Question 1

Contributions to a Registered Retirement Savings Plan can be deducted to reduce the taxes of an individual in the year that they are made.However, these contributions will be subject to tax when they are withdrawn from the plan.What type of tax planning is in- volved in this arrangement?

Accepted Answer

The basic type of tax planning that is involved in Registered Retirement Savings Plans is tax deferral-a tax savings results from making contributions that will have to be paid back at a later point in time.There may also be an element of avoidance in that, after retirement, an individual may be in a lower tax bracket than he was during his working years.If this is the case, there will be an absolute reduction in taxes.(This assumes that the basic rate structure is unchanged.)

Question 2

What is the difference between tax avoidance and tax deferral?

Accepted Answer

Tax avoidance is a form of tax planning in which the taxpayer, through means that are within the boundaries of tax legislation, arranges his affairs in a manner that allows him to receive benefits without the payment of taxes.Tax planning to achieve tax deferral involves either the delayed recognition of income, or the accelerated recognition of deductions.The payment of tax is delayed, as opposed to permanently avoided.

Question 3

A regressive tax is one that taxes high income individuals at lower effective rates.Explain why a sales tax levied at a flat rate of 8 percent can be regressive.

Accepted Answer

While the sales tax rate is the same for all individuals without regard to their income level, lower income individuals normally spend a higher percentage of their total income.Since the sales tax is levied on the amounts spent, this means that the sales tax paid by lower income individuals represents a larger percentage of their income.As a consequence, they are generally considered to be regressive in nature.

Question 4

A value added tax is a tax levied on the increase in value of a commodity or service that has been created by the taxpayer's stage of the production or distribution cycle.

Accepted Answer

A value added tax is a tax on the value added at each stage of production or distribution of a product. It is based on the value added by the taxpayer, not on the value of the product/service itself.

Question 5

What is income splitting? Under what circumstances will it provide tax benefits to an indi- vidual?

Accepted Answer

The answer of What is income splitting? Under what circumstances...

Question 6

ITA 3(b) states that a taxpayer should "determine the amount, if any", by which taxable capital gains exceeds allowable capital losses.In this context, what is the meaning of the phrase "the amount, if any"?

Accepted Answer

The answer of ITA 3(b) states that a taxpayer should...

Question 7

In general, provincial income taxes are based on a specified percentage of federal tax pay- able.

Accepted Answer

The answer of In general, provincial income taxes are based...

Question 8

What is the meaning of "taxation year" as the phrase is used in the Income Tax Act.

Accepted Answer

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Question 9

The government pays a "child tax benefit" to the parents of children who are under 18 years of age.The payments are reduced by a percentage of income in excess of a specified level.What objectives are achieved by this benefit system?

Accepted Answer

The answer of The government pays a "child tax benefit"...

Question 10

A partnership can be a taxable entity for GST purposes.

Accepted Answer

Partnerships are considered separate entities for GST purposes and are required to register and file GST returns if their turnover exceeds the threshold limit. The partnership itself may be liable for GST on its taxable supplies and is required to charge GST on its sales if registered.

Question 11

Indicate three disadvantages of a tax system that uses progressive rates.

Accepted Answer

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Question 12

What are the components of Net Income For Tax Purposes?

Accepted Answer

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Question 13

A partnership can be a taxable entity for income tax purposes.

Accepted Answer

A partnership itself is not a taxable entity; instead, it is a pass-through entity where income is passed through to the partners, who then report it on their individual tax returns.

Question 14

The federal government does not collect personal or corporate taxes for Ontario or Que- bec.

Accepted Answer

The federal government does collect personal and corporate taxes for all provinces and territories in Canada, including Ontario and Quebec.

Question 15

A major advantage of progressive tax rates is that their use encourages economic growth.

Accepted Answer

Progressive tax rates may provide revenue for government spending on infrastructure and public services, but they are not directly linked to economic growth. In fact, some argue that higher tax rates can hinder growth by reducing incentives for individuals and businesses to invest and innovate.

Question 16

The Canadian income tax system is often used to achieve various economic objectives.
Give three examples that illustrate this point.

Accepted Answer

The answer of The Canadian income tax system is often...

Question 17

Tax expenditures are less costly to administer than direct funding programs.

Accepted Answer

Tax expenditures involve using the tax code to provide subsidies or incentives to certain groups or activities, and as a result, they do not require a separate administrative infrastructure like direct funding programs do. This makes tax expenditures less costly to administer than direct funding programs.

Question 18

Under what circumstances will a person who is not resident in Canada be required to pay
Canadian income taxes?

Accepted Answer

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Question 19

Distinguish between horizontal equity and vertical equity as these terms are used in de- scribing tax systems.

Accepted Answer

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Question 20

A sales tax is a regressive tax even when it is applied at a single rate on all transactions.

Accepted Answer

A sales tax takes a larger percentage of income from low-income individuals than from high-income individuals. This is because the tax is applied at the same rate regardless of income level, so low-income individuals end up paying a larger percentage of their income in sales tax compared to high-income individuals.

Quiz 1: Byrd Chens Canadian Tax Principles