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Unformatted text preview: CHAPTER 3 LIABILITY FOR TAX, INCOME DETERMINATION, AND ADMINISTRATION OF THE INCOME TAX SYSTEM Review Questions 1. Which of the following entities are subject to income tax? (a) proprietorship (b) individual (c) joint venture (d) trust (e) limited partnership (f) corporation (g) partnership 2. Describe how the income earned by any of the non-taxable entities listed above is included in the Canadian tax system. 3. How and when does income earned by a corporation affect the tax position of an individual who is a shareholder? 4. In describing who is liable for tax in Canada, the Income Tax Act simply states, An income tax shall be paid as hereinafter required upon the taxable income for each taxation year of every person resident in Canada at any time in the year. Accepting that person includes both an individual and a corporation, briefly discuss the meaning and ramifications of this statement. 5. In what circumstances are non-residents subject to Canadian income tax? 6. Can a Canadian resident be subject to tax in Canada as well as in a foreign country on the same earned income? If yes, explain how. Also, what mechanism is available to minimize double taxation? 7. Explain the difference between net income for tax purposes and taxable income for the taxable entities. 8. Explain what is meant by the statutory scheme, and describe the schemes relevance to the Canadian income tax system. 9. For tax purposes, would you prefer that a financial loss be a capital loss or a business loss? Explain. 10. Explain the difference between income from property and a gain on the sale of capital property . 11. One often hears that corporations are entitled to more deductions for tax purposes than individuals. Based on your reading of Chapter 3, is this statement true? Explain. 12. If an individual earns a living as a lawyer, what possible categories of income, for tax purposes, may he or she generate? Describe the circumstances for each possible classification. 13. What types of income for tax purposes may result when a profit is achieved on the sale of property (e.g., land)? 14. Individual A, a Canadian resident, owns and operates a profitable small farm in North Dakota, U.S.A. He also has a large amount of money earning interest in an American bank. Individual B, also a Canadian resident, owns 100% of the shares of an American corporation that operates a profitable small farm in North Dakota. The corporation also has a large amount of money earning interest in an American bank. Describe and compare the tax positions of these two individuals who conduct the same activities but use different organizational structures. 15. Jane Q owned an apple orchard for 20 years. During that time, she had cultivated a unique brand of apple that was popular with health food fans....
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This note was uploaded on 07/03/2011 for the course BUS 3120 taught by Professor Weedon during the Spring '10 term at University of Winnipeg.
- Spring '10