CANADIAN TAX PRINCIPLES CHAPTER
1: INTRODUCTION TO FEDERAL
TAXATION IN CANADA QUESTIONS
WITH CORRECT ANSWERS
Advance tax rulingJ- correct answer-
Interpretations provided, atJthe request of a taxpayer, by the Income Tax RulingsJDirectorate as to how a par
ticular transaction will be treated for tax purposes; such interpretations are not binding on the CRA
Allowable capital loss -Jcorrect answer-The deductible portion (currently one-half) of a capital loss
BusinessJincome - correct answer-
Income that isJearned through active business activity; includes amounts earned by producing goods, sellin
g goods or services, or deliveringJservices; usually refers to a net amount
Capital assetJ- correct answer-An assetJthat is held for the purpose of producingJincome
Capital gain - correct answer-
The excess of proceeds resultingJfrom the disposition of a capital asset, over the sumof the adjusted cost ba
se of the asset plus any costs of disposition
Capital loss - correct answer-
The excess of the sum of the adjusted cost base of a capital asset plus any costs of disposition, over the proce
edsJresulting from the disposition of the asset
Capital tax - correct answer-AJtaxJassessed on the capital of a corporation, without regard to its income
Consumption tax - correct answer-
A taxJlevied on theJconsumption of some product or service; alsoJcalled a sales tax
Customs duties - correct answer-
AJtaxJimposed on the importation or exportation of certain goods or services
, Division B income - correct answer-An alternative name for net income for tax purposes
Fiscal period - correct answer-A taxation year that does not exceed 53 weeks
Flat tax system - correct answer-
AJtaxJon income that isJapplied at the same rate to all taxpayers, without regard to the level of their income
Head taxJ-Jcorrect answer-A tax levied on individuals that are included in a specified classification
Income - correctJanswer-
A measure of either how much an entity hasJearned during a period or, alternatively, how much its net wort
h has increased during a period
Income splitting - correctJanswer-
A group of tax planning techniques designed to divide a given stream of income among family members or o
ther related parties; based on progressive taxJrates which meansJthatJif a stream of income can be divided in
to smaller streams, a larger portion will be taxed at lower rates, resulting in aggregate tax savings
Income tax - correct answer-A tax on the income of certain defined entities
Income tax application rules -Jcorrect answer-
AJset of rules designed toJdeal with transitional problemsJassociated with the introduction of capital gains ta
xation in 1972
Income tax folios - correct answer-
AJCRA publication providing the interpretation of various technical issues related to income taxes; will gradu
ally replace the CRA's interpretation bulletins
Income tax regulations - correct answer-
A set of rules concerning administration and enforcement of the Income Tax Act; one of the major issues cov
ered is CCAJrates and procedures
1: INTRODUCTION TO FEDERAL
TAXATION IN CANADA QUESTIONS
WITH CORRECT ANSWERS
Advance tax rulingJ- correct answer-
Interpretations provided, atJthe request of a taxpayer, by the Income Tax RulingsJDirectorate as to how a par
ticular transaction will be treated for tax purposes; such interpretations are not binding on the CRA
Allowable capital loss -Jcorrect answer-The deductible portion (currently one-half) of a capital loss
BusinessJincome - correct answer-
Income that isJearned through active business activity; includes amounts earned by producing goods, sellin
g goods or services, or deliveringJservices; usually refers to a net amount
Capital assetJ- correct answer-An assetJthat is held for the purpose of producingJincome
Capital gain - correct answer-
The excess of proceeds resultingJfrom the disposition of a capital asset, over the sumof the adjusted cost ba
se of the asset plus any costs of disposition
Capital loss - correct answer-
The excess of the sum of the adjusted cost base of a capital asset plus any costs of disposition, over the proce
edsJresulting from the disposition of the asset
Capital tax - correct answer-AJtaxJassessed on the capital of a corporation, without regard to its income
Consumption tax - correct answer-
A taxJlevied on theJconsumption of some product or service; alsoJcalled a sales tax
Customs duties - correct answer-
AJtaxJimposed on the importation or exportation of certain goods or services
, Division B income - correct answer-An alternative name for net income for tax purposes
Fiscal period - correct answer-A taxation year that does not exceed 53 weeks
Flat tax system - correct answer-
AJtaxJon income that isJapplied at the same rate to all taxpayers, without regard to the level of their income
Head taxJ-Jcorrect answer-A tax levied on individuals that are included in a specified classification
Income - correctJanswer-
A measure of either how much an entity hasJearned during a period or, alternatively, how much its net wort
h has increased during a period
Income splitting - correctJanswer-
A group of tax planning techniques designed to divide a given stream of income among family members or o
ther related parties; based on progressive taxJrates which meansJthatJif a stream of income can be divided in
to smaller streams, a larger portion will be taxed at lower rates, resulting in aggregate tax savings
Income tax - correct answer-A tax on the income of certain defined entities
Income tax application rules -Jcorrect answer-
AJset of rules designed toJdeal with transitional problemsJassociated with the introduction of capital gains ta
xation in 1972
Income tax folios - correct answer-
AJCRA publication providing the interpretation of various technical issues related to income taxes; will gradu
ally replace the CRA's interpretation bulletins
Income tax regulations - correct answer-
A set of rules concerning administration and enforcement of the Income Tax Act; one of the major issues cov
ered is CCAJrates and procedures
