Ch3so - Chapter 3 The Income Tax Base and Rate Structure Questions 3-1 Capital gains were segregated from other forms of income so that they could

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Chapter 3 The Income Tax Base and Rate Structure Questions 3-1 Capital gains were segregated from other forms of income so that they could  be   given   special   tax   treatment.   The   government   wanted   to   encourage  investment   and   provide   special   tax   breaks   for   capital   investment.   No,  paragraph  3( b )   of the   Income Tax Act   is  in  place for income-sourcing  purposes and to separate capital losses from non-capital losses. This is  necessary, as capital losses can only be applied against capital gains, while  non-capital losses can be applied against other sources of income. Thus,  paragraph  3( b )   could   only   be   eliminated   if   there   were   no   preferential  treatment of capital gains and losses. 3-2 A progressive tax rate system motivates family members to shift income  from higher-income earners to lower-income earners in the family unit.  Consequently, the overall taxes paid within the family unit are decreased.  Because this reduces overall revenues and undermines a fair tax system, the  government limits income-splitting techniques by applying specific rules in  the  Income Tax Act . 3-3 Income splitting would no longer be necessary because all taxpayers would  be taxed at the same rate. The total amount of tax paid would depend on the  amount of individual consumption. 19
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20 TAXATION   IN   CANADA 3-4 No, self-employed business losses can be applied against any sources of income  of the three previous years, or may be carried forward 20 years (for losses  incurred in taxation years ending after 2005), and offset against future income.  However, if the individual does not have any income over this time period or  insufficient income to absorb these losses, then the losses are lost and will not be  deductible. 3-5 The   computation   of   net   income   for   tax   purposes   is   very   similar   for  individuals and corporations. The aggregating formula (section 3) is the  same   for   all   persons   including   individuals   and   corporations   except  corporations   would   not   have   employment   income   or   losses.   As   well, 
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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.

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Ch3so - Chapter 3 The Income Tax Base and Rate Structure Questions 3-1 Capital gains were segregated from other forms of income so that they could

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