why capital gains receive preferential treatment?

Question 33

The tax code in Canada does not allow for the deductibility of mortgage interest. Why?

Question 34

Suppose you paid $500,000 for an asset. You hold the asset for five years. The interest rate that you get for the asset is 10% per year. Assume the tax rate on capital gains is 20%.
(A)If capital gains are taxed only when the asset is realized, how much will you have earned on the asset?
(B)Suppose that capital gains are taxed annually instead of at realization. How much will you have earned on the asset?
(C)How big is the difference between the two taxing schemes?