1|Page
Byrd & Chen’s Canadian Tax Principles
(Volume 1) – By Gary Donell
(Comprehensive Study Guide with
Answers)
Tax bases ANSWER: income, property, consumption/sales, value-added,
tariffs/customs, transfer, user, capital, and head
Income tax ANSWER: a tax on the income of certain entities such as individuals
or corporations; Canada's primary source of revenue, accounting for 65.4% of
revenues (personal income tax alone accounts for 50% of revenues).
Taxable entities (taxable "persons") ANSWER: individuals, corporations, trusts
Individual ANSWER: the Income Tax Act's term for a human being; in the Act,
"person" refers to any taxable entity
Unincorporated businesses ANSWER: (i.e., partnerships and proprietorships) not
recognized as taxable entities in Canada; rather the income is taxed as the personal
income of the owner(s)
Tax returns ANSWER: each taxable entity must file a tax return every year; these
returns are T1 for individuals, T2 for corporations, and T3 for trusts
GST obligations ANSWER: any person engaged in business must collect and remit
GST; for GST legislation, a "person" includes individuals, partnerships,
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corporations, estates of deceased individuals, trusts, charities, societies, unions,
clubs, associations, commissions, and other organizations
Provincial personal income tax ANSWER: all provinces use the same taxable
income as the federal government, except QC
Provincial corporate income tax ANSWER: all provinces use the same taxable
income as the federal government, except AB and QC; the federal government
collects all provincial tax, except for AB and QC who collect their own tax
Provincial sales taxes (as of 01 April 2016)
ANSWER: AB - 5% GST
BC - 5% GST + 7% PST
MB - 5% GST + 8% PST
NB - 13% HST
NL - 13% HST
NS - 15% HST
NT - 5% GST
NU - 5% GST
ON - 13% HST
PE - 14% HST
QC - 5% GST + 9.975% QST
SK - 5% GST + 5% PST
YT - 5% GST
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Tax policy ANSWER: using tax as a tool for various economic objectives
including: resource allocation, distribution, stabilization, and fiscal federalism
Resource allocation ANSWER: to provide public goods and, in the case of excise
taxes, to discourage consumption of particular goods
Distribution effects ANSWER: aka, redistribution - taking taxes paid by higher-
income taxpayers and distributing them to lower-income taxpayers
Stabilization effects ANSWER: to achieve macroeconomic objectives, such as
increasing employment or holding inflation in check
Fiscal federalism ANSWER: allocating resources at different levels of government
Flat tax ANSWER: a tax where the same rate is applied at all income levels; in
Canada, corporate income tax is a flat tax
Regressive tax ANSWER: taxes wherein higher income earners pay less of their
income as tax; sales tax is a regressive tax since, in general, lower-income
individuals must spend more of their income, proportionally, than do higher-
income individuals
Progressive tax ANSWER: a system in which higher tax rates are applied to those
with more income; in Canada, the personal income tax is progressive
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Benefits of progressive tax ANSWER: equity (higher income individuals have a
greater ability to pay taxes) and stability (paying lower taxes at lower income
levels cushions economic swings)
Challenges of progressive tax ANSWER: complexity (higher income individuals
will try to evade tax by shifting earnings to lower brackets; this requires complex
anti-avoidance legislation); income fluctuations (discrimination against individuals
with variable income streams); family unit problems (discrimination against single-
earner families); economic growth (discouragement of employment and
investment); tax concessions (higher income individuals are better able to take
advantage of concessions and therefore may pay lower rates of tax than lower
income individuals); tax avoidance/evasion (progressive rates discourage
reporting, and encourage things such as cash-only transactions); and reduced tax
revenues (high rates - esp. Over 40% - encourage income to be moved out of the
jurisdiction)
Tax incidence ANSWER: who really pays a particular tax
Statutory incidence ANSWER: initial legal liability for a tax; the actual economic
burden may be passed to another group
Tax expenditures ANSWER: revenues given up by the government through the use
of tax preferences, concessions, and other breaks
Benefits of tax expenditures ANSWER: less costly to administer; more decisions
left to private sector; reduce visibility of government actions
Byrd & Chen’s Canadian Tax Principles
(Volume 1) – By Gary Donell
(Comprehensive Study Guide with
Answers)
Tax bases ANSWER: income, property, consumption/sales, value-added,
tariffs/customs, transfer, user, capital, and head
Income tax ANSWER: a tax on the income of certain entities such as individuals
or corporations; Canada's primary source of revenue, accounting for 65.4% of
revenues (personal income tax alone accounts for 50% of revenues).
Taxable entities (taxable "persons") ANSWER: individuals, corporations, trusts
Individual ANSWER: the Income Tax Act's term for a human being; in the Act,
"person" refers to any taxable entity
Unincorporated businesses ANSWER: (i.e., partnerships and proprietorships) not
recognized as taxable entities in Canada; rather the income is taxed as the personal
income of the owner(s)
Tax returns ANSWER: each taxable entity must file a tax return every year; these
returns are T1 for individuals, T2 for corporations, and T3 for trusts
GST obligations ANSWER: any person engaged in business must collect and remit
GST; for GST legislation, a "person" includes individuals, partnerships,
,2|Page
corporations, estates of deceased individuals, trusts, charities, societies, unions,
clubs, associations, commissions, and other organizations
Provincial personal income tax ANSWER: all provinces use the same taxable
income as the federal government, except QC
Provincial corporate income tax ANSWER: all provinces use the same taxable
income as the federal government, except AB and QC; the federal government
collects all provincial tax, except for AB and QC who collect their own tax
Provincial sales taxes (as of 01 April 2016)
ANSWER: AB - 5% GST
BC - 5% GST + 7% PST
MB - 5% GST + 8% PST
NB - 13% HST
NL - 13% HST
NS - 15% HST
NT - 5% GST
NU - 5% GST
ON - 13% HST
PE - 14% HST
QC - 5% GST + 9.975% QST
SK - 5% GST + 5% PST
YT - 5% GST
,3|Page
Tax policy ANSWER: using tax as a tool for various economic objectives
including: resource allocation, distribution, stabilization, and fiscal federalism
Resource allocation ANSWER: to provide public goods and, in the case of excise
taxes, to discourage consumption of particular goods
Distribution effects ANSWER: aka, redistribution - taking taxes paid by higher-
income taxpayers and distributing them to lower-income taxpayers
Stabilization effects ANSWER: to achieve macroeconomic objectives, such as
increasing employment or holding inflation in check
Fiscal federalism ANSWER: allocating resources at different levels of government
Flat tax ANSWER: a tax where the same rate is applied at all income levels; in
Canada, corporate income tax is a flat tax
Regressive tax ANSWER: taxes wherein higher income earners pay less of their
income as tax; sales tax is a regressive tax since, in general, lower-income
individuals must spend more of their income, proportionally, than do higher-
income individuals
Progressive tax ANSWER: a system in which higher tax rates are applied to those
with more income; in Canada, the personal income tax is progressive
, 4|Page
Benefits of progressive tax ANSWER: equity (higher income individuals have a
greater ability to pay taxes) and stability (paying lower taxes at lower income
levels cushions economic swings)
Challenges of progressive tax ANSWER: complexity (higher income individuals
will try to evade tax by shifting earnings to lower brackets; this requires complex
anti-avoidance legislation); income fluctuations (discrimination against individuals
with variable income streams); family unit problems (discrimination against single-
earner families); economic growth (discouragement of employment and
investment); tax concessions (higher income individuals are better able to take
advantage of concessions and therefore may pay lower rates of tax than lower
income individuals); tax avoidance/evasion (progressive rates discourage
reporting, and encourage things such as cash-only transactions); and reduced tax
revenues (high rates - esp. Over 40% - encourage income to be moved out of the
jurisdiction)
Tax incidence ANSWER: who really pays a particular tax
Statutory incidence ANSWER: initial legal liability for a tax; the actual economic
burden may be passed to another group
Tax expenditures ANSWER: revenues given up by the government through the use
of tax preferences, concessions, and other breaks
Benefits of tax expenditures ANSWER: less costly to administer; more decisions
left to private sector; reduce visibility of government actions
