Intro to Tax Principles and National Tax Systems
These are the 3 principles Mirrlees shares in creating an ideal tax system.
Tax systems should be (1) simple, (2) neutral, and (3) stable.
Name the 3 groups of rules used to determine residency in determining whether someone pays income in Canada.
(1) Statute, (2)common law, and (3) tax treaties
According to 150(1), when are tax returns due for an individual, and individual carrying a business, and a corporation?
Individual: April 30
Individual carrying a business: June 15
Corporation: 6 months within year’s end
How does a joint unit tax system inhibit the non-working partner from participating in the workforce?
Because they’ll have to pick up their working partner’s marginal tax rate.
Compare and contrast tax deductions and tax credits.
Similarities: Both are a form of tax expenditure (reduces government revenue)
Deductions: Amounts subtracted from income and benefits the rich more
Credits: Amounts subtracted from tax payable and apply a more even percentage throughout different income levels
List the 4 main alternatives to taxation.
(1) Borrowing, (2) expanding the money supply, (3) conscription, and (4) user fee.
How does Thomson v MNR define “sojourn” and why is this important?
Sojourn is defined as usually, casually, or intermittently staying or visiting a place.
Important because an individual who sojourns in Canada is deemed resident.
What is the distinction between administrative costs and compliance costs?
Administrative costs: The cost of collection of taxes by a government revenue authority
Compliance costs: The cost of accounting and legal services paid by taxpayers to comply with their tax obligation
In Royal Winnipeg Ballet v MNR, the FCA developed this jurisprudence in considering whether a taxpayer is an employee or independent contractor, and this jurisprudence is arguably misguided.
Looking at the subject intent of the parties instead of looking at the objective indications of the contract (as they did in Uber BV v Asalam in the UK)
This is the basic and simplified computation for federal income tax payable.
(1) Add income, (2) subtract deductions which leads to taxable income, (3) apply tax rate, and (4) subtract tax credits which leads to federal tax payable
Differentiate legal incidence from economic incidence.
Legal incidence is the entity that collects and remits taxes.
Economic incidence is the entity that is economically worser off by the tax.
According to [this concept], each additional, absolute, dollar is more valuable to those with lower income than those with higher income, which is why it is better to have a progressive tax system based on percentages.
Marginal utility
According to Ereiser v Canada, what are the two distinct legal proceedings a taxpayer can carry out?
1. Determining whether the amount of tax assessed is correct
2. Challenging the behaviour of the CRA carrying out their work
Big corporations: Taxed when the option is exercised
Small companies: Taxed when shares are sold
How are credits likely fairer than deductions?
Credits reduce the effective price of a favoured good by the same percentage for everyone.
With deductions, two people can make the same contribution, but the person with higher income will benefit more.
The World Bank describes this as the transfer of expenditure and revenue assignments to lower levels of government that is theoretically better set to meet people’s preferences and demands in public goods and services
Fiscal decentralization
Compare and contrast budgetary expenditure and tax expenditure.
Similarities: Involve government spending
Budgetary: The government uses raised revenue to directly spend on a project
Tax: The government removes taxes from a particular good/transaction (aka tax cut) and reduces revenue
In the context of having a court proceeding with the CRA, what does the solicitor-client privilege apply and does not apply to?
Solicitor-client privilege applies to legal advice regarding tax planning.
Solicitor-client privilege does not apply to transactional documents
According to Wiebe Door Services v MNR, what are 4 ways that can be used to characterize whether someone is an employee or an independent contractor?
1. Degree of control exercised by the worker
2. Ownership of tools
3. Who faces the risk of profit/loss
4. The worker’s integration in the business
Why is providing refundable GST credits to lower income families important?
Because consumption taxes can be regressive where lower income families spend a higher proportion of their income (for e.g., 100%) that higher income people (for e.g., 70%).
This type of loss occurs where Amir abandoned his cart while online shopping after seeing that an additional $7.30 of GST tax was added to his item.
Deadweight loss (disruptions in price systems caused by interventions like taxes)
How does Haig-Simons define economic income?
Economic income = Your consumption in a year + Change with net worth in that same year
(Agnostic about where money comes from)
After the CRA initially assesses your tax return, they may also audit it. According to s 231.1(1), what does this entail?
Having an authorized person (1) examine, inspect, or audit any documents, (2) examine any property, (3) enter any premises but need a consent/warrant if it’s a dwelling house.
How does R v Savage and Lowe v R compliment subsection 6(1) in determining whether something is a taxable personal benefit from office/employment?
Savage: It is generally a taxable benefit if there it is a material acquisition that confers an economic benefit to the employee.
Lowe: Not taxable if it primarily advantages the employer
Name one (genuine) possible benefit of boutique tax credits.
A possibly inexpensive way for governments to draw attention to the benefit of merit goods (for e.g., children’s fitness, public transit, volunteer firefighters)