Test
Bank
, Volume 1 Page 1-758
Volume 2 Page 759-1504
Byrd and Chen's Canadian Tax Principles, 2025-2026 (Donell)
Chapter 1 Introduction to Federal Taxation in Canada
1.1 Quick Review
1) There are no items in this
section. Type: ES
1.2 Self-Study Problems
1) There are no items in this section.
Type: ES
1.3 Practical Case
1) There are no items in this
section. Type: ES
1.4 Online Exercises
1) The major source of federal revenues is the personal income tax. Indicate three other types of taxes
that contribute to federal revenues.
Answer: The other sources of federal revenues that are shown in Figure 1-1 of the textbook are:
• Corporate income tax.
• Non-resident income tax.
• GST.
• Customs and import duties.
• Other excise taxes.
• Employment Insurance premiums.
Type: ES
Topic: Federal revenue sources
2) What is the meaning of "person" when the term is used in the ITA?
Answer: In the ITA, the term "person" refers to an individual, a corporation, a trust, or an estate.
Type: ES
Topic: Definition - "Person" ITA 248(1)
3) Briefly describe the procedures used in calculating provincial or territorial income tax for
individuals other than for individuals residing in Quebec.
Answer: Provincial or territorial income tax for individuals is calculated by applying a provincial or
territorial income tax rates to taxable income for federal income tax purposes. Provincial or territorial
personal income tax credits are then applied to the resulting gross provincial or territorial income tax. The
provincial and territorial income tax brackets may differ from the federal income tax brackets. In
addition, provincial and territorial personal tax credits may be different than the federal personal tax
credits.
Type: ES
Topic: Income tax payable - federal income tax
1
Copyright © 2026 Pearson Canada Inc.
,4) The Canadian income tax system is often used to achieve various economic objectives. Give
three examples that illustrate this point.
Answer: There are many examples. The textbook divides them into resource allocation (e.g., public
health care), distribution effects (e.g., federal GST credit), stabilization effects (e.g., deficit reduction),
and fiscal federalism (e.g., allocations to various levels of government).
Type: ES
Topic: Canadian income tax system - objectives
5) Provide an example of how tax policy can be used to influence resource allocation.
• Tax revenues are used to provide public goods and services.
• Excise taxes are used to discourage the consumption of alcohol and tobacco products. There are
many other examples that could be cited.
Type: ES
Topic: Canadian income tax system - objectives
6) The government pays a Canada Child Benefit to the parents of children who are under 18 years of
age. The payments are reduced where the income of the parents or supporting persons are above a
certain threshold amount. What objectives are achieved by this benefit?
Answer: The Canada Child Benefit is designed to assist low income families with the costs of
supporting and raising children. The government is also encouraging population growth.
Type: ES
Topic: Canadian income tax system - objectives
7) Indicate three disadvantages of a tax system that uses progressive rates.
• Increase the complexity of the system.
• Are unfair to individuals with highly variable levels of annual income.
• Are unfair to single income family units.
• Lead to pressure for various types of income tax concessions.
• Discourage high income individuals from making additional efforts.
• Encourage income tax evasion.
Type: ES
Topic: Canadian income tax system - objectives
8) A regressive tax is one that taxes high income individuals at lower effective rates. Explain why a
sales tax levied at a flat rate of 8% can be regressive.
Answer: While the sales tax rate is the same for all individuals without regard to their income level,
lower income individuals spend a higher percentage of their total income than high income taxpayers.
Since the sales tax is charged on the amounts spent, this means that the sales tax paid by lower income
individuals represents a larger percentage of their total income. As a consequence, they are generally
considered to be regressive in nature.
Type: ES
Topic: Canadian income tax system - regressive vs. progressive rates
2
Copyright © 2026 Pearson Canada Inc.
, 9) Distinguish between horizontal equity and vertical equity as these terms are used in describing
tax systems.
Answer: Horizontal equity is achieved when taxpayers in similar economic circumstances are subject to
similar levels of income tax. Vertical equity is achieved when taxpayers in different economic
circumstances are not subject to similar levels of income tax.
Type: ES
Topic: Canadian income tax system - objectives
10) What are some of the factors that have led to the entrenched use of tax expenditures as opposed
to program spending?
Answer: The reasons that are listed in the textbook are as follows:
• It is less costly to administer tax expenditures than it is to administer government funding programs.
• More decisions are left to the private sector so that funds may be allocated more efficiently.
• Tax expenditures reduce the visibility of certain government actions. This is particularly beneficial
if some social stigma is attached to the programs. For example, a child tax benefit system is
considered more acceptable than increasing social assistance (welfare) payments.
• Tax expenditures reduce the progressivity of the tax system. As many of the tax expenditures, such as
tax shelters, are more available to higher income taxpayers, they serve to reduce effective income tax
rates in the higher rate brackets.
Type: ES
Topic: Canadian income tax system - objectives
11) While the Sections of the ITA are numbered 1 through 295, there are actually more than 295
Sections. Explain why this is the case.
Answer: This situation reflects the fact that when a new Section is added, it has been more convenient to
attach a decimal designation to the new Section, as opposed to renumbering all of the Sections that
follow the new Section. As an example, over several years, the Department of Finance has added seven
new Sections after Section 12. They have been numbered Section 12.1 through Section 12.7. If they had
used whole numbers for these new Sections, it would have been necessary to renumber all of the
remaining Sections in the ITA each time a new Section was added.
Type: ES
Topic: The ITA & income tax reference materials
12) What purposes are served by Canada's international income tax treaties?
• They impose relief measures on countries to avoid double taxation where a person is liable for
income tax on the same income in both countries
• They are used to create an exchange of information for the purposes of combatting income tax
evasion. Type: ES
Topic: International - income tax treaties
3
Copyright © 2026 Pearson Canada Inc.
Bank
, Volume 1 Page 1-758
Volume 2 Page 759-1504
Byrd and Chen's Canadian Tax Principles, 2025-2026 (Donell)
Chapter 1 Introduction to Federal Taxation in Canada
1.1 Quick Review
1) There are no items in this
section. Type: ES
1.2 Self-Study Problems
1) There are no items in this section.
Type: ES
1.3 Practical Case
1) There are no items in this
section. Type: ES
1.4 Online Exercises
1) The major source of federal revenues is the personal income tax. Indicate three other types of taxes
that contribute to federal revenues.
Answer: The other sources of federal revenues that are shown in Figure 1-1 of the textbook are:
• Corporate income tax.
• Non-resident income tax.
• GST.
• Customs and import duties.
• Other excise taxes.
• Employment Insurance premiums.
Type: ES
Topic: Federal revenue sources
2) What is the meaning of "person" when the term is used in the ITA?
Answer: In the ITA, the term "person" refers to an individual, a corporation, a trust, or an estate.
Type: ES
Topic: Definition - "Person" ITA 248(1)
3) Briefly describe the procedures used in calculating provincial or territorial income tax for
individuals other than for individuals residing in Quebec.
Answer: Provincial or territorial income tax for individuals is calculated by applying a provincial or
territorial income tax rates to taxable income for federal income tax purposes. Provincial or territorial
personal income tax credits are then applied to the resulting gross provincial or territorial income tax. The
provincial and territorial income tax brackets may differ from the federal income tax brackets. In
addition, provincial and territorial personal tax credits may be different than the federal personal tax
credits.
Type: ES
Topic: Income tax payable - federal income tax
1
Copyright © 2026 Pearson Canada Inc.
,4) The Canadian income tax system is often used to achieve various economic objectives. Give
three examples that illustrate this point.
Answer: There are many examples. The textbook divides them into resource allocation (e.g., public
health care), distribution effects (e.g., federal GST credit), stabilization effects (e.g., deficit reduction),
and fiscal federalism (e.g., allocations to various levels of government).
Type: ES
Topic: Canadian income tax system - objectives
5) Provide an example of how tax policy can be used to influence resource allocation.
• Tax revenues are used to provide public goods and services.
• Excise taxes are used to discourage the consumption of alcohol and tobacco products. There are
many other examples that could be cited.
Type: ES
Topic: Canadian income tax system - objectives
6) The government pays a Canada Child Benefit to the parents of children who are under 18 years of
age. The payments are reduced where the income of the parents or supporting persons are above a
certain threshold amount. What objectives are achieved by this benefit?
Answer: The Canada Child Benefit is designed to assist low income families with the costs of
supporting and raising children. The government is also encouraging population growth.
Type: ES
Topic: Canadian income tax system - objectives
7) Indicate three disadvantages of a tax system that uses progressive rates.
• Increase the complexity of the system.
• Are unfair to individuals with highly variable levels of annual income.
• Are unfair to single income family units.
• Lead to pressure for various types of income tax concessions.
• Discourage high income individuals from making additional efforts.
• Encourage income tax evasion.
Type: ES
Topic: Canadian income tax system - objectives
8) A regressive tax is one that taxes high income individuals at lower effective rates. Explain why a
sales tax levied at a flat rate of 8% can be regressive.
Answer: While the sales tax rate is the same for all individuals without regard to their income level,
lower income individuals spend a higher percentage of their total income than high income taxpayers.
Since the sales tax is charged on the amounts spent, this means that the sales tax paid by lower income
individuals represents a larger percentage of their total income. As a consequence, they are generally
considered to be regressive in nature.
Type: ES
Topic: Canadian income tax system - regressive vs. progressive rates
2
Copyright © 2026 Pearson Canada Inc.
, 9) Distinguish between horizontal equity and vertical equity as these terms are used in describing
tax systems.
Answer: Horizontal equity is achieved when taxpayers in similar economic circumstances are subject to
similar levels of income tax. Vertical equity is achieved when taxpayers in different economic
circumstances are not subject to similar levels of income tax.
Type: ES
Topic: Canadian income tax system - objectives
10) What are some of the factors that have led to the entrenched use of tax expenditures as opposed
to program spending?
Answer: The reasons that are listed in the textbook are as follows:
• It is less costly to administer tax expenditures than it is to administer government funding programs.
• More decisions are left to the private sector so that funds may be allocated more efficiently.
• Tax expenditures reduce the visibility of certain government actions. This is particularly beneficial
if some social stigma is attached to the programs. For example, a child tax benefit system is
considered more acceptable than increasing social assistance (welfare) payments.
• Tax expenditures reduce the progressivity of the tax system. As many of the tax expenditures, such as
tax shelters, are more available to higher income taxpayers, they serve to reduce effective income tax
rates in the higher rate brackets.
Type: ES
Topic: Canadian income tax system - objectives
11) While the Sections of the ITA are numbered 1 through 295, there are actually more than 295
Sections. Explain why this is the case.
Answer: This situation reflects the fact that when a new Section is added, it has been more convenient to
attach a decimal designation to the new Section, as opposed to renumbering all of the Sections that
follow the new Section. As an example, over several years, the Department of Finance has added seven
new Sections after Section 12. They have been numbered Section 12.1 through Section 12.7. If they had
used whole numbers for these new Sections, it would have been necessary to renumber all of the
remaining Sections in the ITA each time a new Section was added.
Type: ES
Topic: The ITA & income tax reference materials
12) What purposes are served by Canada's international income tax treaties?
• They impose relief measures on countries to avoid double taxation where a person is liable for
income tax on the same income in both countries
• They are used to create an exchange of information for the purposes of combatting income tax
evasion. Type: ES
Topic: International - income tax treaties
3
Copyright © 2026 Pearson Canada Inc.
