TIF Problem One - 1
Introduction - Essay Questions
Chapter One Test Item File Problems
TIF PROBLEM ONE - 1
Introduction - Essay Questions
1. The major source of federal revenues is the personal income tax. Indicate three other
types of taxes that contribute to federal revenues.
2. What is the meaning of "person" when the term is used in the Income Tax Act?
3. Briefly describe the procedures used in calculating provincial income taxes for individuals
in provinces other than Quebec.
4. The Canadian income tax system is often used to achieve various economic objectives.
Give three examples that illustrate this point.
5. Provide an example of how taxation policy can be used to influence resource allocation.
6. The government pays a Canada Child 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?
7. Indicate three disadvantages of a tax system that uses progressive rates.
8. 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.
9. Distinguish between horizontal equity and vertical equity as these terms are used in de-
scribing tax systems.
10. What are some of the factors that have led to the entrenched use of tax expenditures as op-
posed to program spending?
11. While the Sections of the Income Tax Act are numbered 1 through 260, there are actually
more than 260 Sections. Explain why this is the case.
12. What purposes are served by Canada's international tax treaties?
13. List four non-legislative sources of income tax information.
14. What is the meaning of "taxation year" as the phrase is used in the Income Tax Act?
15. Under what circumstances will a person who is not resident in Canada be required to pay
Canadian income taxes?
16. What is the importance of residence in Canadian income taxation?
17. When an individual leaves Canada, the CRA may take the position that he has retained his
residence status. What are the primary factors that the CRA will consider in determining
whether such an individual has, in fact, ceased to be a Canadian resident?
18. List three factors that would be considered in the determination of whether or not an indi-
vidual is a resident of Canada.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 1
, TIF Problem One - 1
Introduction - Essay Questions
19. If an individual leaves Canada for a temporary absence, this raises the question of whether
he was a Canadian resident during the period of absence, particularly if some residential
ties have been retained. What are the major factors that are considered in determining
whether an individual continues to be a Canadian resident during a temporary absence?
20. One of your friends is leaving Canada and would like to know when he will no longer be
considered a Canadian resident. Briefly explain the rules related to terminating an indi-
vidual's status as a Canadian resident.
21. For the current year, Jane Doe is deemed to a Canadian resident because she sojourned in
Canada for 210 days. Also for the current year, Jack Fawn, a long-time resident of Mani-
toba, was considered a part year resident for the first 210 days, after which he
permanently departed from Canada. Explain how these two individuals will be taxed in
Canada.
22. It is possible that an individual could be considered resident in more than one country. In
such situations, "tie-breaker" rules are used to avoid the individual being subject to taxa-
tion in both countries. List and describe three factors that would be considered in
implementing the tie-breaker rules.
23. Are enterprises that are incorporated in Canada always considered to be resident in Can-
ada? Explain your conclusion.
24. Limon Inc. was incorporated in the U.S. five years ago. However, all of the directors of the
corporation are Canadian residents, holding all of their meetings in Montreal. How would
Limon Inc. be taxed?
25. What are the components of Net Income For Tax Purposes?
26. 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”?
27. What is the difference between tax avoidance and tax deferral?
28. What is income splitting? Under what circumstances will it provide tax benefits to an indi-
vidual?
29. 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?
30. Your client, a government employee, would like to reduce his taxes. He is trying to decide
whether he should contribute $5,000 to an RRSP this year. He has an RRSP as does his
wife, a part time employee at a day care centre.
Briefly describe the basic goals of tax planning . What advice would you give your client
regarding his RRSP contribution? Explain your conclusion.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 2
, TIF Problem One - 2
Introduction - True Or False
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 pay-
able.
True or False?
5. The federal government does not collect personal or corporate taxes for Ontario or Que-
bec.
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, Sub-
section ii.
True or False?
11. Any taxpayer can choose the calendar year as their taxation year.
True or False?
12. If there is a conflict between an international tax treaty and Canadian tax legislation, the
Canadian tax legislation will prevail.
True or False?
13. An income tax is payable for each taxation year on the Taxable Income of every person
resident in Canada at any time in the year.
True or False?
Test Item File Problems for Canadian Tax Principles 2018 - 2019 3
, TIF Problem One - 2
Introduction - True Or False
14. Canadian citizens are required to file a Canadian income tax return, without regard to
where they currently live.
True or False?
15. When an individual is absent from Canada for some period of time, the length of their ab-
sence is an important factor in determining whether they continued to be a Canadian
resident during the period of their absence.
True or False?
16. If an individual moves to Canada and is here less than 183 days prior to the end of the year,
that individual will be subject to Part I tax on their world wide income for the entire year.
True or False?
17. The residency of a trust depends on the country in which the central management and
control of the trust takes place, not where the beneficiaries reside.
True or False?
18. If an individual leaves Canada, the three most significant factors in determining whether
he has ceased to be a resident are:
· Whether he continues to own a dwelling in Canada.
· Whether he is accompanied by his spouse or common-law partner.
· Whether he maintains social ties in Canada.
True or False?
19. If an individual returns to Canada after an absence of less than two years, S5-F1-C1 indi-
cates that, in general, he will be considered to have retained Canadian residency during
his absence.
True or False?
20. A part year resident for the current year is an individual who either establishes residency
in Canada during the current year or, alternatively, terminates residency in Canada during
the current year.
True or False?
21. A sojourner is any individual who has been present in Canada for 183 consecutive days in
one year.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 4
Introduction - Essay Questions
Chapter One Test Item File Problems
TIF PROBLEM ONE - 1
Introduction - Essay Questions
1. The major source of federal revenues is the personal income tax. Indicate three other
types of taxes that contribute to federal revenues.
2. What is the meaning of "person" when the term is used in the Income Tax Act?
3. Briefly describe the procedures used in calculating provincial income taxes for individuals
in provinces other than Quebec.
4. The Canadian income tax system is often used to achieve various economic objectives.
Give three examples that illustrate this point.
5. Provide an example of how taxation policy can be used to influence resource allocation.
6. The government pays a Canada Child 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?
7. Indicate three disadvantages of a tax system that uses progressive rates.
8. 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.
9. Distinguish between horizontal equity and vertical equity as these terms are used in de-
scribing tax systems.
10. What are some of the factors that have led to the entrenched use of tax expenditures as op-
posed to program spending?
11. While the Sections of the Income Tax Act are numbered 1 through 260, there are actually
more than 260 Sections. Explain why this is the case.
12. What purposes are served by Canada's international tax treaties?
13. List four non-legislative sources of income tax information.
14. What is the meaning of "taxation year" as the phrase is used in the Income Tax Act?
15. Under what circumstances will a person who is not resident in Canada be required to pay
Canadian income taxes?
16. What is the importance of residence in Canadian income taxation?
17. When an individual leaves Canada, the CRA may take the position that he has retained his
residence status. What are the primary factors that the CRA will consider in determining
whether such an individual has, in fact, ceased to be a Canadian resident?
18. List three factors that would be considered in the determination of whether or not an indi-
vidual is a resident of Canada.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 1
, TIF Problem One - 1
Introduction - Essay Questions
19. If an individual leaves Canada for a temporary absence, this raises the question of whether
he was a Canadian resident during the period of absence, particularly if some residential
ties have been retained. What are the major factors that are considered in determining
whether an individual continues to be a Canadian resident during a temporary absence?
20. One of your friends is leaving Canada and would like to know when he will no longer be
considered a Canadian resident. Briefly explain the rules related to terminating an indi-
vidual's status as a Canadian resident.
21. For the current year, Jane Doe is deemed to a Canadian resident because she sojourned in
Canada for 210 days. Also for the current year, Jack Fawn, a long-time resident of Mani-
toba, was considered a part year resident for the first 210 days, after which he
permanently departed from Canada. Explain how these two individuals will be taxed in
Canada.
22. It is possible that an individual could be considered resident in more than one country. In
such situations, "tie-breaker" rules are used to avoid the individual being subject to taxa-
tion in both countries. List and describe three factors that would be considered in
implementing the tie-breaker rules.
23. Are enterprises that are incorporated in Canada always considered to be resident in Can-
ada? Explain your conclusion.
24. Limon Inc. was incorporated in the U.S. five years ago. However, all of the directors of the
corporation are Canadian residents, holding all of their meetings in Montreal. How would
Limon Inc. be taxed?
25. What are the components of Net Income For Tax Purposes?
26. 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”?
27. What is the difference between tax avoidance and tax deferral?
28. What is income splitting? Under what circumstances will it provide tax benefits to an indi-
vidual?
29. 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?
30. Your client, a government employee, would like to reduce his taxes. He is trying to decide
whether he should contribute $5,000 to an RRSP this year. He has an RRSP as does his
wife, a part time employee at a day care centre.
Briefly describe the basic goals of tax planning . What advice would you give your client
regarding his RRSP contribution? Explain your conclusion.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 2
, TIF Problem One - 2
Introduction - True Or False
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 pay-
able.
True or False?
5. The federal government does not collect personal or corporate taxes for Ontario or Que-
bec.
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, Sub-
section ii.
True or False?
11. Any taxpayer can choose the calendar year as their taxation year.
True or False?
12. If there is a conflict between an international tax treaty and Canadian tax legislation, the
Canadian tax legislation will prevail.
True or False?
13. An income tax is payable for each taxation year on the Taxable Income of every person
resident in Canada at any time in the year.
True or False?
Test Item File Problems for Canadian Tax Principles 2018 - 2019 3
, TIF Problem One - 2
Introduction - True Or False
14. Canadian citizens are required to file a Canadian income tax return, without regard to
where they currently live.
True or False?
15. When an individual is absent from Canada for some period of time, the length of their ab-
sence is an important factor in determining whether they continued to be a Canadian
resident during the period of their absence.
True or False?
16. If an individual moves to Canada and is here less than 183 days prior to the end of the year,
that individual will be subject to Part I tax on their world wide income for the entire year.
True or False?
17. The residency of a trust depends on the country in which the central management and
control of the trust takes place, not where the beneficiaries reside.
True or False?
18. If an individual leaves Canada, the three most significant factors in determining whether
he has ceased to be a resident are:
· Whether he continues to own a dwelling in Canada.
· Whether he is accompanied by his spouse or common-law partner.
· Whether he maintains social ties in Canada.
True or False?
19. If an individual returns to Canada after an absence of less than two years, S5-F1-C1 indi-
cates that, in general, he will be considered to have retained Canadian residency during
his absence.
True or False?
20. A part year resident for the current year is an individual who either establishes residency
in Canada during the current year or, alternatively, terminates residency in Canada during
the current year.
True or False?
21. A sojourner is any individual who has been present in Canada for 183 consecutive days in
one year.
Test Item File Problems for Canadian Tax Principles 2018 - 2019 4
