1|Page
Introduction to Federal Income Taxation
in Canada (46th Edition) by Julie
Robson, Devan Mescall, Nathalie
Johnstone, David Lin
1.Who is required to pay income tax in Canada?
ANSWER: Residents of Canada and non-residents earning business or
employment income in Canada or realizing gains on certain property connected to
Canada.
2. What are the four steps to determine income tax payable for an individual
in Canada?
ANSWER: 1. Net income: Add all income and deduct available expenses/other
deductions. 2. Taxable income: Tax base for income tax liability or refund. 3.
Gross tax: Apply tax rates to taxable income. 4. Personal tax credits: Subtract
personal tax credits from gross tax to find net tax payable or refund.
3. How is annual income reported in Canada?
ANSWER: By completing and filing an annual income tax return.
4. What is the Income Tax Act (ITA) based on?
ANSWER: Legal concepts, not accounting concepts, except in rare circumstances.
5. What are the three categories of income tax revenue in Canada?
,2|Page
ANSWER: 46.8% from individuals, 18.7% from corporations, and 3.0% from
non-residents.
6. What percentage of tax revenue does GST contribute to the Canadian
federal government?
ANSWER: 11.1%.
7. What is the total percentage of income and sales tax revenues to the federal
government?
ANSWER: 79.6%.
8. What is the one-time income tax imposed on bank or life insurer groups in
Canada?
ANSWER: A 15% income tax on average taxable income for 2020 & 2021
exceeding $1 billion.
9. What is the corporate surtax in Canada?
ANSWER: A surtax on profits of bank or life insurer groups exceeding $100
million, applicable for taxation years ending after April 7, 2022.
10. What is the digital services tax in Canada?
ANSWER: A 3% tax effective January 1, 2024.
11. What is the Underused Housing Tax?
ANSWER: A 1% tax on the value of vacant or underused Canadian residential real
estate owned by non-residents, beginning in 2022.
, 3|Page
12. What tax is imposed on share buybacks of public corporations in Canada?
ANSWER: A 2% tax beginning January 1, 2024.
13. What are the taxable entities in Canada?
ANSWER: Individuals, corporations, and trusts.
14. Why are partnerships not considered taxable entities in Canada?
ANSWER: Partnerships are legal relationships; income is taxed in the hands of the
individual partners.
15. What is a sole proprietorship in terms of taxation?
ANSWER: Not a taxable entity; the individual proprietor reports business income
on an income tax return (T1).
16. How do partnerships report business income?
ANSWER: Depending on whether the partner is an individual (T1), corporation
(T2), or trust (T3).
17. What is the tax return form for incorporated businesses in Canada?
ANSWER: T2 corporate tax return.
18. What is the significance of IFRS 17 in relation to the Income Tax Act?
ANSWER: Legislation will be added to the ITA to ensure IFRS 17 accounting
rules are acceptable for income tax purposes.
Introduction to Federal Income Taxation
in Canada (46th Edition) by Julie
Robson, Devan Mescall, Nathalie
Johnstone, David Lin
1.Who is required to pay income tax in Canada?
ANSWER: Residents of Canada and non-residents earning business or
employment income in Canada or realizing gains on certain property connected to
Canada.
2. What are the four steps to determine income tax payable for an individual
in Canada?
ANSWER: 1. Net income: Add all income and deduct available expenses/other
deductions. 2. Taxable income: Tax base for income tax liability or refund. 3.
Gross tax: Apply tax rates to taxable income. 4. Personal tax credits: Subtract
personal tax credits from gross tax to find net tax payable or refund.
3. How is annual income reported in Canada?
ANSWER: By completing and filing an annual income tax return.
4. What is the Income Tax Act (ITA) based on?
ANSWER: Legal concepts, not accounting concepts, except in rare circumstances.
5. What are the three categories of income tax revenue in Canada?
,2|Page
ANSWER: 46.8% from individuals, 18.7% from corporations, and 3.0% from
non-residents.
6. What percentage of tax revenue does GST contribute to the Canadian
federal government?
ANSWER: 11.1%.
7. What is the total percentage of income and sales tax revenues to the federal
government?
ANSWER: 79.6%.
8. What is the one-time income tax imposed on bank or life insurer groups in
Canada?
ANSWER: A 15% income tax on average taxable income for 2020 & 2021
exceeding $1 billion.
9. What is the corporate surtax in Canada?
ANSWER: A surtax on profits of bank or life insurer groups exceeding $100
million, applicable for taxation years ending after April 7, 2022.
10. What is the digital services tax in Canada?
ANSWER: A 3% tax effective January 1, 2024.
11. What is the Underused Housing Tax?
ANSWER: A 1% tax on the value of vacant or underused Canadian residential real
estate owned by non-residents, beginning in 2022.
, 3|Page
12. What tax is imposed on share buybacks of public corporations in Canada?
ANSWER: A 2% tax beginning January 1, 2024.
13. What are the taxable entities in Canada?
ANSWER: Individuals, corporations, and trusts.
14. Why are partnerships not considered taxable entities in Canada?
ANSWER: Partnerships are legal relationships; income is taxed in the hands of the
individual partners.
15. What is a sole proprietorship in terms of taxation?
ANSWER: Not a taxable entity; the individual proprietor reports business income
on an income tax return (T1).
16. How do partnerships report business income?
ANSWER: Depending on whether the partner is an individual (T1), corporation
(T2), or trust (T3).
17. What is the tax return form for incorporated businesses in Canada?
ANSWER: T2 corporate tax return.
18. What is the significance of IFRS 17 in relation to the Income Tax Act?
ANSWER: Legislation will be added to the ITA to ensure IFRS 17 accounting
rules are acceptable for income tax purposes.
