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

Question 1

The types of income for Canadian tax purposes do not include which of the following:

A)Employment Income
B)Capital Gains and Losses
C)Lottery Winnings
D)Other Income

Answer 1

C

Question 2

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.

Answer 2

D

Question 3

George and Gina Anderson, (Canadian citizens), moved to Europe on August 15^th, 2020 to open and incorporate a café in a small Italian village.Prior to moving, George earned $65,000 in 2020 as a computer programmer and Gina earned $67,000 in 2020 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 2020 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 2020 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.)

Answer 3

George and Gina would be considered 'part-year' residents (or 'residents until August 15th'), since they severed their ties with Canada prior to moving.When filing their Canadian tax returns, they would only be liable for tax in 2020 on their earnings prior to leaving Canada.
The café is not a Canadian resident.It was not incorporated in Canada, and its central management and control is not exercised from within Canada.Therefore, the café is not required to file a Canadian tax return.The income would be subject to Italian tax laws.

Question 4

The following list contains Division C deductions:
a.Charitable donations
b.Employee stock option deductions
c.Unused losses of other years
d.Dividends from Canadian corporations
e.Capital gain deduction on certain property
f.Dividends from foreign affiliates
Required:
Sort the deductions into the appropriate columns below.(Answers may be used more than once if applicable.)

Question 5

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 typically 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.

Question 6

With regards to the taxation year, which of the following situations is correct?

A)An individual taxpayer's taxation year ends on April 30^th.
B)A corporation's taxation year is its fiscal period not exceeding 52 weeks.
C)Corporations must use December 31^st as the taxation year end.
D)Taxation year ends must be considered for tax planning purposes within business structures.

Question 7

Of the following individuals, which would not be considered a full-time or deemed resident of Canada for the entire 2020 taxation year?

A)John lived in Canada all of his life prior to moving to Germany in 2020, 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 spouse 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 2020.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, 2020.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, maintaining American citizenship.

Question 8

Jo is a Canadian citizen.In March of 2020, Jo's employer transferred Jo to the United States.Jo's spouse and child moved with Jo at that time.Jo chose not to sell the family's home, and instead, now lends it to extended family from overseas during the winter months.Jo has five weeks of vacation each summer, at which time the family returns to Canada and stay in their house.Jo did not cancel a long-standing country club membership, nor did Jo close the family's Canadian bank accounts.Which of the following statements is true?

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

Question 9

Luca Jacobs moved to Canada on April 30^th, 2020.Luca was born and raised in Belgium and moved to Canada to start a career in architecture.Luca earned $45,000 from May to December in 2020 from the architecture firm.Luca earned $10,000 of employment income from January to March in 2020 while still living in Belgium, and also received $1,000 in dividends in March 2020 and $1,000 in dividends in September 2020 from stocks in a European corporation.Luca' parents e-transferred $2,000 as a gift for Luca' 25^th birthday in August, 2020.
Required:
a) Determine Luca' residency status for Canadian tax purposes for 2020.
b) How much income is Luca required to report for the 2020 tax year?
c) Explain why any items have been excluded from your calculations.

Question 10

In 2020, Mackenzie 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.
Mackenzie hopes that the losses will result in a net income for tax purposes of $0.
Required:

A) Determine Mackenzie'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 Mackenzie why there will or will not be a tax liability this year, assuming that the taxable income will be equal to the net income for tax purposes.
C) How would your answer change in Part A if Mackenzie realized a taxable capital gain of $30,000 in 2020?

Question 11

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