Test Bank for Introduction to Federal Income Taxation
in Canada 44th Edition By Nathalie Johnstone, Devan
Mescall, Julie Robson
Classification of tax: Head tax - ANSWER tax existence of a particular type of
taxpayer such as tax $X paid by all individuals
Classification of tax: Income tax - ANSWER tax on the income of the taxpayer, as is
exemplified by a tax on the income of individuals or corporations
Classification of tax: Wealth tax - ANSWER a tax on capital gains or succession
duties, or tax on accumulated capital of taxpayer
Classification of tax: Commodity tax - ANSWER a tax on consumption of commodity
subject to tax, as is the case of provincial retail sales tax
Classification of tax: User tax - ANSWER a toll for a bridge or road, a tax on the use
of facility or service
Classification of tax: Tariff - ANSWER a tax or duty usually imposed on imported
goods to increase the price of such goods relative to domestic goods
Classification of tax: transfer tax - ANSWER a tax on the value of property
transferred from one owner to another, as is the case on the transfer of land under
certain conditions
Classification of tax: Business transfer tax - ANSWER a value added tax, or a
multistage sales tax, such as goods and services tax or harmonized sales tax on the
increase in value of commodity created by taxpayer in moving it from one stage of
production or distribution to another
Incidence of tax: - ANSWER a method of classification which determines the
taxpayer who ultimately bears the tax
Incidence of direct tax is likely to be on the initial payer of the tax
Incidence of indirect tax is usually not on initial payer of tax, but on someone else. A
sales tax imposed at the manufacturer's level is an example of such an indirect tax
Classification of tax: nature of the tax - ANSWER taxes can be classified by the
proportion of the tax levy.
Proportional or flat tax is levied at constant percentage of the income of the payer of
the tax. Under certain conditions, the corporate income tax can be considered as
such a tax
Progressive tax is levied at an increasing percentage of income of the payer, as is
the case of the personal income tax
, Regressive tax is levied at decreasing percentage of the income of the payer. A
sales tax is considered to be regressive tax to the extent that those with higher
income may spend lower proportion of income on item subject to sales tax
Desirable Characteristics of tax - ANSWER 1. Horizontal equity
2. Vertical equity
3. Neutrality
4. Flexibility
5. Certainty
6. Simplicity and Compliance
7. Feasibility
Horizontal Equity - ANSWER tax system needs to be fair. It should be equitable
horizontally so that persons at the same economic level are affected by the tax to the
same degree in terms of the amount of tax, irrespective of the form of income
generated
Vertical equity - ANSWER income tax should be equitable vertically so that persons
at higher economic level pay greater share of tax based on their greater ability to pay
than those at a lower economic level.
Neutrality - ANSWER Income tax should be neutral so that the tax does not affect
economic decisions. For tax system to be considered neutral, decision based on
after tax results of an economic opportunity should not be any different than it would
have been in absence of taxation
Flexibility - ANSWER income tax system should be sufficiently flexible to permit its
use as an instrument of economic policy to achieve economic objectives.
Certainty - ANSWER taxpayers know in advance the tax consequences of any
transaction that they may plan affairs accordingly. taxpayer must be in a position to
understand and determine with some certainty the payer of tax, base of tax, the
amount of tax, deadline for payment of tax, and method of payment
Simplicity and Compliance - ANSWER Canadian tax system is based on self
assessment, which means that taxpayers are required to assess their income tax
and file appropriate income tax returns on an annual basis. CRA then assesses the
return and has power to investigate and make changes when inaccuracies or
omissions are found. In order to ensure compliance by taxpayers, and limit the
number of investigations and reassessments, the tax system must be simple.
Feasibilty - ANSWER Administration of tax must be feasible and efficient. Total costs
including those to taxpayer, administering and collecting tax should be as low as
possible. Costs of administration and collection of Canadian income tax are very low
when compared with those of other countries
6 Characteristics of Tax System - ANSWER 1. who pays the tax
2. the base to be taxed
3. the rates to be applied to the base
in Canada 44th Edition By Nathalie Johnstone, Devan
Mescall, Julie Robson
Classification of tax: Head tax - ANSWER tax existence of a particular type of
taxpayer such as tax $X paid by all individuals
Classification of tax: Income tax - ANSWER tax on the income of the taxpayer, as is
exemplified by a tax on the income of individuals or corporations
Classification of tax: Wealth tax - ANSWER a tax on capital gains or succession
duties, or tax on accumulated capital of taxpayer
Classification of tax: Commodity tax - ANSWER a tax on consumption of commodity
subject to tax, as is the case of provincial retail sales tax
Classification of tax: User tax - ANSWER a toll for a bridge or road, a tax on the use
of facility or service
Classification of tax: Tariff - ANSWER a tax or duty usually imposed on imported
goods to increase the price of such goods relative to domestic goods
Classification of tax: transfer tax - ANSWER a tax on the value of property
transferred from one owner to another, as is the case on the transfer of land under
certain conditions
Classification of tax: Business transfer tax - ANSWER a value added tax, or a
multistage sales tax, such as goods and services tax or harmonized sales tax on the
increase in value of commodity created by taxpayer in moving it from one stage of
production or distribution to another
Incidence of tax: - ANSWER a method of classification which determines the
taxpayer who ultimately bears the tax
Incidence of direct tax is likely to be on the initial payer of the tax
Incidence of indirect tax is usually not on initial payer of tax, but on someone else. A
sales tax imposed at the manufacturer's level is an example of such an indirect tax
Classification of tax: nature of the tax - ANSWER taxes can be classified by the
proportion of the tax levy.
Proportional or flat tax is levied at constant percentage of the income of the payer of
the tax. Under certain conditions, the corporate income tax can be considered as
such a tax
Progressive tax is levied at an increasing percentage of income of the payer, as is
the case of the personal income tax
, Regressive tax is levied at decreasing percentage of the income of the payer. A
sales tax is considered to be regressive tax to the extent that those with higher
income may spend lower proportion of income on item subject to sales tax
Desirable Characteristics of tax - ANSWER 1. Horizontal equity
2. Vertical equity
3. Neutrality
4. Flexibility
5. Certainty
6. Simplicity and Compliance
7. Feasibility
Horizontal Equity - ANSWER tax system needs to be fair. It should be equitable
horizontally so that persons at the same economic level are affected by the tax to the
same degree in terms of the amount of tax, irrespective of the form of income
generated
Vertical equity - ANSWER income tax should be equitable vertically so that persons
at higher economic level pay greater share of tax based on their greater ability to pay
than those at a lower economic level.
Neutrality - ANSWER Income tax should be neutral so that the tax does not affect
economic decisions. For tax system to be considered neutral, decision based on
after tax results of an economic opportunity should not be any different than it would
have been in absence of taxation
Flexibility - ANSWER income tax system should be sufficiently flexible to permit its
use as an instrument of economic policy to achieve economic objectives.
Certainty - ANSWER taxpayers know in advance the tax consequences of any
transaction that they may plan affairs accordingly. taxpayer must be in a position to
understand and determine with some certainty the payer of tax, base of tax, the
amount of tax, deadline for payment of tax, and method of payment
Simplicity and Compliance - ANSWER Canadian tax system is based on self
assessment, which means that taxpayers are required to assess their income tax
and file appropriate income tax returns on an annual basis. CRA then assesses the
return and has power to investigate and make changes when inaccuracies or
omissions are found. In order to ensure compliance by taxpayers, and limit the
number of investigations and reassessments, the tax system must be simple.
Feasibilty - ANSWER Administration of tax must be feasible and efficient. Total costs
including those to taxpayer, administering and collecting tax should be as low as
possible. Costs of administration and collection of Canadian income tax are very low
when compared with those of other countries
6 Characteristics of Tax System - ANSWER 1. who pays the tax
2. the base to be taxed
3. the rates to be applied to the base
