1. What is the primary federal legislation governing income tax in
Canada? Answer: The Income Tax Act (ITA)
2. What are the three main components of Canada's tax system?
Answer: Federal tax, provincial/territorial tax, and local taxes
3. What is the difference between tax avoidance and tax evasion?
Answer: Tax avoidance is legal planning to minimize taxes, while tax
evasion is illegal non-payment or underreporting
Chapter 2: Liability for Tax
4. Who determines Canadian tax residency? Answer: The Canada
Revenue Agency (CRA) based on residential ties and circumstances
5. What are the primary residential ties to Canada? Answer: Home,
spouse/common-law partner, and dependents
6. What is the sojourner rule? Answer: Individuals present in Canada for
183+ days in a tax year are deemed Canadian residents
Chapter 3: Income from Employment
7. What constitutes employment income under section 5 of the ITA?
Answer: Salary, wages, and other remuneration including benefits
8. Are employee stock options taxable when granted or exercised?
Answer: Generally taxable when exercised, subject to specific rules
9. What is the automobile benefit calculation based on? Answer: 2% of
the cost of the car per month for personal use availability
Chapter 4: Income from Business or Property
10.What is the difference between business and property income?
Answer: Business income requires active involvement; property income
is passive
, 11.What is the "reasonable expectation of profit" test? Answer:
Activities must have a reasonable expectation of profit to be considered
business
12.How are capital expenditures treated differently from current
expenses? Answer: Capital expenditures are depreciated over time;
current expenses are fully deductible
Chapter 5: Capital Gains and Losses
13.What portion of capital gains is taxable in Canada? Answer: 50% (the
taxable capital gain)
14.What is the principal residence exemption? Answer: Exempts capital
gains on a taxpayer's principal residence from taxation
15.How are capital losses applied? Answer: Against capital gains in the
current year, then carried back 3 years or forward indefinitely
Chapter 6: Other Sources of Income
16.What types of pension income qualify for pension income splitting?
Answer: RPP, RRIF, and annuity payments (age restrictions apply)
17.How are scholarships and bursaries taxed? Answer: Generally tax-free
for post-secondary education expenses
18.What is the treatment of social assistance payments? Answer:
Generally not taxable to the recipient
Chapter 7: Registered Plans
19.What is the RRSP contribution limit formula? Answer: 18% of prior
year earned income, up to annual maximum, less pension adjustments
20.What happens to unused RRSP contribution room? Answer: It carries
forward indefinitely
21.At what age must RRSP funds be withdrawn or converted? Answer:
By the end of the year the taxpayer turns 71
Chapter 8: Deductions and Credits
22.What is the difference between a deduction and a tax credit? Answer:
Deductions reduce taxable income; credits reduce taxes payable
23.What is the basic personal amount for 2024? Answer: Check current
CRA rates (amount varies by year)
, 24.What qualifies as a medical expense for tax purposes? Answer:
Expenses listed in ITA regulations, subject to threshold rules
Chapter 9: Corporate Taxation
25.What is the small business deduction rate? Answer: Reduces federal
corporate tax rate for qualifying small businesses
26.What defines a Canadian-controlled private corporation (CCPC)?
Answer: Private corporation controlled by Canadian residents
27.What is the active business income limit for small business
deduction? Answer: $500,000 annually (subject to change)
Chapter 10: Tax Planning
28.What is income splitting and why is it restricted? Answer: Shifting
income to lower-tax family members; limited by attribution rules
29.What are the general anti-avoidance rule (GAAR) provisions?
Answer: Rules preventing abusive tax avoidance transactions
30.What is the difference between tax deferral and tax reduction?
Answer: Deferral delays tax payment; reduction permanently lowers tax
liability
Additional Practice Questions
Employment Benefits
31.How is a housing subsidy taxed for employees? Answer: Generally
taxable as employment benefit at fair market value
32.What employee benefits are specifically exempt from taxation?
Answer: Employer pension contributions, group life insurance (first
$25,000), etc.
Business Income
33.What is the half-year rule for capital cost allowance? Answer: Only
50% of normal CCA can be claimed in the year of acquisition
34.When can bad debts be deducted? Answer: When established to be
uncollectible and previously included in income
Capital Gains
35.What is the lifetime capital gains exemption? Answer: Exemption for
qualifying small business corporation shares and farm property
Canada? Answer: The Income Tax Act (ITA)
2. What are the three main components of Canada's tax system?
Answer: Federal tax, provincial/territorial tax, and local taxes
3. What is the difference between tax avoidance and tax evasion?
Answer: Tax avoidance is legal planning to minimize taxes, while tax
evasion is illegal non-payment or underreporting
Chapter 2: Liability for Tax
4. Who determines Canadian tax residency? Answer: The Canada
Revenue Agency (CRA) based on residential ties and circumstances
5. What are the primary residential ties to Canada? Answer: Home,
spouse/common-law partner, and dependents
6. What is the sojourner rule? Answer: Individuals present in Canada for
183+ days in a tax year are deemed Canadian residents
Chapter 3: Income from Employment
7. What constitutes employment income under section 5 of the ITA?
Answer: Salary, wages, and other remuneration including benefits
8. Are employee stock options taxable when granted or exercised?
Answer: Generally taxable when exercised, subject to specific rules
9. What is the automobile benefit calculation based on? Answer: 2% of
the cost of the car per month for personal use availability
Chapter 4: Income from Business or Property
10.What is the difference between business and property income?
Answer: Business income requires active involvement; property income
is passive
, 11.What is the "reasonable expectation of profit" test? Answer:
Activities must have a reasonable expectation of profit to be considered
business
12.How are capital expenditures treated differently from current
expenses? Answer: Capital expenditures are depreciated over time;
current expenses are fully deductible
Chapter 5: Capital Gains and Losses
13.What portion of capital gains is taxable in Canada? Answer: 50% (the
taxable capital gain)
14.What is the principal residence exemption? Answer: Exempts capital
gains on a taxpayer's principal residence from taxation
15.How are capital losses applied? Answer: Against capital gains in the
current year, then carried back 3 years or forward indefinitely
Chapter 6: Other Sources of Income
16.What types of pension income qualify for pension income splitting?
Answer: RPP, RRIF, and annuity payments (age restrictions apply)
17.How are scholarships and bursaries taxed? Answer: Generally tax-free
for post-secondary education expenses
18.What is the treatment of social assistance payments? Answer:
Generally not taxable to the recipient
Chapter 7: Registered Plans
19.What is the RRSP contribution limit formula? Answer: 18% of prior
year earned income, up to annual maximum, less pension adjustments
20.What happens to unused RRSP contribution room? Answer: It carries
forward indefinitely
21.At what age must RRSP funds be withdrawn or converted? Answer:
By the end of the year the taxpayer turns 71
Chapter 8: Deductions and Credits
22.What is the difference between a deduction and a tax credit? Answer:
Deductions reduce taxable income; credits reduce taxes payable
23.What is the basic personal amount for 2024? Answer: Check current
CRA rates (amount varies by year)
, 24.What qualifies as a medical expense for tax purposes? Answer:
Expenses listed in ITA regulations, subject to threshold rules
Chapter 9: Corporate Taxation
25.What is the small business deduction rate? Answer: Reduces federal
corporate tax rate for qualifying small businesses
26.What defines a Canadian-controlled private corporation (CCPC)?
Answer: Private corporation controlled by Canadian residents
27.What is the active business income limit for small business
deduction? Answer: $500,000 annually (subject to change)
Chapter 10: Tax Planning
28.What is income splitting and why is it restricted? Answer: Shifting
income to lower-tax family members; limited by attribution rules
29.What are the general anti-avoidance rule (GAAR) provisions?
Answer: Rules preventing abusive tax avoidance transactions
30.What is the difference between tax deferral and tax reduction?
Answer: Deferral delays tax payment; reduction permanently lowers tax
liability
Additional Practice Questions
Employment Benefits
31.How is a housing subsidy taxed for employees? Answer: Generally
taxable as employment benefit at fair market value
32.What employee benefits are specifically exempt from taxation?
Answer: Employer pension contributions, group life insurance (first
$25,000), etc.
Business Income
33.What is the half-year rule for capital cost allowance? Answer: Only
50% of normal CCA can be claimed in the year of acquisition
34.When can bad debts be deducted? Answer: When established to be
uncollectible and previously included in income
Capital Gains
35.What is the lifetime capital gains exemption? Answer: Exemption for
qualifying small business corporation shares and farm property
