Canadian Tax Jeopardy

Personal Tax

100

In 2015, Joe purchased a piece of artwork for $250. In 2022, Joe sold the artwork to an arm’s length third party for $1,000. What is Joe’s capital gain on the sale?

• Listed Personal Property (LPP)

Adjusted cost base of the property is deemed to be the greater of the original cost of the property and $1,000.

Proceeds of disposal of the property are deemed to be the greater of actual proceeds and $1,000.

Therefore, capital gains = NIL ($1,000 - $1,000)

200

Moving expenses are deductible under the following two scenarios:

• Moving to a new business or employment location in Canada
• Moving to attend a qualifying post-secondary educational institution on a full-time basis

What are the conditions for deduction of the moving expenses?

• The move must result in the new residence being at least 40 kilometres closer to the new work location / school than the old residence. The 40-kilometre distance is measured by the nearest land route.
• Moving expenses that exceed income from the new work location / school in the year of the move may be carried forward and deducted from income earned at the new work location /school in subsequent years.
• The moving expenses must have been paid. The taxpayer must not have been reimbursed for the moving expenses.

300

Name 4 of the 7 criteria for distinguishing between employees and independent contractors

• Control
• Ownership of Tools
• Subcontract The Work or Hire Assistants
• Financial Risk
• Responsibility For Investment and Management
• Opportunity For Profit

400

Andy owns securities with an ACB of $150,000 and an FMV of $250,000. He gifts them all to his sister, Linda, who later sells the securities for $300,000. What are the tax consequences of these transactions for Andy and Cindy.

• Andy has a capital gain of $100,000 ($250,000 - $150,000)
• Linda has a capital gain of $50,000 ($300,000 - $250,000)

500

Give 5 examples of the differences between and an employee and an independent contractor – can be both from a tax or qualitative perspective. Explain the implications for both sides.

Employee

• Tax return due April 30
• No requirement to register for GST
• Earns employment income
• Less control over working conditions and hours
• Generally cannot work for other entities
• Receives severance pay if employment is terminated
• No record-keeping required because the employer issues the T4
• Employer pays 50% of CPP premiums
• Limited deductions available from employment income

Contractor

• Tax return due June 15
• Must be GST registered if revenue is more than $30,000
• Earns business income
• More control over working conditions and hours
• Can work for other entities
• No severance pay received if contract is terminated
• Must include a statement of revenue and expenses in personal tax return
• Must pay 100% of CPP premiums (both employee and employer share)
• More expenses are tax-deductible — generally all expenses incurred to earn the business income

Corporate Tax

100

If a A-Corp. Inc. has a permanent establishment in more than one province, then it must prepare this Schedule on the T2 return.

Schedule 5

200

• Provide 4 of the 8 requirements that must be met for a corporation to be a CCPC.

The corporation is a CCPC if it meets all of the following requirements at the end of the tax year:

• it is a private corporation
• it is a corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year
• it is not controlled directly or indirectly by one or more non-resident persons
• it is not controlled directly or indirectly by one or more public corporations
• it is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada
• it is not controlled directly or indirectly by any combination of persons described in the three previous conditions
• if all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a designated stock exchange were owned by one person, that person would not own sufficient shares to control the corporation
• no class of its shares of capital stock is listed on a designated stock exchange

300

XYZ Inc. filed its March 31, 2021 year-ending treaty-based T2 Canadian Corporation Income Tax Return on March 31, 2022. There are no income taxes payable on the return. What is the late filing penalty of the return?

• 162(7) – Failure to comply – The penalty for failing to file a return is $25 per day for up to 100 days (minimum $100 and maximum $2,500).

400

ABC Inc. was incorporated in 2021 and incurred $5,000 in incorporation costs. What are the tax implications of the incorporation costs?

Incorporation expenses up to $3,000 are fully deductible in the year incurred. Therefore, $3,000 of the incorporation costs is fully deductible. The excess amount ($2,000) would be capitalized on Schedule 8 in Class 14.1.

500

ABC Inc., a CCPC, received the following non-eligible dividends from taxable Canadian corporations during the current year:

A-Corp. Inc. (5% ownership interest) $10,000

B-Corp. Inc. (80% ownership)           $35,500

C-Corp. Inc. (30% ownership)           $20,000

                                                      -----------

                                             Total: $73,500

Note 1: B-Corp Inc. did not receive a dividend refund as a result of paying the dividend.

Note 2: C-Corp. Inc. received a dividend refund of $15,000 as a result of paying the dividend.

Determine Part IV tax payable by ABC Inc.

A-Corp. Inc.  (38 1/3 % × $10,000)       $3,833

B-Corp. Inc.                                               —

C-Corp. Inc.  (30% × $15,000)              $4,500

                                                        -------------

Part IV tax payable                                $8,333

Trusts

100

This fiscal year end of a Trust is December 31, 2023. What is the deadline of the 2023 T3 Return. Note: 2024 is a leap year.

March 30, 2024. The T3 needs to be filed 90 days after the trust's year-end. For Dec. 31 year-ends, that makes the T3 filing deadline March 31 (March 30 in leap years).

200

What are 3 examples of an Inter vivos trust.

• Spousal trust
• Joint spousal trust
• Alter ego trust
• Family trust

300

All personal trusts (except spousal trusts, joint spousal trusts and alter ego trusts) are deemed to have disposed of all capital property of the trust every ______. Also explain the purpose of this rule.

21 years. 

The disposition is deemed to be at the fair value of the property at that time. The purpose of the rule is to prevent an indefinite deferral of tax on accrued gains on trust property.

400

Janet has set up an inter vivos trust for her three adult children. All income of the trust is to be distributed on an annual basis equally to each of the children. During the current year, dividends received and capital gains realized were as follows:

Dividends from Canadian public companies $ 30,000

Capital gain realized on sale of public company shares                                                     $15,000

Capital dividends received                        $8,000

What is the impact of the allocation on the net income of each beneficiary?

Taxable dividends: ($30,000 / 3) × 1.38   $13,800

Taxable capital gains: ($15,000 / 3) × ½    $2,500

Capital dividends (not taxable)                      - 0 -

                                                            ----------

Impact on beneficiary’s net income          $16,300

500

What are 4 common rationale for creating a personal trust – what are some benefits or purposes for establishing a personal trust?

• Management of assets
• Protecting assets

• Controlling distribution

• Privacy

• Access to multiple exemptions

• Income splitting
  
  
  

Sales Tax

100

GST/HST instalments are required for annual filers whose GST/HST payable for the preceding reporting period is _______ or more.

$3,000

200

What is the tax rate of the Quebec QST.

9.975%

300

ABC Inc. has to file a Manitoba PST/RST return for the month ending September 30, 2022. When is the return and payment due? Provide both the date and exact time.

By October 20, 2022 at 4:30pm

400

A person/corporation who sells taxable supplies in Canada in a commercial activity is required
to register for GST/HST unless one of the exceptions are met. What are the 3 exceptions.

Exceptions:

• The person is a small supplier (sales of taxable supplies is less than $30,000).
• The only commercial activity of is the sale of real property not in the course of a business
• The person/corporation is a non-resident who does not carry on business in Canada.

500

To reduce delays and ease administration when all or substantially all of the assets of a business are sold, an election is available in situations where the purchaser would have otherwise been entitled to claim an ITC on the purchase of a business. This eliminates the need for the vendor to charge, collect and remit GST/HST on the sale of the business. What subsection of the Excise Tax Act is this applicable to name the form that the supplier and recipient must jointly complete to file this election.

• Subsection 167(1) of the ETA
• Form GST44 - Election Concerning the Acquisition of a Business or Part of a Business.

Non-Resident

100

What is the due date of a Section 216 return?

June 30th of the following year.

200

ACB Inc. filed an NR4 - Non-Resident Tax Withholding, Remitting, and Reporting return that has 5 slips late by 10 days. What is the expected late filing penalty that the CRA will assess ACB Inc.

Penalty is not based on number of days if the number of NR4 slips filed late is 1 to 5. Instead, there is a flat $100 penalty.

300

After the CRA approves your Form NR6, your agent can withhold non-resident tax of 25% on your net rental income. When must your agent remit the tax withholdings to the CRA?

Your agent must pay the tax on or before the 15th day of the month after the month the rental income is paid or credited to you.

400

What form must be filed if you are a non-resident of Canada to give notice to the CRA of the proposed disposition of, or the completed disposition of, certain taxable Canadian property?

Form T2062 - Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property

500

The business profits of a resident of a Contracting State shall be taxable only in that State unless the resident carries on business in the other Contracting State through a permanent establishment situated therein. If the resident carries on, or has carried on, business as aforesaid, the business profits of the resident may be taxed in the other State but only so much of them as are attributable to that permanent establishment.

What is the article and paragraph of the above excerpt of the tax treaty between Canada and the USA?

Article VII Paragraph 1