(Test Bank) Tax 1 Questions &Answers 2022/2023

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TIF PROBLEM ONE - 2 Introduction - True Or False 1.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. True or False? 2.A partnership can be a taxable entity for income tax purposes. True or False? 3.A partnership can be a taxable entity for GST purposes. True or False? 4.In general, provincial income taxes are based on a specified percentage of federal tax payable. True or False? 5.The federal government does not collect personal or corporate taxes for Ontario or Quebec. True or False? 6.A sales tax is a regressive tax even when it is applied at a single rate on all transactions. True or False? 7.A major advantage of progressive tax rates is that their use encourages economic growth. True or False? 8.Tax expenditures are less costly to administer than direct funding programs. True or False? 9.Part I of the Income Tax Act is the largest and most important part. True or False? 10.The citation ITA 61(4)(b)(ii) would be read Paragraph 61, Subparagraph 4, Section b, Subsection ii. True or False? 11.An income tax is payable for each taxation year on the Taxable Income of every personresident in Canada at any time in the year. True or False?12.Any taxpayer can choose the calendar year as their taxation year. True or False? TIF PROBLEM ONE - 3 Introduction - Multiple Choice New For 2016/2017 CanadianTaxSystem 1.Which of the following types of taxes is not currently in use by the federal government of Canada? A.Excise Taxes B.Custom Duties C.Head Tax D.Transfer Tax TaxPolicyConcepts 2.Which of the following statements with respect to Canadian tax policy is NOT correct? A.The economic burden of a particular tax may not fall on the same group that has the legal liability to pay the tax. B.Extremely high rates of tax will always encourage individuals to work harder so that they will have more after tax income. C.The inability to harmonize the GST in some provinces has increased the complexity of tax compliance. D.A progressive tax system is unfair to individuals with incomes that fluctuate significantly from year to year. IncomeTaxReferenceMaterials 3.Which of the following statements with respect to tax reference materials is correct? A.Income Tax Folios are a legislative source of guidance. B.Income Tax Regulations are gradually being replaced by Income Tax Folios. C.Interpretation Bulletins are gradually being replaced by Information Circulars. D.The Income Tax Act is the most important source of information for dealing with matters related to the federal income tax.LiabilityForTax 4.Of the following statements related to liability for Canadian income tax, which statement is NOT correct? A.As used in the Income Tax Act, the term person refers to individuals, trusts, and corporations. B.Corporations must use the calendar year as their taxation year. C.The Canadian Part I tax is assessed on residents of Canada. D.TheCanadianPartItaxisassessedCanadian employmentincomeearnedbya non-resident. AlternativeConceptsofIncome 5.Which of the following statements with respect to the relationship between accounting Net Income and Net Income For Tax Purposes is NOT correct? A.Both accounting Net Income and Net Income For Tax Purposes value many assets at their historical cost. B.Accounting Net Income requires that costs be matched with revenues. C.Net Income For Tax Purposes requires that costs be matched with revenues. D.Accounting Net Income is determined by applying Generally Accepted Accounting Principles. CalculationOfNetIncomeForTaxPurposes 6.With respect to the determination of Net Income For Tax Purposes, which of the following statements is correct? A.Property losses are deducted from business income before the deduction of RRSP contributions. B.Allowable capital losses can be deducted to the extent of other positive sources of income. C.If not used during the current period, all subdivision e deductions can be carried forward to subsequent periods. D.If a business loss exceeds all other positive sources of income, Net Income For Tax Purposes is equal to nil. NetIncometoTaxableIncome 7.Which of the following items would be deducted in converting Net Income For Tax Purposes to Taxable Income? A.A deduction for spousal support payments made during the year. B.A deduction for the extra costs related to living in prescribed areas of the Canadian north. C.Current year allowable capital losses in excess of current year taxable capital gains.D.Current year business losses in excess of other positive sources of income. TaxPlanning 8.Which of the following items does not result in tax avoidance? A.Use of the lifetime capital gains deduction. B.Employer contributions to group disability plans. C.Employer contributions to private health care plans. D.Accelerated depreciation (CCA) on rental properties. Retained From Previous Editions CanadianTaxSystem 9.Which of the following is NOT a taxable entity for Canadian income tax purposes? A.Darklyn Ltd., a Canadian resident corporation. B.Ms. Sarah Bright, a Canadian resident. C.Walters and Walters, a group of CPAs operating as a partnership. D.The Martin family trust. 10.Which of the following could be required to file a GST return? A.Chan’s Clothing Store (an unincorporated business) B.The Chan Foundation (a registered charity) C.Min Chan (an individual) D.All of the above could be required to file a GST return. 11.Which of the following forms of taxation provides the largest component of federal government taxation revenues? A.Personal income tax B.Corporate income tax C.Goods and services tax D.Employment insurance premiums 12.With respect to provincial income taxes, other than those assessed in Quebec, which ofthe following statements is NOT correct? A.Each province can apply different rates to as many brackets for individuals as it wishes. B.The federal government collects the provincial income tax for individuals for every province except Quebec.C.Each province can establish its own tax credits to apply against Tax Payable for individuals. D.Each province can establish rules for determining the Taxable Income of individuals. 13.Which of the following groups of entities are all subject to taxation on income? A.Individuals, proprietorships and corporations B.Proprietorships, corporations and trusts C.Individuals, trusts and corporations D.Individuals, partnerships and corporations 14.Income tax is calculated for which of the following groups of jurisdictions? A.Municipal, provincial, and federal B.Provincial, federal, and international C.Municipal, federal, and international D.Municipal, provincial, and international TaxPolicyConcepts 15.Which of the following goals is NOT a current economic policy objective of the Canadian tax system? A.Ensure the continued provision of public goods B.Redistribute income and wealth among taxpayers C.Ensure fairness in the allocation of resources to different levels of government. D.Economic stabilization such as stimulating the economy or creating jobs. 16.Which of the following can be considered an advantage of an income tax system based onprogressive rates? A.A progressive rate system is simpler to administer. B.A progressive rate system provides greater stability in the context of changing economic conditions. C.A progressive system discourages tax evasion. D.A progressive system encourages greater effort on the part of individuals. 17.Which of the following statements accurately describes a regressive tax? A.A tax which results in higher effective tax rates for higher income taxpayers. B.A tax which results in lower effective tax rates for higher income taxpayers. C.A tax in which the same effective rate applies to all levels of income.D.A tax that is shifted to consumers through price increases on the goods purchased. 18.Which of the following statements with respect to using tax expenditures rather than program spending is NOT correct? A.It is more costly to administer tax expenditures as opposed to program spending. B.Tax expenditures reduce the visibility of government actions. C.Tax expenditures leave fewer decisions in the hands of the private sector, thereby providing for more efficient allocation of resources. D.Tax expenditures reduce the impact of progressive rates on higher income taxpayers. 19.Which of the following would NOT be considered a desirable characteristic of a tax system? A.Balance between sectors. B.Inelasticity. C.Neutrality. D.Flexibility. 20.Which of the following would be considered a desirable characteristic of an effective taxsystem? A.Inelasticity. B.Lack of international competitiveness. C.Simplicity. D.Ambiguity. 21."We should not have a tax system which encourages investment in particular assets or inspecific areas of the country." This statement reflects which of the following qualitative characteristics of an effective tax system? A.Neutrality. B.Horizontal equity. C.Simplicity. D.Elasticity. 22."Taxpayers who earn $100,000 in dividends should pay the same amount of tax as taxpayers who earn $100,000 in capital gains." This statement reflects which of the following qualitative characteristics of an effective tax system? A.Vertical equity. B.Neutrality. C.Elasticity.D.Horizontal equity. IncomeTaxReferenceMaterials 23.With respect to the structure of the Income Tax Act, which of the following statements is correct? A.The major components of the Income Tax Act are called Divisions. B.The Income Tax Act has Parts numbered I through XVII, reflecting the fact that there are 17 Parts in the Act. C.All Parts of the Income Tax Act have Divisions. D.All Parts of the Income Tax Act contain at least one Section. 24.Of the following publications, indicate the one that is NOT a legislative source. A.Income Tax Act. B.Income Tax Folios. C.Income Tax Application Rules. D.International Tax Treaties. E.Income Tax Regulations. 25.Of the following publications, indicate the one that is NOT published by the CRA. A.Income Tax Folios. B.Information Circulars. C.Dominion Tax Cases. D.Income Tax Technical News. 26.There are a number of common areas of litigation involving the CRA. Indicate which type of transaction is least likely to be in dispute. A.Arm’s length versus non-arm’s length transactions. B.Capital versus income transactions. C.Unreported revenues from business transactions. D.Establishment of fair market value. E.The deductibility of farm losses against other sources of income. 27.Where would an individual find the formula for determining the prescribed rate? A.The Income Tax Act. B.The Income Tax Regulations.C.A CRA Income Tax Folio. D.A CRA Information Circular. 28.Which of the following statements is NOT correct? A.Most major income tax changes are introduced in the annual Federal Budget. B.A federal election can prevent passage of draft legislation. C.Proposed changes in tax law are usually introduced to parliament in the form of a Notice of Ways and Means Motion. D.When there is a conflict between the Canadian Income Tax Act and an international agreement, the terms of the Canadian Income Tax Act prevail. LiabilityForTax 29.An individual is liable for income tax in Canada if he: A.is a resident in Canada. B.is a citizen of Canada. C.has lived in Canada at any time during the year. D.All of the above are required. 30.Which of the following persons is NOT liable for Canadian income tax under Part I of the Income Tax Act? A.Pheap Chom, an individual who has resided in Canada for the past 15 years. B.Chom Incorporated, a Canadian resident corporation. C.Phon Im, a resident of the United States who earns employment income in Canada. D.Bunly Im, a resident of the United States who earns interest income in Canada. 31.Which of the following types of income earned by a non-resident is NOT subject to Canadian income tax under Part I of the Income Tax Act? A.Employment income earned in Canada B.Business income earned in Canada C.Rental income earned in Canada D.Income from the disposition of Canadian real estate AlternativeConceptsofIncome 32.Which of the following statements accurately describes the Income Tax Act view of income? A.Net income is determined by adding revenue based on recognition at the point of sale and deducting expenses which are determined based on generally accepted accounting principles.B.Net income is determined by adding together several different types of income based on an ordering rule. C.Net income is the amount paid to an employee after an employer deducts CPP , EI, income taxes and any other source deductions from employee pay. D.Net income is the total increase in a taxpayer’s net worth for the year. CalculationOfNetIncomeForTaxPurposes 33.With respect to the calculation of Net Income For Tax Purposes, which of the followingstatements is NOT correct? A.Subdivision e deductions are subtracted from the total of all positive sources of income. B.Allowable capital losses for the year can only be deducted to the extent of taxable capital gains for the year. C.Business losses can be netted against employment income in determining the positive amounts to be included under ITA 3(a) and 3(b). D.Property losses can only be deducted after the subtraction of Subdivision e deductions. 34.Minjie Liu has the following sources of income and deductions: Employment income $35,000 Interest income5,000 Taxable dividend income 7,000 Taxable capital gain 5,000 Allowable capital loss 12,000 Subdivision e deductions 2,000 What is Minjie’s Net Income for Tax Purposes? A.$47,000 B. $40,000 C. $45,000 D.$49,000 35.Tanya Turek has the following sources of income and deductions: Gross employment income $35,000 Net employment income 34,000 Business loss14,000 Taxable capital gain 4,000 Allowable capital loss 2,000 What is Tanya’s Net Income for Tax Purposes?A.$23,000 B. $22,000 C. $36,000 D. $24,000 36.Fadel Ghanem has the following sources of income and deductions: Net employment income 34,000 Property income 6,000 Business loss54,000 Taxable capital gain 4,000 Allowable capital loss 7,000 What is Fadel’s Net Income or Loss for Tax Purposes? A.$40,000 Income B. Nil C.$44,000 Income D.$12,000 Loss 37.ITA 3(b) requires the taxpayer to “determine the amount, if any, by which taxable capitalgains exceed allowable capital losses”. The rule that is established by this phrase is: A.That allowable capital losses in excess of taxable capital gains during a year are never deductible from income. B.That the current year allowable capital losses can only be deducted to the extent that there are taxable capital gains during the current year. C.That taxable capital gains are only included in income in a year when there are also allowable capital losses that can be used to reduce the effect on income. D.That unused allowable capital losses are deductible against any type of income in one of the past 3 years or in a future year. NetIncometoTaxableIncome 38.Which of the following amounts is NOT deducted in converting Net Income for Tax Purposes to Taxable Income? A.Losses of other years. B.The lifetime capital gains deduction. C.An amount related to the exercise or sale of stock options. D.The excess of allowable capital losses over taxable capital gains for the year. TaxPlanning 39.Providing employees with private health care benefits involves what type of tax planning? A.Tax evasion.B.Tax deferral. C.Income splitting. D.Tax avoidance. 40.Making contributions to an RRSP always involves what type of tax planning? A.Tax avoidance and tax deferral. B.Tax deferral. C.Tax avoidance. D.Income splitting. TIF PROBLEM ONE - 4 Introduction - Exam Exercises ExamExerciseSubjectListingForChapter1 NumberSubject 1Taxable Entities (Income Taxes) 2Taxable Entities (GST/HST) 3Federal And Provincial Tax Payable 4Federal And Provincial Tax Payable 5Regressive Taxes 6Regressive Taxes 7Non-Resident Liability For Tax 8Non-Resident Liability For Tax 9Net Income For Tax Purposes 10Net Income For Tax Purposes 11Tax Planning 12Tax Planning 13Tax Planning 14Tax Planning 15Tax Planning16Tax Planning ExamExerciseOne-1 (TaxableEntitiesForIncomeTaxPurposes) Which of the following entities could be required to file an income tax return? Sally Forbes (an individual) Forbes Boutique (an unincorporated business) Forbes and Delaney (a partnership) The Forbes family trust (a trust) Forbes Enterprises Ltd. (a corporation) The Forbes Foundation (an unincorporated charity) ExamExerciseOne-2 (TaxableEntitiesForGSTPurposes) Which of the following entities could be required to file a GST return? Sally Forbes (an individual) Forbes Boutique (an unincorporated business) Forbes and Delaney (a partnership) The Forbes family trust (a trust) Forbes Enterprises Ltd. (a corporation) The Forbes Foundation (an unincorporated charity) ExamExerciseOne-3 (FederalAndProvincialTaxesPayable) Joan Smith has Taxable Income of $37,500. For the current year her federal tax rate is 15 percent, while the corresponding provincial rate is 8.2 percent. Determine Ms. Smith’s combined federal and provincial tax payable, before consideration of any available credits against Tax Payable. ExamExerciseOne-4 (FederalAndProvincialTaxesPayable) Karla Ho has Taxable Income of $26,700. For the current year her federal tax rate is 15 percent and the corresponding provincial rate is 10 percent. Determine Ms. Ho's combined federal and provincial Tax Payable, before consideration of any available credits against Tax Payable. ExamExerciseOne-5 (RegressiveTaxes) Samantha Taylor has Taxable Income for the current year of $625,000, of which $216,000 is spent on goods and services that are subject to Harmonized Sales Tax (HST) at a rate of 13 percent. Her sister, Martha Taylor, is a part-time student living in the same province and has Taxable Income of $12,000. During the current year, as a result of using some of her savings, she spends $21,400 on goods and services that are all subject to HST. Determine the effective HST rate as a percentage of the income of the two sisters.ExamExerciseOne-6 (RegressiveTaxes) Veronica Simms has Taxable Income for the current year of $843,000. Because of her modest life style, only $162,000 of this amount is spent on goods and services that are subject to the Harmonized Sales Tax (HST) at a rate of 13 percent. Her sister is currently attending university on a full time basis and lives in the same city. Her Taxable Income for the current year is $8,000. Because she is able to use savings accumulated during several years of employment, she spends $36,000 on goods and services that are subject to HST at 13 percent. Determine the effective HST rate as a percentage of the income of the two sisters. ExamExerciseOne-7(Non-ResidentLiabilityForTax) Ms. Michelle Walker, a U.S. citizen, has Canadian employment income of $42,000 and U.S. employment income of $40,000 Canadian. She lives in Seattle, Washington and is a resident of the United States for the entire year. Ms. Walker does not believe that she is subject to taxation in Canada. Is she correct?Explain your conclusion. ExamExerciseOne-8(Non-ResidentLiabilityForTax) Daniel Bourne is a U.S. citizen who lives in Fargo, North Dakota. For many years, he has had a cottage on Manitoba's Lake Winnipeg . In recent years, however, he has made little use of this property and, given this, he has sold the property. While there was a gain of $50,000 on the sale, Daniel assumes that he will not pay Canadian taxes on this amount as he is a U.S. citizen. Is he correct?Explain your conclusion. ExamExerciseOne-9(NetIncomeForTaxPurposes) Ms. Sonia Nexus is a computer specialist with net employment income of $66,000. During the current year she has: a taxable capital gain on the sale of land of $13,500, an allowable capital loss on the sale of shares of $24,000, interest income of $10,250, net rental losses of $6,750, and a loss from her unincorporated business of $28,000. In addition, she makes spousal support payments of $14,000 and makes a deductible contribution to her RRSP of $3,000 (these are Subdivision e deductions). Determine her minimum Net Income For Tax Purposes for the current year and indicate the amount and type of any loss carry overs that are available at the end of the year. Show all of your calculations. ExamExerciseOne-10(NetIncomeForTaxPurposes) Harvey Nicastro has current year net employment income of $45,000. In addition, he has the following additional sources of income, gains, and losses: A loss from an unincorporated business of $23,000. Interest income of $4,500. A taxable capital gain of $13,500. An allowable capital loss of $18,200. Spousal support paid of $24,000. A net rental loss of $14,500. Determine Harvey's minimum Net Income For Tax Purposes for the current year and indicate the amount and type of any loss carry overs that are available at the end of the year. Show all of your calculations. ExamExerciseOne-11 (TaxPlanning) Mr. Jack Bronson makes a $5,000 contribution to his Registered Retirement Savings Plan. What type of tax planning is involved in this transaction? Explain your conclusion. ExamExerciseOne-12 (TaxPlanning) Ms. Sarah Bloom convinces her employer to provide her with a private drug plan in lieu of additional salary. What type of tax planning is involved in this transaction? Explain your conclusion. ExamExerciseOne-13(TaxPlanning) Mr. John Lenonovitz is an unemployed poet. As Mr. Lenonovitz has no known sources of income, his wife Natasha, a successful painter, has decided to make contributions to an RRSP in his name, rather than making contributions to her own plan. What type of tax planning is involved in this decision? Explain your conclusion. ExamExerciseOne-14 (TaxPlanning) Ms. Tricia Jones makes contributions to a Registered Pension Plan sponsored by her employer. What type of tax planning is involved in this transaction? Explain your conclusion. ExamExerciseOne-15(TaxPlanning) Mrs. Janice Theil gives $50,000 in Canada Savings Bonds to her 27 year old, unemployed daughter. What type of tax planning is involved in this transaction? Explain your conclusion. ExamExerciseOne-16 (TaxPlanning) Mr. Norman Rock transfers some dividend paying shares to his 25 year son who is attending university on a full time basis. What type of tax planning is involved in this transaction? Explain your conclusion. TIF Problem One - 5A Introduction - Key Term Matching (Easy) TIF PROBLEM ONE - 5A Introduction - Key Term Matching (Easy) Note to Instructor There are two versions of this matching problem. The list of key terms is the same in both versions, but the potential definitions given are different. Version A is easy, there is only one possible answer for each term. Version B is more difficult in that there are additional possible answers that are similar to the correct answers. The following eight key terms are listed at the end of Chapter 1, “Introduction To Federal Taxation In Canada”: A.Fiscal Period B.Flat Tax System C.Income Tax Regulations D.Net Income For Tax Purposes E.Person F.Regressive Tax System G.Tax Expenditures H.Value Added Tax The following list contains ten potential definitions for the preceding key terms. 1.A taxation year that does not exceed 53 weeks. 2.A tax system that applies higher effective rates for individuals with lower incomes and lower effective rates for individuals with higher incomes. 3.The total of net employment income, net business and property income, net taxable capital gains, other sources of income, and other deductions from income. 4.A CRA publication providing their interpretation of various technical issues related to income taxes. 5.A term used in the Income Tax Act to refer to taxable entities. 6.Foregone tax revenues due to special exemptions, rate reductions, rebates, and credits that reduce the amount of tax that would otherwise be payable. 7.A tax based on the value added to a product at each stage of production or distribution by a particular entity. 8.A tax on income that is applied at the same rate to all taxpayers, without regard to the level of their income. 9.A set of rules concerning administration and enforcement of the Income Tax Act.