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Unformatted text preview: Chapter 1 Introduction to Taxation Questions 1-1 When choosing a location for a new manufacturing site, it is important to consider all operational, marketing, and other issues. The product’s market and its distribution would also be a factor in determining the ideal location for the proposed manufacturing site. After evaluating the sites for their economic and financial aspects, it is appropriate to look at the tax implications of locating at either site. With the focus on long-term profit maximization and the integration of all management areas with the tax rules, the most favourable location for the new manufacturing site can be determined. 1-2 Quite often, matters of tax litigation delve into issues outside of strict interpretation and precedent. The accounting methods that an individual or a corporation operates under can affect the way in which a rule should be applied. As accountants are best suited to advise on matters of accounting policy, they should play a part in litigation where such issues arise. 1-3 The underlying objectives of taxation in Canada are as follows: (a) To maximize the growth of output of goods and services that are beneficial to the public interest. This is, in a sense, the use of tax 1 2 TAXATION IN CANADA policy as a “carrot” to encourage people and/or industries to behave in a manner that the government deems beneficial to society as a whole. An example is the preferential treatment of capital gains. Since 50% of capital gains are not subject to taxation, the government hopes to encourage investment that may lead to more production by the nation. (b) To redistribute wealth equitably throughout society. This refers to the use of the taxation system to achieve social goals. To accomplish this, the government uses a progressive tax rate structure where higher-income earners are taxed at progressively greater rates than lower-income earners. Therefore, individuals earning the same level of income are taxed similarly based on horizontal equity. Yet, higher- income earners pay tax at a higher rate on the higher-income amounts because the government assumes that they are in a better financial position to do so (vertical equity). Chapter 2 explains this concept further. (c) To protect the liberty and rights of the individual. Tax policy formation should be democratic and serve the public good rather than serving only a privileged few. Ideally, all budgetary proposals should be openly debated with the public. A true democratic process would allow individuals to express their individual opinions on proposals...
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This note was uploaded on 06/03/2009 for the course BUSINESS AIT 805 taught by Professor Shirenekhan during the Winter '09 term at Seneca.
- Winter '09