ChapterTwoTestItemFileProblems
TIFPROBLEMTWO-1
ProceduresAndAdministration-EssayQuestions
1.Anindividualcanrequestthatanemployerreducetheamountswithheldforincome taxes.Whatconditionsmustbemetforthisrequesttobegranted?Provideanexampleof asituationwherethisrequestwouldbegranted.
2.Insomesituations,anemployeemayrequestanincreaseintheamountsthatarewithheld forfutureincometaxes.Whatcircumstancesmightleadanemployeetomakesucharequest?
3.Underwhatcircumstancesmustanindividualmakeincometaxinstalmentpaymentsduringthecurrentyear?
4.Ifanindividualisrequiredtomakequarterlyinstalmentpaymentsontheirincometaxes, howistherequiredamountoftheinstalmentsdetermined?
5.BymakingallinstalmentsonthebasisoftheCRA'sinstalmentreminder,thetaxpayerisassuredthatnointerestwillbeassessedfordeficientinstalments.However,thismaynotbe thebestalternativeformakinginstalmentpayments.Explainwhythisistrue.
6.Oneofyourclientshasreceivedhisinstalmentnoticeandhasaskedyouradviceasto whetherheshouldmakethepayments.Providetherequestedadvice.
7.Howisinterestonlateinstalmentscalculated?
8.OnApril30ofthecurrentyear,herfilingduedate,NicoleHoudefindsthatshehasasignificantnettaxowing.ShewillnotbeabletopaythisuntilthebeginningofJuly.She doesn'twanttofileherreturnuntilshehasthefundsavailabletopaythebalance.What advicewouldyougiveMs.Houdeinthisregard?
9.Underwhatcircumstancesmustacorporationmakeincometaxinstalmentpaymentsduringitscurrenttaxationyear?
10.IfacorporationthatisnotasmallCCPCisrequiredtomakeinstalmentpaymentsontheir incometaxes,howaretherequiredamountsdetermined?
11.IfacorporationthatisasmallCCPCisrequiredtomakequarterlyinstalmentpaymentson theirincometaxes,howaretherequiredamountsdetermined?
12.Acorporation'sbalanceduedateisnotthesameasitsreturnduedate.Explainhowthese datesdiffer.
13.Thenormalreassessmentperiodis3yearsforindividualsandCCPCsand4yearsforother corporations.Indicatetwosituationswher eareassessmentcanoccuroutsidethenormal reassessmentperiod.
14.CasescanbeheardbytheTaxCourtofCana dausingeitherthegeneralortheinformal procedures.Howdothesetwoproceduresdiffer?
15.Brieflydescribethedifferencebetweentaxevasionandtaxavoidance.
ProceduresAndAdministration-TrueOrFalse
1.Ifanindividualbelievesthattheamountofincometaxeswithheldbyhisemployeris greaterthantheamountthathewillhavetopayinaparticularyear,hecanmakearequest totheCRAtohavehissourcedeductionsreduced.
TrueorFalse?
2.Becausethetaxationyearofanindividualmu stbebasedonthecalendaryear,allindividualswillhavethesamefilingduedate.
TrueorFalse?
3.IfanindividualdiesafterOctoberinaparticu lartaxationyear,hislegalrepresentatives mustfilehistaxreturnbythelaterofhisnormalfilingduedateandsixmonthsafterthe dateofhisdeath.
TrueorFalse?
4.Ifquarterlyinstalmentsmustbepaidbyanindividual,theycanbecalculatedasone-quarterofthenettaxowingfortheprecedingyear.
TrueorFalse?
5.Ifanindividualisrequiredtomakeincometaxinstalmentpayments,oneacceptablepatternofpaymentsistobaseeachpaymentonone-quarteroftheestimatedTaxPayablefor thecurrenttaxationyear.
TrueorFalse?
6.Theinterestrateapplicableonrefundstoind ividualsis4percentagepointslessthanthe interestrateapplicableonamountsowingtotheCRA.
TrueorFalse?
7.Thepenaltyforanindividualmakinginsufficientinstalmentpaymentsis5percentofthe totalunpaidtaxatthefilingdate,plus1percentpermonth.
TrueorFalse?
8.Withoutregardtowhetheranindividual’sfilingduedateisApril30orJune15,anybalanceoftaxowingmustbepaidbyApril30.
TrueorFalse?
9.Allcorporationsmustfiletheirtaxreturnsnolaterthansixmonthsaftertheendoftheirfiscalyear,andpayanybalanceoftaxowingnolaterthanthreemonthsaftertheendoftheir fiscalyear.
TrueorFalse?
10.Thenoticeofobjectionforacorporationmustbefiledwithin90daysfromthedateof mailingofthenoticeofassessment.
TrueorFalse?
11.Taxavoidanceinvolvesdeliberately ignoringaspecificprovisioninthe IncomeTaxAct
TrueorFalse?
12.TheGAARprovisionsarenotapplicabletogiftstoadultchildren.
TrueorFalse?
13.Interestandpenaltiesmaybewaivedorreducedinextraordinarycircumstances,suchas thoseinvolvingnaturaldisastersorseriousillness.
TrueorFalse?
TIFPROBLEMTWO-3
ProceduresAndAdministration-MultipleChoice
IndividualFilingRequirements
1.Whichofthefollowingstatementsis NOT correct?
A.Ifanindividualhasbusinessincomeduringtheyear,theduedatefortheirincometax returnisJune15ofthefollowingyear.
B.Anincometaxreturnmayberequiredofanindividual,withoutregardtotheirage.
C.IfanindividualhasnoTaxableIncomefortheyear,theydonothavetofileanincome taxreturn.
D.Ifanindividualsellsacapitalpropertyduringtheyear,theyarerequiredtofileanincometaxreturn,evenifthereisnogainorlossonthetransaction.
2.Whichofthefollowingstatementsiscorrect?
A.Whenanindividualdiesinayear,anincometaxreturnmustbefiledforthatyear within6monthsofthedateofdeath.
B.OnlyresidentsofCanadaarerequiredtofileCanadianincometaxreturns.
C.Anindividualwithbusinessincomeduringtheyearmustpayanybalanceowingby June15ofthefollowingyear.
D.Aselfemployedindividualwithanetbusinesslossfortheyeardoesnothavetofilean incometaxreturnfortheyear.
3.Withrespecttothefilingofanindividualincometaxreturn,whichofthefollowingstatementsiscorrect?
A.Anindividualisrequiredtofileanincometaxreturniftheironlysourceofincomeis businessincome,evenifnotaxispayable.
B.Anindividualisrequiredtofileanincometaxreturniftheyhavereachedtheageof18 bytheendoftheyear.
C.Ifanindividualhasdisposedofacapitalpropertyduringtheyear,theyarerequiredto fileanincometaxreturn,evenifnotaxispayable.
D.Anindividualisnotrequiredtofileanincometaxreturnifnotaxispayableforthe year.
4.Forthe2017taxationyear,JohnBookmanhad ataxablecapitalgainof$45,000andanet businesslossof$45,000,resultinginaTaxa bleIncomeofnil.Whichofthefollowing statementsiscorrect?
A.Johnisnotrequiredtofileataxreturnfor2017.
B.JohnmustfileataxreturnonorbeforeJune15,2018.
C.JohnmustfileataxreturnonorbeforeDecember31,2018.
D.JohnmustfileataxreturnonorbeforeApril30,2018.
5.JohnBarronisself-employedandplanstofilehis2017taxreturnonJune15,2018.His balance-duedayis:
A.April30,2017. B.April30,2018. C.June15,2018.
D.June15,2017.
6.BunlyImisaself-employedhairdresser.Wh ichofthefollowingdatesarecorrectforthe datebywhichhistaxreturnforayearmustbefiled(1stitem)andhispaymentduedate (2nditem)?
A.April30,April30. B.June15,April30. C.April30,June15. D.June15,June15.
7.Ms.Deveco’s2017incometaxreturnisdueonApril30,2018.Whilesheistoobusyto filehertaxreturnonthatdate,sheremits achequetothegovernmentfor$10,000,herestimatedamountofnettaxowingonthatdate.Shehasneverfiledalatereturnbefore.She preparesandfileshertaxreturnonMay31,2018.Atthistime,thereturnshowsthather actualnettaxowingwas$9,800.Assumingthattheinterestrateapplicabletolatepaymentoftaxesisone-halfpercentpermonthwithoutdailycompounding,howmuchwill sheoweinpenaltiesandinterestonthelatefiling?
A.$49. B.$490. C.$588. D.$637. E.Nil.
8.Mr.Finlay,aretiredindividualwhoseonlysourceofincomewaspensionreceipts,dieson August15,2017.BywhatdatemustMr.Finlay’sfinaltaxreturnbefiled?
A.April30,2018. B.February28,2018. C.February15,2018. D.December31,2017. E.Noneoftheabove.
9.Ms.Ali,aself-employedmusicteacher withbusinessincome,diesonNovember15, 2017.Whatisthelatestfilingdateforher2017incometaxreturn?
A.April30,2018. B.May15,2018. C.May30,2018. D.June15,2018.
10.Mr.Khan,aself-employedconstructioncontractor,diesonApril1,2017.Whatisthelatestfilingdateforhisfinaltaxreturn?
A.April30,2018. B.June15,2018. C.October1,2018. D.December31,2018.
11.Ms.LorendiesonFebruary1,2018.Allofherincomeisfromemploymentactivitiesand shedoesnothaveaspouseorcommon-lawpartner.Whatisthelatestdateforfilingher 2017incometaxreturn?
A.April30,2018. B.June15,2018. C.August1,2018. D.June30,2018.
12.GretadiedonSeptember10,2017.Shehasne verreportedanybusinessincome.Bywhat datemustherfinaltaxreturnbefiled?
A.April30,2018. B.April30,2019. C.March10,2018. D.June15,2018.
IndividualInstalments
13.Whichofthefollowingindividualsdid NOT havetopayinstalmentsin2017?
A.JaneAusten,whohadbusinessincomeof$50,000inboth2015and2017anda $1,000businesslossin2016.
B.CharlotteBronte,whorealizedcapitalgainsof$3,500in2016and$4,000in2017. Heronlyotherincomeduringtheyears2015through2017was$5,000inemploymentincome.
C.GeorgeEliot,whohadrentalincomeof$50,000intheyears2015through2017anda netallowablecapitallossof$50,000in2016.
D.EmilyBronte,whoreceivedspousalsupportpaymentsof$20,000peryearineachof theyears2015through2017.
14.Ms.Marstonhasnettaxowingfor2015of$4,500,nettaxowingfor2016of$8,000,and estimatednettaxowingfor2017of$7,500.Ifshewishestopaytheminimumtotal amountofinstalmentsforthe2017taxationyear,herfirstpaymentonMarch15willbe forwhatamount?
A.Nil.
B.$1,125.
C.$1,875. D.$2,000.
15.JasonMarkshastopayhistaxbyinstalmentsasaresultofhissignificantinvestmentincome.Hisnettaxowingin2015was$13,600.In2016,itwas$15,000.Hisestimatefor 2017is$17,000.Ifhedecidestopayhis2017taxinstalmentsaccordingtotheprioryear option,howmuchshouldhepayonSeptember15,2017?
A.$3,400. B.$3,750.
C.$4,250. D.$6,500.
16.Allofthefollowingpeoplewillhavetopaytaxbyinstalmentsthisyear,except:
A.JaneWhite,whoreceivedaone-timebonusof$60,000lastyearand,becauseheremployerhadnotdeductedenoughtax,foundherselfwithnettaxowingof$8,200.
B.KarenPhillips,whohasstartedtoearninvestmentincome,whichresultedinnettax owingof$3,100lastyear.Herinvestmentincomeisexpectedtobeevengreaterthis year.
C.BlakeFortin,whoestablishedasoleproprietorshiptwoyearsago.Blakehadavery successfulfirstyearand,asresult,hehadnettaxowingthatyearof$85,000.Business droppedinhissecondyear,resultinginnettaxowingofonly$1,500.Thisyear,businesshaspickedupagainandheexpectstohavenettaxowingof$53,000.
D.TerriJones,whohashadnettaxablecapitalgainsonrealestateinexcessof$40,000in eachofthelasttwoyears,andwhoexpectstohavesimilargainsthisyear.
17.LarryShorthasself-employmentincomeo f$62,000in2017.Priortothisyear,hewasemployedfull-timeandhisemployer'swithholdi ngsmorethancoveredhistaxliabilityfor theyear.Larryestimatesthat,basedonhisself-employmentincome,hisnettaxowingfor 2017willbe$8,000.Whichofthefollowingstatementsistrue?
A.Larrymustfilehisreturnfor2017byApril30,2018.
B.Larryshouldpayinstalmentsin2017.
C.Larrymustpayhisincometaxfor2017byJune15,2018.
D.IfLarryhasasmuchincomein2018ashehadin2017,hewillhavetopayinstalments during2018.
18.Individualsarerequiredtopayinstalments:
A.Whennettaxowingisover$3,000foranyoneofthepasttwoyears.
B.Whennettaxowingisover$3,000forthecurrentyearandbothofthetwoprioryears.
C.Whennettaxowingisover$3,000forthecurrentyearandoneofthetwoprioryears.
D.Whennettaxowingisover$3,000forthecurrentyearonly.
19.Onewaytoensurethatnointerestwillbeassessedforlateinstalmentsis:
A.TopaytheamountsprovidedbytheCRAintheirinstalmentreminderonorbeforethe requireddates.
B.Topaythelowestamountcalculatedusingthe3alternativecalculationsonorbefore therequireddates.
C.Topaytheestimatedtaxowingforthecurrentyearonthefirstinstalmentduedate.
D.Topaytheaverageofthethreeamountscalculatedusingthe3alternativecalculations onorbeforetherequireddates.
InterestandPenalties
20.DoraChenhasdeterminedthatherminimumtaxinstalmentsfor2017are$8,000per quarter.Shealsoowes$30,000onhercreditc ard,whichcarriesaninterestrateof20%. Shehasdestroyedhercreditcard,sonomorecanbeputonit.Doraisunabletopayboth theentireinstalmentamountsandhercreditcardbalance,butshedoeshave$8,000in casheachquarterforherdebts.WhichofthefollowingwouldbethebestchoiceforDora fromafinancialplanningperspective?
A.Dorashouldpayoffhercreditcardbalancebeforemakinginstalmentpayments.
B.Doramustmakeallherinstalmentpayments,evenifitmeansshecannotpayanything offonhercreditcardthisyear.
C.Dorashouldsplitherpaymentsequallybetweenthecreditcardbalanceandtheinstalmentliability,inordertoshowtheCRAthatsheistryingherbesttomeether obligationstothem.
D.Dorashouldpayherfirsttwoinstalmentsandthenmakepaymentsonhercreditcard balance.
21.LangLangLtd.,aCCPCeligibleforthesmall businessdeduction,hasaMarch31yearend. Duetothedeathoftheowner/manager,th etaxreturnfortheyearendedMarch31,2016 wasnotfileduntilMay12,2018.Theunp aidtaxonMarch31,2016was$15,500.Lang LangLtd.hasneverfiledareturnlatebefore.Whatisthetotallatefilepenaltythatthecorporationisrequiredtopay?(Donotincludeanyinterestpayable.)
A.$775
B.$2,635
C.$1,860
D.$3,720
22.WhichofthefollowingscenarioswillresultinapenaltybeingchargedbytheCRA?
A.Ataxpayerpayslessthantherequiredamountofinstalments.
B.Ataxpayerwhoisowedarefundfilestheirtaxreturnlate.
C.Ataxpayerwhohasabalanceowingfilestheirtaxreturnlate,withthepaymentenclosed.
D.Ataxpayerwhohasabalanceowingfilestheirtaxreturnontime,butdoesnotinclude apayment.
CorporateFilingRequirements
23.Whichofthefollowingstatementswithrespecttocorporationsis NOT correct?
A.Corporateincometaxreturnsmustbefiledwithin6monthsoftheendofthetaxation year.
B.Allcorporationsmustfiletheirincometaxreturnselectronically.
C.IfthecorporationisaCCPC,theduedateforanybalanceowingisthreemonthsafter theendofthetaxationyear.
D.Ifacorporationhasforeignoperations,itcandetermineitsCanadiantaxliabilitieson thebasisoffinancialstatementspreparedinthecorporation'sfunctionalcurrency.
24.Forcorporations,thefilingdeadlinefortaxreturnsis:
A.April30.
B.thefiscalyearend.
C.threemonthsafterthefiscalyearend.
D.threemonthsafterthefiscalyearendifthesmallbusinessdeductionisclaimed,otherwisetwomonthsafterthefiscalyearend.
E.sixmonthsafterthefiscalyearend.
25.PSSwimInc.hasayearendofNovember30.ItisasmallCCPC.Forits2017taxation year,itsincometaxreturnisdueon:
A.January31,2018.
B.February28,2018.
C.April30,2018.
D.May31,2018.
E.Noneoftheabove.
26.Forits2017taxationyear,itsfirstyearof operation,PSSwimInc.fileditsreturnthree monthslate.Theunpaidtaxattheduedateforthereturnwas$2,500.Thisamountwas notpaiduntilthereturnwasfiled.Whatwoulditspenaltybe?
A.Nil. B.$75. C.$125. D.$200. E.$500.
27.Thebalanceduedateforacorporationis:
A.April30ofthefollowingyear.
B.Thesameasthefilingdeadline.
C.Threemonthsaftertheendofthefiscalyear,ortwomonthsaftertheendofthefiscal yearifthecorporationisasmallCCPC.
D.Twomonthsaftertheendofthefiscalyear,orthreemonthsaftertheendofthefiscal yearifthecorporationisasmallCCPC.
CorporateInstalments
28.ACanadianpubliccompanyhasTaxPayableof$62,000in2015,$95,000in2016,and $75,000in2017.Thecompanywouldliketominimizeits2017instalments.Whatwould itsinstalmentsbe?
A.Onemonthlypaymentof$5,167permonth,followedbyelevenmonthlypaymentsof $8,167permonth.
B.Twelvepaymentsof$5,167permonth.
C.Twelvepaymentsof$6,250permonth.
D.Twomonthlypaymentsof$5,167permonth,followedbytenmonthlypaymentsof $8,467permonth.
29.PPLtd.,aclientofyourfirm,hasaNovember30yearendandhasrequestedyoutoadvise themonwhatitsmonthlyinstalmentsforthe2017taxyearwillbe.Itstaxespayableforits November30,2015andNovember30,2016 yearswere$13,800and$13,200,respectively.Itsestimatedtaxespayablefor theNovember30,2017yearare$14,400.PPLtd. wantstopaythelowestamountpossible,withoutincurringinterestpenalties.What woulditsinstalmentsbe?
A.Twelvepaymentsat$1,200permonth.
B.Twelvepaymentsat$1,100permonth.
C.Twelvepaymentsat$1,150permonth.
D.Twomonthlypaymentsat$1,200each,followedbytenmonthlypaymentsat$1,140 each.
E.Noneoftheabove.
30.ACanadianpubliccorporationhadfederaltaxespayablein2015and2016exceeding $3,000.Onecorrectoptionithaswithrespecttoits2017instalmentsistopay:
A.equalinstalments,onaquarterlybasis,basedonits2016federaltaxespayable.
B.onamonthlybasis,instalmentsequalto1/12thofitsestimated2017federaltaxes payable.
C.onelump-sumpayment,withinthreemonthsofits2017yearend.
D.onamonthlybasis,instalmentsequalto1/12thofits2015federaltaxespayable.
31.IfaCanadianpubliccorporationisexperienc ingayear-to-yeardecreaseintaxespayable, themostadvantageouscalculationofinstalmentsthatwouldbeallowedis:
A.monthly,basedontheestimatedtaxforthecurrentyear.
B.quarterly,basedontheestimatedtaxforthecurrentyear.
C.monthly,basedontheestimatedtaxfortheimmediatelyprecedingyear.
D.quarterly,basedontheestimatedtax fortheimmediatelyprecedingyear.
E.monthly,basedontheestimatedtaxforthesecondprecedingyearandtheimmediatelyprecedingyear.
F.quarterly,basedontheestimatedtaxforthesecondprecedingyearandtheimmediatelyprecedingyear.
32.Whichofthefollowingis NOT oneofthecriteriaforaCCPCtobeconsideredasmall CCPCeligibletopayinstalmentsonaquarterlybasis?
A.Taxableincomecannotexceed$500,000forthecorporationanditsassociatedcorporationsforthecurrenttaxationyearandthetwopreviousyears.
B.Thecorporationhasclaimedthesmallbusinessdeductioninthecurrentorprevious year.
C.Thecorporationhasaperfectcompliancerecordduringthelast12months.
D.ThecorporationanditsassociatedcorporationsdonothaveTaxableCapitalEmployedinCanadathatexceeds$10millionforthecurrentorpreviousyear.
AssessmentsAndAppeals
33.DoraBurchfilesher2017incometaxreturnonMarch2,2018.ShereceivesanilassessmentonJune3,2018.However,onDecemb er28,2018,shereceivesareassessment indicatingthatsheowesasubstantialamoun tofadditionaltax.Shewouldliketoobjectto thisreassessment.Whatisthelatestdateforhertofileanoticeofobjection?(Ignorethe effectofleapyearifapplicable.)
A.March2,2019.
B.April30,2019.
C.March28,2019.
D.December28,2019.
34.Whichofthefollowingstatementsis NOT correct?
A.Whenthepersonfilingthereturnhasmadeanymisrepresentationduetoneglect, carelessnessorwilfuldefault,thenormalreassessmentperiodcanbeextendedbeyond3years.
B.Ataxpayercanchoosetofileawaivertoextendthe3yeartimelimit.
C.Whenareturnhasbeenreassessedonce,nofurtherreassessmentsarepermitted.
D.Reassessmentcanoccuroutsidethenormalreassessmentperiodwhenreassessment withinthenormalperiodaffectsabalanceoutsideofthenormalperiod.
35.Whichofthefollowingis NOT oneofthecriteriathatmustbemetbeforeanadjustmentto apreviousyeartaxreturnispermitted?
A.TheCRAmustbesatisfiedthatthepreviousassessmentwasincorrect.
B.Thechangeisbasedonasuccessfulappealtothecourtsbyanothertaxpayer.
C.Thetaxpayer’sreturnwasfiledwithin3yearsoftheendoftheyeartowhichitrelates.
D.Thereassessmentmustbemadewithinthenormalassessmentperiod,orundercertainpermittedextensionstothisperiod.
36.TomArnoldfiledhis2017taxreturnonMarch1,2018.TheCRAmailedanoticeofassessmenttoTomdatedMay15,2018,andTomreceiveditonMay30,2018.IfTom disagreeswiththenoticeofassessment,whatisthelatestdatehehastofileanoticeofobjection?
A.90daysfromMarch1,2018. B.90daysfromApril30,2018.
C.90daysfromMay15,2018.
D.90daysfromMay30,2018.
E.Noneoftheabove.
37.MinnieBelangerisretired.Shefiledher 2017taxreturnonMarch5,2018.Shereceived aportionofthetaxrefundclaimedandanassessmentnotice,datedApril19,2018,which setoutthedifferencebetweentheamountclaimedandtheamountoftherefund.As Minniedisagreeswiththenoticeofassessment,shewishestofileanoticeofobjection. Whatisthelatestdateshehastofileanoticeofobjection?
A.March5,2019. B.April19,2019. C.April30,2019. D.July18,2018. E.June15,2019.
ProceduresAndAdministration-MultipleChoice
38.Forapubliccorporation,whichofthefollowingstatementsiscorrectwithrespecttofiling anoticeofobjection?
A.Itmustbefilednolaterthan180daysfromthedateonthenoticeofassessment.
B.Itmustbefiledthelaterof90daysafterthedateonthenoticeofassessmentandone yearfromthefilingdateforthereturnunderassessment.
C.Itmustbefiledthelaterof180daysafterthedateonthenoticeofassessmentandone yearfromthefilingdateforthereturnunderassessment.
D.Itmustbefilednolaterthan90daysafterthedateonthenoticeofassessment.
39.MarcMayerfiledhis2017personaltaxr eturnonMarch1,2018.Neitherhenorhis spousehasbusinessincomeinanyyear.TheCRAmailedaNoticeofAssessmenttoMarc datedMay5,2018andMarcreceiveditonMay14,2018.IfMarcdisagreeswiththeNoticeofAssessment,hehasuntilwhichoneofthefollowingdatestofileaNoticeof Objection?
A.August3,2018.
B.August12,2018.
C.March1,2019.
D.April30,2019.
TaxPlanning
40.CariceMartinisplanningtosellapieceofcapitalequipmentwhichcanbesoldformore thanitscost.Ifshewaitsuntilafterhercompany'syearendtosellit,sheisengagingin:
A.taxevasion.
B.taxavoidance.
C.GAAR.
D.taxplanning.
ProceduresAndAdministration-ExamExercises
ProceduresAndAdministration-ExamExercises
ExamExerciseSubjectListingForChapter2
NumberSubject
1IndividualDueDates
2IndividualDueDates
3DeceasedTaxpayerDueDate
4DeceasedTaxpayerDueDate
5IndividualInstalments
6IndividualInstalments
7IndividualInstalments
8PenaltiesAndInterest(Individuals)
9PenaltiesAndInterest(Individuals)
10CorporateInstalments-RegularAndSmallCCPC
11CorporateInstalments-RegularAndSmallCCPC
12CorporateInstalments-RegularAndSmallCCPC
13CorporateDueDates
14CorporateDueDates
15CorporateDueDates
16NoticeOfObjection
17NoticeOfObjection
ExamExerciseTwo-1(IndividualDueDates)
MarkBrown’s2017NetIncomeincludesbusin essincome.Whenishis2017taxreturndue? Bywhatdatemusthis2017taxliabilitybepaidinordertoavoidtheassessmentofintereston amountsdue?
ExamExerciseTwo-2(IndividualDueDates)
Ms.JeanineFarrelhas2017NetIncomewhichincludesbusinessincome.Whenisher2017 taxreturndue?Inaddition,indicatewhenanyremainingtaxliabilitymustbepaidinorderto avoidhavinginterestassessedontheamountdue.
ExamExerciseTwo-3(DeceasedTaxpayerDueDate)
GeorgeKlausediesonMarch1,2018.Allofhisincomeduring2017wasearnedthroughhis unincorporatedaccountingpractice.Bywhatdatemusthisrepresentativesfilehis2017 incometaxreturn?Explainyouranswer.
ExamExerciseTwo-4(DeceasedTaxpayerDueDate)
GloriaKlumpdiesonDecember1,2017.Muchof her2017incomeresultedfromanunincorporatedbusinesswhichsheoperated.Bywhat datemustherrepresentativesfileher2017 incometaxreturn?Explainyouranswer.
ExamExerciseTwo-5(IndividualInstalments)
Atthebeginningof2017,thefollowinginformationrelatestoSarahElmsley:
YearNetTaxOwing
2015$1,800 20166,400 2017(Estimated)3,600
IndicatewhetherMs.Elmsleyisrequiredtom akeinstalmentpaymentsduring2017.Explain yourconclusionand,ifyouranswerispositive,indicatetheminimuminstalmentsthatwillbe requiredandwhentheyaredue.
ExamExerciseTwo-6(IndividualInstalments)
HoraceGreesomfiledhis2016returnontime .Atthebeginningof2017,thefollowinginformationrelatestoMr.Greesom:
Amounts
YearTaxesPayableWithheld 2015$56,000$45,000 201649,00046,200 2017(Estimated)65,00045,000
WhatamountswillbeshownontheInstalmentRemindernoticesfor2017andwhenwillthe amountsbedue?Shouldhepaythoseamounts?Explainyourconclusion.
ExamExerciseTwo-7(IndividualInstalments)
Atthebeginningof2017,thefollowinginformationrelatestoJerryFarrow:
IsMr.Farrowrequiredtomakeinstalmentpaymentsduring2017?Ifheisrequiredtomake instalmentpayments,indicatetheamountsthatwouldberequiredundereachofthethree alternativemethodsofcalculatinginstalments.Indicatewhichalternativewouldbe preferable.
ExamExerciseTwo-8(PenaltiesAndInterestForIndividuals)
Despitethefactthathernettaxowinghasbeenbetween$7,000and$8,000inthetwo previousyears,andisexpectedtobeasimila ramountduring2017,MarshaFieldshasmade noinstalmentpaymentsfor2017.WhilehernormalfilingdatewouldbeApril30,2018,she doesnotfileher2017returnorpaythebalanceowinguntilAugust24,2018.Whatpenalties andinterestwillbeassessedforthe2017taxationyear?
ExamExerciseTwo-9(PenaltiesAndInterestForIndividuals)
AshisTaxableIncomein2016wasnil,MarkFeltondidnotmakeanyinstalmentpayments during2017.Incompletinghisreturnfor2017,hefindsthathehastaxpayableof$22,500. WhilehisnormalfilingdatewouldbeApril30,2018,hedoesnotfilehisreturnorpaythe balanceowinguntilSeptember12,2018.Whatpenaltiesandinterestwillbeassessedforthe 2017taxationyear?Markhasfiledhisreturnontimeinallpreviousyears.
ExamExerciseTwo-10(CorporateInstalments-RegularAndSmallCCPC)
LemarLtd.hasaDecember31yearend.ItisnotasmallCCPC.For2015,itstaxespayable were$71,500,whilefor2016,theamountwas$93,600.For2017,itsestimatedtaxes payableare$114,700.Whatwouldbetheminimu minstalmentpaymentsforthe2017taxationyearandwhenwouldtheybedue?HowwouldyouranswerdifferifLemarLtd.qualified asasmallCCPC?
ExamExerciseTwo-11(CorporateInstalments-RegularAndSmallCCPC)
ChemcoInc.hasaDecember31yearendandisnotasmallCCPC.For2015,itstaxespayable were$146,300,whilefor2016,theamountwas$94,650.For2017,itsestimatedtaxes payableare$52,300.Whatwouldbetheminimu minstalmentpaymentsforthe2017taxationyearandwhenwouldtheybedue?HowwouldyouranswerdifferifChemcoInc. qualifiedasasmallCCPC?
ExamExerciseTwo-12(CorporateInstalments-RegularAndSmallCCPC) DustinInc.hasaSeptember30yearendandisnotasmallCCPC.Foritstaxationyearending September30,2015,itstaxpayablewas$33,500. Thecorrespondingfigurefortheyear endingSeptember30,2016was$93,400.Itisesti matedthat,fortheyearendingSeptember 30,2017,itstaxpayablewillbe$56,200.Whatwouldbetheminimuminstalmentpayments forthetaxationyearthatendsonSeptem ber30,2017,andwhenwouldtheybedue?How wouldyouranswerdifferifDustinInc.qualifiedasasmallCCPC?
ExamExerciseTwo-13(CorporateDueDates-CCPC)
ThetaxationyearendforGrangeInc.isMarch31,2017.ItisaCanadiancontrolledprivate corporationthatclaimsthesmallbusinessdeductionandhadTaxableIncomefortheyear endingMarch31,2016of$165,000.Indicatethed ateonwhichthecorporatetaxreturnfor theyearendingMarch31,2017mustbefiled,aswellasthedateonwhichanyfinalpayment oftaxesisdue.
ExamExerciseTwo-14(CorporateDueDates)
ThetaxationyearendforLawncoInc.isJanuary31,2017.LawncoInc.isaCanadianpublic companyanddoesnotqualifyforthesmallbusinessdeduction.Indicatethedateonwhich thecorporatetaxreturnmustbefiled,aswellasthedateonwhichanyfinalpaymentoftaxes isdue.
ExamExerciseTwo-15(CorporateDueDates-CCPC)
ThetaxationyearendforBreysonLtd.isJune30,2017.ItisaCanadiancontrolledprivate corporationthatclaimsthesmallbusinessdeductionandhadTaxableIncomefortheyear endingJune30,2016of$132,000.Indicatethedateonwhichthecorporatetaxreturnforthe yearendingJune30,2017mustbefiled,aswellasthedateonwhichanyfinalpaymentof taxesisdue.
ExamExerciseTwo-16(NoticeofObjection)
NancyForthfiledher2017taxreturnaswasre quiredonApril30,2018.HerNoticeofAssessmentdatedMay15,2018indicatedthatherre turnwasacceptedasfiled.OnJuly12,2019, shereceivesaNoticeofReassessmentdatedJuly2,2019indicatingthatsheowesadditional taxes,aswellasinterestontheunpaidamounts.Whatisthelatestdateforfilinganoticeof objectionforthisreassessment?Explainyouranswer.
ExamExerciseTwo-17(NoticeofObjection)
NormanFosterfiledhis2017taxreturnaswasrequiredonJune15,2018.HisNoticeof AssessmentdatedAugust28,2018,indicatedthathisreturnwasacceptedasfiled.OnMarch 15,2019,hereceivesaNoticeofReassessmentdatedMarch8,2019indicatingthatheowes additionaltaxes,aswellasinterestonunpaidamounts.Whatisthelatestdateforfilinga noticeofobjectionforthisreassessment?Explainyouranswer.
ProceduresAndAdministration-KeyTermMatching (Easy)
NotetoInstructor Therearetwoversionsofthismatchingproblem.Thelistofkey termsisthesameinbothversions,butthepotentialdefinitionsgivenaredifferent.
VersionAiseasy,thereisonlyonepossibleanswerforeachterm. VersionBismoredifficultinthatthereareadditionalpossibleanswersthatare similartothecorrectanswers.
ThefollowingeightkeytermswerelistedattheendofChapter2,“ProceduresAnd Administration”.
A.InstalmentThreshold
B.NetTaxOwing
C.NETFILE
D.NoticeOfAssessment
E.PrescribedRate
F.SourceDeductions
G.TaxAvoidance
H.TaxEvasion
Thefollowinglistcontainstenpotentialdefinitionsfortheprecedingkeyterms.
1.Aninterestratewhichchangesquarterlyandisbasedontheaverageinterestratepaidon 90dayTreasuryBillsduringthefirstmonthoftheprecedingquarter.
2.Theundertakingoftransactionsorarrangementswithaviewtoavoidingorminimizing thepaymentoftaxes.
3.AformthattheCRAsendstoalltaxpayersaftertheyprocesstheirreturnswhichdescribes anychangesmadetothereturnsandstatestheamountoftheiradditionaltaxpayableor theirrefund.
4.Atermusedtodescribethesumoffederalandprovincialtaxesowingfortheyear,less amountswithheldfortheyear.
5.Deliberatelyignoringaspecificpartofthe laworwillfullyrefusingtocomplywithlegislatedreportingrequirements.
6.Anelectronicfilingsystemthatrequirestheuseofanapprovedsoftwareprogram.
7.Amountswithheldbyanemployerfromtheincomeofemployees.Thewithholdingsfor incometaxes,CanadaPensionPlancontribut ions,andEmploymentInsurancepremiums mustberemittedtothegovernment.
8.ThisITA245provisionattempts,inaveryge neralizedmanner,tolimittheabilityoftaxpayerstoavoidtaxthroughcertaintypesoftransactionsthathavenobonafidepurpose otherthantoobtainataxbenefit.
9.Anamountofnettaxowingforindividualsortaxespayableforcorporationsthatisusedto determinetheneedtomakeinstalmentpayments.
10.Aformaldeterminationoftaxestobepaidorrefunded.
11.Noneoftheabovedefinitionsapply.(Thisanswercanbeusedmorethanonce.)
Required: Foreachoftheeightkeytermslisted(AthroughH),indicatethenumberofthe item(1through10)thatprovidesthe BEST definitionofthatterm,or,alternatively,thatnone ofthedefinitionsapply(11).Explanationsarenotrequired. Indicateonlyonenumberforeachkeyterm.Nomarkswillbeawardedifyouindicatemore thanonenumberforanykeyterm.
ProceduresAndAdministration-KeyTermMatching (Moderate)
NotetoInstructorTherearetwoversionsofthismatchingproblem.Thelistofkey termsisthesameinbothversions,butthepotentialdefinitionsgivenaredifferent.
VersionAiseasy,thereisonlyonepossibleanswerforeachterm. VersionBismoredifficultinthatthereareadditionalpossibleanswersthatare similartothecorrectanswers.
ThefollowingeightkeytermswerelistedattheendofChapter2,“ProceduresAnd Administration”.
A.InstalmentThreshold
B.NetTaxOwing
C.NETFILE
D.NoticeOfAssessment
E.PrescribedRate
F.SourceDeductions
G.TaxAvoidance
H.TaxEvasion
Thefollowinglistcontains14potentialdefinitionsfortheprecedingkeyterms.
1.Aninterestratewhichchangesquarterlyandisbasedontheaverageinterestratepaidon 90dayTreasuryBillsduringthefirstmonthoftheprecedingquarter.
2.Anelectronicsystemforfilingindividualtaxreturns.Whilethesystemcanbeusedbyanyone,thereturnmustbetransmittedbyaregisteredEFILEserviceproviderusingapproved software.
3.Theundertakingoftransactionsorarrangementswithaviewtoavoidingorminimizing thepaymentoftaxes.
4.AformthattheCRAsendstoalltaxpayersaftertheyprocesstheirreturnswhichdescribes anychangesmadetothereturnsandstatestheamountoftheiradditionaltaxpayableor theirrefund.
5.Atermusedtodescribethesumoffederalandprovincialtaxesowingfortheyear,less amountswithheldfortheyear.
6.Deliberatelyignoringaspecificpartofthe laworwillfullyrefusingtocomplywithlegislatedreportingrequirements.
7.Anelectronicfilingsystemthatrequirestheuseofanapprovedsoftwareprogram.
8.Amountswithheldbyanemployerfromtheincomeofemployees.Thewithholdingsfor incometaxes,CanadaPensionPlancontribut ions,andEmploymentInsurancepremiums mustberemittedtothegovernment.
9.Atermusedtodescribethesumofthetotalfederalandprovincialtaxesowingforthe year.
10.Amountswithheldbyanemployerfromtheincomeofemployees.Theamountswithheld arebasedontheexpectedincometaxliabilityoftheemployeeforthecurrentyear.
11.ThisITA245provisionattempts,inaveryge neralizedmanner,tolimittheabilityoftax -
ProceduresAndAdministration-KeyTermMatching(Moderate)
payerstoavoidtaxthroughcertaintypesoftransactionsthathavenobonafidepurpose otherthantoobtainataxbenefit.
12.Anamountofnettaxowingforindividualsortaxespayableforcorporationsthatisusedto determinetheneedtomakeinstalmentpayments.
13.Aformaldeterminationoftaxestobepaidorrefunded.
14.Anamountoftotaltaxowingforindividualsortaxespayableforcorporationsthatisused todeterminetheneedtomakeinstalmentpayments.
15.Noneoftheabovedefinitionsapply.(Thisanswercanbeusedmorethanonce.)
Required: Foreachoftheeightkeytermslisted(AthroughH),indicatethenumberofthe item(1through14)thatprovidesthe BEST definitionofthatterm,or,alternatively,thatnone ofthedefinitionsapply(15).Explanationsarenotrequired.
Indicateonlyonenumberforeachkeyterm.Nomarkswillbeawardedifyouindicatemore thanonenumberforanykeyterm.
InstalmentPaymentsForIndividuals
TIFPROBLEMTWO-6
InstalmentPaymentsForIndividuals
Inthethreeindependentcaseswhichfollow,assumethatBarryLevenor'scombinedfederal andprovincialTaxPayableisasfollows:
2015$14,256 201615,776 2017(Estimated)16,483
TheamountBarry'semployerwithholdsforthethreeindependentcasesisasfollows:
Case1 $11,800in2015,$14,150in2016,and$12,400(estimated)in2017.
Case2 $14,920in2015,$11,400in2016,and$13,226(estimated)in2017.
Case3 $11,220in2015,$13,275in2016,and$12,873(estimated)in2017.
Required:
A.Foreachofthethreecases: indicatewhetherinstalmentsarerequiredforthe2017taxationyear; inthoseCaseswhereinstalmentsarerequired,calculatetheamountoftheinstalmentsthatwouldberequiredundereachofthethreeacceptablemethods;and inthosecaseswhereinstalmentsarerequired,indicatewhichofthethreeacceptable methodswouldbethebestalternative.
B.ForthoseCaseswhereinstalmentsarerequired,indicatethedatesonwhichthepayments willbedue.
InstalmentPaymentsForIndividuals
TIFPROBLEMTWO-7
InstalmentPaymentsForIndividuals
Forthethreeyears2015,2016,and2017,Mr.GeorgeGraftonprovidesthefollowinginformationonhiscombinedfederalandprovincialtaxespayable,alongwithinformationon withholdingsbyhisemployer:
YearTaxesPayableTaxesWithheld 2015$31,500$29,800 201614,6006,200 2017(Estimated)27,40024,300
InJanuary,2017,youareaskedtoprovidetaxadvicetoMr.Grafton.Hehasaskedyou whetheritwillbenecessaryforhimtopayinstalmentsin2017and,ifso,whattheminimum amountsthatshouldbepaidare,alongwiththedatesonwhichtheseamountsaredue.
Required: ProvidetheinformationrequestedbyMr.Grafton.Besuretoshowallrequired calculations.
InstalmentPaymentsForCorporations
ForthetaxationyearendingDecember31,2015,acorporation'scombinedfederaland provincialTaxPayableis$103,680.Thecorre spondingfigurefor2016is$122,220.Forthe yearendingDecember31,2017,itisestimatedt hatcombinedfederalandprovincialTax Payablewillbe$113,220.
CaseOne
CaseTwo
CaseThree
CaseFour
Thetaxpayerisapubliclytradedcorporation.
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2016were $110,520,insteadofthe$122,220givenintheproblem.
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearending December31,2016were$110,520,instead ofthe$122,220givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2017.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2017.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
TIFPROBLEMTWO-9
InstalmentPaymentsForIndividuals
ForthethreeyearsendingDecember31,2017, GeorgeShivrajhadcombinedfederaland provincialTaxPayableasfollows: 2015
$13,500 2016 16,200 2017 (Estimated)18,400
Usingthisinformationconsiderthefollowingthreeindependentcases.
CaseOne Mr.Shivraj'semployerwithholds$11,200in2015,$12,900in2016,and $15,100in2017.
CaseTwo Mr.Shivraj'semployerwithholds$9,200in2015,$10,300in2016,and $14,900in2017.
CaseThree Mr.Shivraj'semployerwithholds$10,100in2015,$16,300in2016, and$14,700in2017.
Required: ForeachoftheprecedingindependentCases,calculatetheminimuminstalmentpaymentsthatarerequiredtobemadetowardsthesettlementofthetaxespayablefor theyearendingDecember31,2017.Showallrequiredcalculations.
Ifinstalmentsmustbepaid,includeinyouranswerthedatethateachinstalmentisdue.Note that,inansweringthisquestion,youshouldstateaconclusiononwhetherornotinstalments arerequired,eveniftheamountoftheinstalmentsisnil.Youshouldalsostatethebasisfor yourconclusion.
TIFPROBLEMTWO-10
InstalmentPaymentsForCorporations
ForthethreetaxationyearsendingDecember31,2017,acorporation’scombinedfederal andprovincialtaxpayableareasfollows:
YearEndingDecember31TaxesPayable 2015$86,500 2016101,400 2017(Estimated)94,600
CaseOne
CaseTwo
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearendingDe cember31,2016were$92,100,insteadof the$101,400givenintheproblem.
CaseThree Thetaxpayerisapubliclytradedcorporation.
CaseFour
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2016were $92,100,insteadofthe$101,400givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2017.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2017.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
InstalmentPaymentsForIndividuals
TIFPROBLEMTWO-11
InstalmentPaymentsForIndividuals
ForthethreeyearsendingDecember31,2017, GloriaSloanhadcombinedfederaland provincialTaxPayableasfollows:
2015
$23,600
2016 25,400 2017 (Estimated)27,200
Usingthisinformationconsiderthefollowingthreeindependentcases.
CaseOne Ms.Sloan'semployerwithholds$23,100in2015,$21,100in2016,and $23,300in2017.
CaseTwo Ms.Sloan'semployerwithholds$24,100in2015,$18,600in2016,and $23,700in2017.
CaseThree Ms.Sloan'semployerwithholds$19,100in2015,$20,200in2016, and$24,300in2017.
Required:
A.Foreachofthethreecases:
indicatewhetherinstalmentsarerequiredforthe2017taxationyear.Showallofthe calculationsrequiredtomakethisdecision; inthosecaseswhereinstalmentsarerequired,indicatetheamountoftheinstalments thatwouldberequiredundertheapproachusedintheCRA'sinstalmentreminder; and inthosecaseswhereyouhavecalculatedtheinstalmentsrequiredundertheCRA'sinstalmentreminder,indicatewhetheryo ubelievethereisabetterapproachand calculatetherequiredinstalmentsunderthatapproach.
B.ForthoseCaseswhereinstalmentsarerequired,indicatethedatesonwhichthepayments willbedue.
InstalmentPaymentsForCorporations
ForthetaxationyearendingDecember31,2015,acorporation'scombinedfederaland provincialTaxPayableis$57,600.Thecorres pondingfigurefor2016is$67,900.Fortheyear endingDecember31,2017,itisestimatedthatcom binedfederalandprovincialTaxPayable willbe$62,900.
CaseOne
CaseTwo
CaseThree
CaseFour
Thetaxpayerisapubliclytradedcorporation.
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2016were $61,400,insteadofthe$67,900givenintheproblem.
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearendingDe cember31,2016were$61,400,insteadof the$67,900givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2017.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2017.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
ThirdPartyCivilPenalties
Foreachofthefollowingindependentcases,indicatewhetheryoubelieveanypenaltywould beassessedunderITA163.2onanyofthepartiesinvolved.Explainyourconclusion.
CaseA
Anewlyacquiredclient,whoisself-employed,bringstohisaccountantalistingofhisbusiness expenses.Theclientalsoprovidestheaccountantwithafigureforhistotalrevenue.He instructshisaccountanttoprepareanincomestatementandhistaxreturnbasedonthisinformation.Theaccountanthasaquicklookattheexpenses.Theexpensesseemtoberelatedto thetypeofbusinessoftheclientandnothingst andsoutasobviouslyunreasonable.Afterthe client'sincomestatementisprepared,itre flects$80,000ofrevenueand$55,000ofexpenses andtheincometaxreturnisfiledonthatbasis.
Uponaudit,theCRAfindsalargeproportionoftheexpensesclaimedcannotbesubstantiated byadequatedocumentationandmaynothavebeenincurred.Furthermore,thereported revenueisonlyhalfofactualrevenue.
CaseB
Acompanyissellingunitsinalimitedpartnershiptaxshelter.Thecompanyhadacquiredsoftwarefor$50,000ontheopenmarketandtransferredittothelimitedpartnershiponthesame dayfor$10,000,000.Theprospectuspreparedb ythecompanystatesthatthefairmarket valueofthesoftwareis$10,000,000andissupportedbyanappraisal.ThetaxshelterisregisteredwiththeCRAandisavailableasaninvestmentopportunityinthecurrentyear.The company'sgrossentitlementsare$2,000,000.
TheCRAreviewsthetaxshelteranddeterminesthatthefairmarketvalueofthesoftwareon thedayoftransferintothelimitedpartnershipis$50,000.Theappraisalsupportingthe $10,000,000valuewaspreparedbyanindependen tappraiser.However,itwasnotprepared usingnormalvaluationprinciples.Theapprai serinformedtheCRAthatallhiscalculations werebasedontheassumptionsandotherrelevantfactsprovidedtohimbythecompany.The appraiserwaspaid$75,000fortheappraisal.
CaseC
Anaccountantreliesonthefinancialstatementspreparedbyanotherprofessionalaccountant toreporthisclient'sself-employmentincomeontheclient'staxreturn.Thestatementsdidnot lookobviouslyunreasonable.TheCRAconducts anauditanddiscoversthattheincomestatementcontainedmaterialmisrepresentations.
CaseD
Anaccountanthaspreparedataxreturnforanewclient.While,theaccountanthasknown theindividualforsometime,thisisthefirsttimethathehasdoneanyworkforhim.
Inpreparingthenewclient'staxreturnheisgivenaT4slipwhichreports$40,000inincome. Theclientindicatesthatthisishisonlysourceofincome.
Youaresurprisedbythisasyouknowthattheclientlivesahomethatisworthatleast$2 million,hasanexpensivecottageinHuntsv ille,anddrivesa$275,000Bentley.Whenthe accountantaskstheclientaboutthis,heindicatesthat,severalyearsago,hereceivedalarge inheritancefromhisparents.
Theaccountantdoesnotaskanyfurtherquestionsandpreparesandfilesthereturn.Whenthe taxpayerisauditeditisdiscoveredthathehasover$400,000inunreportedincome.
CaseE
Ataxpayerapproachesataxreturnpreparertopr epareandfilehistaxreturn.Priortothis,the taxreturnpreparerandhisfirmdidnotprovideanyservicestothetaxpayerandtheydidnot knoweachother.
ThetaxpayerprovidesthetaxreturnpreparerwithaT4slipindicatingthatthetaxpayerhas $32,000ofemploymentincome,whichrepresentshissolesourceofincome.
Thetaxpayertellsthetaxreturnpreparerth athemadeacharitabledonationof$20,000but forgotthereceiptathome.Thetaxpayerasksthatthetaxreturnpreparerprepareande-file thetaxreturnwithoutobtainingthereceiptasitisApril29.Thetaxreturnpreparerdoessoin ordertoavoidlatefilingthereturn.
CaseF(RequiresBasicGSTKnowledge)
AnannualGSTreturnfilerinformsheraccountantthatshehasnotkeptrecordsoftheGST paidorpayableonherbusinesspurchasesfortheyear.Theaccountantinformsherthathewill makeaninputtaxcreditclaimforGSTpaidbasedonthefinancialstatementsofherbusiness. Theamountsonthefinancialstatementsarereasonableandhavebeenincurred.
TheincomestatementincludesalargeamountforwagesandinterestexpenseonwhichGSTis notpaid.Thecostofsalesincludesalargeproportionofpurchasesthatarezero-ratedon whichGSTisnotpaid.Theaccountantappliesafactorof5/105toallexpensesshowninthe incomestatement.ThisresultsinanoverstatementofinputtaxcreditsreportedontheGST return.
ChapterThreeTestItemFileProblems
TIFPROBLEMTHREE-1
EmploymentIncome-EssayQuestions
1.Explainhowabonusarrangementcanbeusedtodeferthetaxespaidbyanemployee.
2.Listandbrieflydescribethemajorfactorst hatwillbeconsideredindeterminingwhether anindividualisworkingasanemployeeorasanindependentcontractor.
3.Thetaxconsequencesofbeingclassifiedasanemployeeratherthanasanindependent contractorcanbesignificant.Asaresult,itisnotuncommontofindcontroversyand,in somecases,litigationresultingfromtheneedtomakethisdistinction.Explaintheimportance,fromthepointofviewofanemployee,ofthedistinctionbetweenbeingclassified asanemployeeversusbeingclassifiedasaself-employedindependentcontractor.
4.Brieflydescribedtheadvantagestoanemployerofhiringindependentcontractors,asopposedtohiringemployees.
5.Taxplanningconsiderationsareverysignificantindecidingthekindsofbenefitsthatwill beprovidedtoemployees.Explainwhysalarypaymentsareconsideredthebasicbenchmarkwithwhichothertypesofemployeecompensationwillbecompared.
6.Listtwotypesofemployeebenefitsthatinvolvetaxdeferralandtwotypesofbenefitsthat involvetaxavoidance.
7.LondonWholesalersemploysover50fulltimesalespeople,allofwhomareprovidedwith acompanycar.Whilethecarsareusedprimarilyforbusinesspurposes,allofthesales staffdrivethematleast20,000kilometerspe ryearforpersonalreasons.Ascontrollerof theCompanyyouareawarethatthereistaxlegislationineffectwhichcancreatesubstantialtaxablebenefitsthatcouldaccruetothesesalespeoplebecausetheyhavetheuseofa companycar.
IndicatesomeofthewaysinwhichtheCompanyandthesalesstaffmightlegitimately reducetheamountofthetaxablebenefitassociatedwithhavingtheuseofacompanycar.
8.Becauseoftheformulausedtocalculateth etaxablebenefitwhenanemployerownedvehicleisprovidedtoanemployee,theamountofthebenefitcanexceedthevalueofthe vehicle.Explainthisstatement.
9.Whatisthedifferencebetweenanallowanceandareimbursement?
10.Anemployeemaybepaidamonthlyamountforusinghisownautomobileinemployment relatedactivities.Alternatively,hemaybepaidareasonableamountbasedonthenumberofkilometersdriven.Fromthepointofviewofboththeemployerandtheemployee, explainthetaxtreatmentthatwillbegiventothesetwoalternatives.
11.Brieflyexplainthetaxconsequencesresultingfrombeingamemberofanemployersponsoredgroupdisabilityinsuranceplan.
12.Listthefactorsthatwillhavetobeconsideredindeterminingwhetheraparticularlowinterestorinterestfreeloanisaneffectiveformofemployeecompensation.
13.Brieflydescribethecalculationofthetaxablebenefitthatisassessedonloanstoemployeesthatarenotconsideredtobehousingloans.
