Test Bank For
Volume 1
Gary Donell
For
Byrd & Chen’s
Canadian Tax Principles
2023–2024 Edition
Gary Donell
Canadian Tax Principles, 2023-2024 (Byrd/Chen)
Chapter 1 Introduction to Federal Taxation in Canada
1.1 Online Exercises
,1) The major source of federal revenues is the personal income tax. Indicate three other types of
taxes that contribute to federal revenues.
Answer: The other sources of federal revenues that are shown in Figure 1-1 of the textbook are:
• Corporate income tax.
• Non-resident income tax.
• GST.
• Customs and import duties.
• Other excise taxes.
• Employment Insurance premiums.
Type: ES
Topic: Federal revenue sources
2) What is the meaning of "person" when the term is used in the ITA?
Answer: In the ITA, the term "person" refers to an individual, a corporation, a trust or an estate.
Type: ES
Topic: Definition - "Person" ITA 248(1)
3) Briefly describe the procedures used in calculating provincial or territorial income tax for
individuals other than for individuals residing in Quebec.
Answer: Provincial or territorial income tax for individuals are calculated by applying a
provincial or territorial income tax rates to taxable income for federal income tax purposes.
Provincial or territorial personal income tax credits are then applied to the resulting gross income
tax. The provincial and territorial income tax brackets may differ from the federal income tax
brackets. In addition, provincial and territorial personal tax credits may be different than the
federal personal tax credits.
Type: ES
Topic: Income tax payable - federal income tax
4) The Canadian income tax system is often used to achieve various economic objectives. Give
three examples that illustrate this point.
Answer: There are many examples. The textbook divides them into resource allocation (e.g.,
public health care), distribution effects (e.g., federal GST credit), stabilization effects (e.g., deficit
reduction), and fiscal federalism (e.g., allocations to various levels of government).
Type: ES
Topic: Canadian income tax system - objectives
5) Provide an example of how tax policy can be used to influence resource allocation.
Answer: Examples provided in the textbook are as follows:
• Tax revenues are used to provide public goods and services.
• Excise taxes are used to discourage the consumption of alcohol and tobacco products. There are
many other examples that could be cited.
Type: ES
Topic: Canadian income tax system - objectives
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
ii
,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 above a certain amount. What
objectives are achieved by this benefit?
Answer: The Canada Child Benefit is designed to assist low income families with the costs of
having and raising children. The government is also encouraging population growth.
Type: ES
Topic: Canadian income tax system - objectives
7) Indicate three disadvantages of a tax system that uses progressive rates.
Answer: Possibilities include that progressive rates:
• Increase the complexity of the system.
• Are unfair to individuals with highly variable levels of income.
• Are unfair to single income family units.
• Lead to pressure for various types of tax concessions.
• Discourage high income individuals from making additional efforts.
• Encourage tax evasion.
Type: ES
Topic: Canadian income tax system - objectives
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% can be regressive.
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 charged on the amounts spent, this means that the sales tax paid by lower income
individuals represents a larger percentage of their total income. As a consequence, they are
generally considered to be regressive in nature.
Type: ES
Topic: Canadian income tax system - regressive vs progressive rates
9) Distinguish between horizontal equity and vertical equity as these terms are used in describing
tax systems.
Answer: Horizontal equity is achieved when taxpayers in similar economic circumstances are
subject to similar levels of tax. Vertical equity is achieved when taxpayers in different economic
circumstances are not subject to similar levels of tax.
Type: ES
Topic: Canadian income tax system - objectives
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
iii
, 10) What are some of the factors that have led to the entrenched use of tax expenditures as
opposed to program spending?
Answer: The reasons that are listed in the textbook are as follows:
• It is less costly to administer tax expenditures than it is to administer government funding
programs.
• More decisions are left to the private sector so that funds may be allocated more efficiently.
• Tax expenditures reduce the visibility of certain government actions. This is particularly
beneficial if some social stigma is attached to the programs. For example, a child tax benefit
system is more acceptable than increasing social assistance (welfare) payments.
• Tax expenditures reduce the progressivity of the tax system. As many of the tax expenditures,
such as tax shelters, are more available to higher income taxpayers, they serve to reduce effective
tax rates in the higher rate brackets.
Type: ES
Topic: Canadian income tax system - objectives
11) While the Sections of the ITA are numbered 1 through 281, there are actually more than 281
Sections. Explain why this is the case.
Answer: This situation reflects the fact that when a new Section is added, it has been more
convenient to attach a decimal designation to the new Section, as opposed to renumbering all of
the Sections that follow the new Section. As an example, over several years, the Department of
Finance has added seven new Sections after Section 12. They have been numbered Section 12.1
through Section 12.7. If they had used whole numbers for these new Sections, it would have been
necessary to renumber all of the remaining Sections in the Act each time a new Section was
added.
Type: ES
Topic: The ITA & income tax reference materials
12) What purposes are served by Canada's international income tax treaties?
Answer: The purposes of these treaties are as follows:
• They impose measures on countries to avoid double taxation where a person is liable for
income tax on the same income in both countries
• They are used to create an exchange of information for the purposes of combatting tax evasion.
Type: ES
Topic: International - income tax treaties
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
iv
Volume 1
Gary Donell
For
Byrd & Chen’s
Canadian Tax Principles
2023–2024 Edition
Gary Donell
Canadian Tax Principles, 2023-2024 (Byrd/Chen)
Chapter 1 Introduction to Federal Taxation in Canada
1.1 Online Exercises
,1) The major source of federal revenues is the personal income tax. Indicate three other types of
taxes that contribute to federal revenues.
Answer: The other sources of federal revenues that are shown in Figure 1-1 of the textbook are:
• Corporate income tax.
• Non-resident income tax.
• GST.
• Customs and import duties.
• Other excise taxes.
• Employment Insurance premiums.
Type: ES
Topic: Federal revenue sources
2) What is the meaning of "person" when the term is used in the ITA?
Answer: In the ITA, the term "person" refers to an individual, a corporation, a trust or an estate.
Type: ES
Topic: Definition - "Person" ITA 248(1)
3) Briefly describe the procedures used in calculating provincial or territorial income tax for
individuals other than for individuals residing in Quebec.
Answer: Provincial or territorial income tax for individuals are calculated by applying a
provincial or territorial income tax rates to taxable income for federal income tax purposes.
Provincial or territorial personal income tax credits are then applied to the resulting gross income
tax. The provincial and territorial income tax brackets may differ from the federal income tax
brackets. In addition, provincial and territorial personal tax credits may be different than the
federal personal tax credits.
Type: ES
Topic: Income tax payable - federal income tax
4) The Canadian income tax system is often used to achieve various economic objectives. Give
three examples that illustrate this point.
Answer: There are many examples. The textbook divides them into resource allocation (e.g.,
public health care), distribution effects (e.g., federal GST credit), stabilization effects (e.g., deficit
reduction), and fiscal federalism (e.g., allocations to various levels of government).
Type: ES
Topic: Canadian income tax system - objectives
5) Provide an example of how tax policy can be used to influence resource allocation.
Answer: Examples provided in the textbook are as follows:
• Tax revenues are used to provide public goods and services.
• Excise taxes are used to discourage the consumption of alcohol and tobacco products. There are
many other examples that could be cited.
Type: ES
Topic: Canadian income tax system - objectives
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
ii
,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 above a certain amount. What
objectives are achieved by this benefit?
Answer: The Canada Child Benefit is designed to assist low income families with the costs of
having and raising children. The government is also encouraging population growth.
Type: ES
Topic: Canadian income tax system - objectives
7) Indicate three disadvantages of a tax system that uses progressive rates.
Answer: Possibilities include that progressive rates:
• Increase the complexity of the system.
• Are unfair to individuals with highly variable levels of income.
• Are unfair to single income family units.
• Lead to pressure for various types of tax concessions.
• Discourage high income individuals from making additional efforts.
• Encourage tax evasion.
Type: ES
Topic: Canadian income tax system - objectives
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% can be regressive.
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 charged on the amounts spent, this means that the sales tax paid by lower income
individuals represents a larger percentage of their total income. As a consequence, they are
generally considered to be regressive in nature.
Type: ES
Topic: Canadian income tax system - regressive vs progressive rates
9) Distinguish between horizontal equity and vertical equity as these terms are used in describing
tax systems.
Answer: Horizontal equity is achieved when taxpayers in similar economic circumstances are
subject to similar levels of tax. Vertical equity is achieved when taxpayers in different economic
circumstances are not subject to similar levels of tax.
Type: ES
Topic: Canadian income tax system - objectives
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
iii
, 10) What are some of the factors that have led to the entrenched use of tax expenditures as
opposed to program spending?
Answer: The reasons that are listed in the textbook are as follows:
• It is less costly to administer tax expenditures than it is to administer government funding
programs.
• More decisions are left to the private sector so that funds may be allocated more efficiently.
• Tax expenditures reduce the visibility of certain government actions. This is particularly
beneficial if some social stigma is attached to the programs. For example, a child tax benefit
system is more acceptable than increasing social assistance (welfare) payments.
• Tax expenditures reduce the progressivity of the tax system. As many of the tax expenditures,
such as tax shelters, are more available to higher income taxpayers, they serve to reduce effective
tax rates in the higher rate brackets.
Type: ES
Topic: Canadian income tax system - objectives
11) While the Sections of the ITA are numbered 1 through 281, there are actually more than 281
Sections. Explain why this is the case.
Answer: This situation reflects the fact that when a new Section is added, it has been more
convenient to attach a decimal designation to the new Section, as opposed to renumbering all of
the Sections that follow the new Section. As an example, over several years, the Department of
Finance has added seven new Sections after Section 12. They have been numbered Section 12.1
through Section 12.7. If they had used whole numbers for these new Sections, it would have been
necessary to renumber all of the remaining Sections in the Act each time a new Section was
added.
Type: ES
Topic: The ITA & income tax reference materials
12) What purposes are served by Canada's international income tax treaties?
Answer: The purposes of these treaties are as follows:
• They impose measures on countries to avoid double taxation where a person is liable for
income tax on the same income in both countries
• They are used to create an exchange of information for the purposes of combatting tax evasion.
Type: ES
Topic: International - income tax treaties
Copyright © 2017 Pearson Canada Inc., Toronto, Canada
iv
