Taxation Quiz 1

The Undepreciated Capital Cost (UCC) represents the remaining cost of an asset after accounting for previous years' depreciation. It's the portion of the original cost that hasn't been expensed yet.

A resident is someone who lives in Canada full-time, while a sojourner is a non-resident who may be staying temporarily. The difference is important because it affects how their income is taxed.

The adjusted cost basis (ACB) is the cost of an asset after considering adjustments for things like capital improvements or depreciation. When you sell an asset, you subtract the ACB from the sale price to determine your capital gain or loss.

Taxpayers are allowed to deduct the ACB from the proceeds of disposition to ensure they're only taxed on their actual profit. This promotes fairness and encourages investment by preventing taxation on the original investment.

The actual cost of a deductible expense is less than the cash outflow because of tax savings. The deduction lowers your taxable income, resulting in reduced taxes, effectively lowering the cost of that expense.

When leasing a property, you can claim rent expenses as a deduction. When purchasing, you can deduct depreciation and interest expenses. The choice depends on factors like tax rates, loan terms, and property appreciation.

A terminal loss occurs when an asset is sold for less than its ACB. It's a loss that occurs at the end of an asset's useful life and can be deducted from your taxable income.

A tax system is considered neutral if it doesn't influence economic decisions, like business investments or consumer choices. It means everyone is taxed fairly, regardless of their financial situation or how they earn their income.

The ability-to-pay principle suggests that individuals should pay taxes proportionate to their income or wealth. Those with higher incomes or wealth pay a larger share of taxes.

The benefit theory of taxation states that those who benefit from government services should pay taxes to support those services.

A Canadian resident who moves to Canada on March 31st is considered a resident for the entire year if they stay in Canada for more than 183 days.

A part-year resident pays tax on worldwide income earned during their residency in Canada. They also pay taxes on Canadian-source income earned as a non-resident.

The cost to an employer for providing private health insurance is the premium minus the employer's tax savings.

The cost to an employer for providing salary compensation that covers employee's health insurance is the amount needed to cover the health insurance premium, adjusted for both the employee's and employer's tax brackets.

The ability-to-pay principle ensures fairness in tax systems, while the benefit theory connects the payment of taxes to the benefit received from government services.

The difference between the cost of buying health insurance on your own and the pre-tax cost of employer-provided health insurance. It reflects the tax savings associated with employer-sponsored coverage.

A method used to determine the additional salary required to offset the cost of purchasing health insurance on your own after considering the tax benefits of employer-sponsored coverage.

A form of compensation where employees are given the right to purchase company stock at a predetermined price in the future.

A type of compensation where employees receive reimbursement for expenses related to their work, such as using a personal car or meals.

A form of compensation that involves providing employees with certain benefits, like housing, transportation, or other perks.

The gain or loss realized when selling property used in a business, which is typically considered ordinary income or loss and taxed as such.

The profit or loss from selling capital assets, such as land held for investment purposes, which is taxed differently from ordinary income or loss.

The period an asset is held for investment purposes, typically longer than a year, resulting in a different tax treatment of capital gains or losses compared to short-term holdings.

Benefits received from an employer-provided disability insurance plan, typically as a salary replacement, are considered taxable income for the employee. Premiums paid by the employee are not taxable, while those paid by the employer are taxable.

Tax treaties are agreements between countries that establish rules for taxing income earned by residents of one country within the other. They aim to prevent double taxation and facilitate international business.

Transfer pricing refers to the price charged for goods or services exchanged between different parts of a multinational corporation. It is critical from a tax perspective because it determines how much income is taxed in which jurisdiction.

GAAR stands for General Anti-Avoidance Rule. It is a legal provision that aims to prevent taxpayers from using tax planning strategies that exploit loopholes and create artificial tax advantages.

Allowances are payments made by an employer to an employee for specific expenses related to their job, such as travel or meals. Remuneration is a broader term encompassing all forms of compensation received by an employee, including salary, bonuses, and benefits.

A terminal loss cannot be claimed for class 10.1, which includes vehicles. This is because vehicles are treated differently and do not allow for a terminal loss.

The government and taxpayers are essentially partners in funding economic activity. The taxpayer provides income tax revenue, which the government uses to provide benefits like roads and services. These benefits ultimately benefit the taxpayer, creating a partnership for economic growth.

Both the taxpayer and government contribute to the tax system. The taxpayer contributes a portion of their income (1-tax rate), while the government contributes a portion of its expenditures (1+tax rate). This contributes to the overall funding of government services and programs.

When an employer pays premiums for long-term disability insurance, the employee's periodic benefits are included in their income. The employer's premium contribution is not included in the employee's income.

If the employee pays premiums for long-term disability insurance, the benefits received are tax-exempt. However, if the employer pays premiums, only the premiums are tax-exempt, and the benefits are still taxable for the employee.

An individual who moves to Canada permanently on October 12th will be considered a part-year resident. They will be taxed on worldwide income earned during their residency in Canada, but not on income earned before becoming a resident.

A part-year resident is taxed on worldwide income earned during their residency in Canada and non-resident income on Canadian source income. This means they pay tax on Canadian income throughout the year, regardless of their residency status.

A system that prevents double taxation on the same income (i.e. corporate profits and dividends). It ensures fairness and neutrality by integrating income taxes to reduce the overall tax burden.

A situation where a business entity separates its day-to-day operations from its appreciating assets (like real estate) into two separate corporations. This is often done to limit liability, protect assets, and optimize tax benefits.

The Canadian tax system has partial integration for public company dividends. This means that while dividend income is taxed again at the personal level, the eligible dividend tax credit provides some relief from double taxation.

A non-resident (NR) of Canada is generally not taxed on Canadian-source income unless they are physically present in Canada for more than 183 days in a calendar year. Individuals who meet the residency requirements are considered to be a 'tax resident' and will be subject to taxation on their world-wide income.

The CRA (Canada Revenue Agency) imposes penalties for late tax payments. The penalty is 5% of the unpaid tax plus an additional 1% per month (max 12 months) for a total of 17%.

A resident of Canada is generally subject to tax on their world-wide income (WW). This means that income earned from any source, regardless of location, will be taxed. However, there might be some exceptions for certain types of income earned outside of Canada.

A temporary assignment in Canada does not automatically mean the individual becomes a resident for tax purposes. The individual's residency status depends on factors like the length of the assignment, family ties, and intention to stay in Canada.

A taxpayer's residency status determines the income they are subject to tax on. A non-resident is generally not taxed on worldwide income, but is taxed on Canadian source income. A resident is taxed on their worldwide income.