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.Forthe2018taxationyear,JohnBookmanhad ataxablecapitalgainof$45,000andanet businesslossof$45,000,resultinginaTaxa bleIncomeofnil.Whichofthefollowing statementsiscorrect?
A.Johnisnotrequiredtofileataxreturnfor2018.
B.JohnmustfileataxreturnonorbeforeJune15,2019.
C.JohnmustfileataxreturnonorbeforeDecember31,2019.
D.JohnmustfileataxreturnonorbeforeApril30,2019.
5.JohnBarronisself-employedandplanstofilehis2018taxreturnonJune15,2019.His balance-duedayis:
A.April30,2018. B.April30,2019. C.June15,2019.
D.June15,2018.
6.BunlyImisaself-employedhairdresser.Wh ichofthefollowingdatesarecorrectforthe datebywhichhistaxreturnforayearmustbefiled(1stitem)andhispaymentduedate (2nditem)?
A.April30,April30. B.June15,April30. C.April30,June15. D.June15,June15.
7.Ms.Deveco’s2018incometaxreturnisdueonApril30,2019.Whilesheistoobusyto filehertaxreturnonthatdate,sheremits achequetothegovernmentfor$10,000,herestimatedamountofnettaxowingonthatdate.Shehasneverfiledalatereturnbefore.She preparesandfileshertaxreturnonMay31,2019.Atthistime,thereturnshowsthather actualnettaxowingwas$9,800.Assumingthattheinterestrateapplicabletolatepaymentoftaxesisone-halfpercentpermonthwithoutdailycompounding,howmuchwill sheoweinpenaltiesandinterestonthelatefiling?
A.$49. B.$490. C.$588. D.$637. E.Nil.
8.Mr.Finlay,aretiredindividualwhoseonlysourceofincomewaspensionreceipts,dieson August15,2018.BywhatdatemustMr.Finlay’sfinaltaxreturnbefiled?
A.April30,2019. B.February28,2019. C.February15,2019. D.December31,2018. E.Noneoftheabove.
9.Ms.Ali,aself-employedmusicteacher withbusinessincome,diesonNovember15, 2018.Whatisthelatestfilingdateforher2018incometaxreturn?
A.April30,2019. B.May15,2019. C.May30,2019. D.June15,2019.
10.Mr.Khan,aself-employedconstructioncontractor,diesonApril1,2018.Whatisthelatestfilingdateforhisfinaltaxreturn?
A.April30,2019. B.June15,2019. C.October1,2019. D.December31,2019.
11.Ms.LorendiesonFebruary1,2019.Allofherincomeisfromemploymentactivitiesand shedoesnothaveaspouseorcommon-lawpartner.Whatisthelatestdateforfilingher 2018incometaxreturn?
A.April30,2019. B.June15,2019. C.August1,2019. D.June30,2019.
12.GretadiedonSeptember10,2018.Shehasne verreportedanybusinessincome.Bywhat datemustherfinaltaxreturnbefiled?
A.April30,2019. B.April30,2020. C.March10,2019. D.June15,2019.
IndividualInstalments
13.Whichofthefollowingindividualsdid NOT havetopayinstalmentsin2018?
A.JaneAusten,whohadbusinessincomeof$50,000inboth2016and2018anda $1,000businesslossin2017.
B.CharlotteBronte,whorealizedcapitalgainsof$3,500in2017and$4,000in2018. Heronlyotherincomeduringtheyears2016through2018was$5,000inemploymentincome.
C.GeorgeEliot,whohadrentalincomeof$50,000intheyears2016through2018anda netallowablecapitallossof$50,000in2017.
D.EmilyBronte,whoreceivedspousalsupportpaymentsof$20,000peryearineachof theyears2016through2018.
14.Ms.Marstonhasnettaxowingfor2016of$4,500,nettaxowingfor2017of$8,000,and estimatednettaxowingfor2018of$7,500.Ifshewishestopaytheminimumtotal amountofinstalmentsforthe2018taxationyear,herfirstpaymentonMarch15willbe forwhatamount?
A.Nil.
B.$1,125.
C.$1,875. D.$2,000.
15.JasonMarkshastopayhistaxbyinstalmentsasaresultofhissignificantinvestmentincome.Hisnettaxowingin2016was$13,600.In2017,itwas$15,000.Hisestimatefor 2018is$17,000.Ifhedecidestopayhis2018taxinstalmentsaccordingtotheprioryear option,howmuchshouldhepayonSeptember15,2018?
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$62,000in2018.Priortothisyear,hewasemployedfull-timeandhisemployer'swithholdi ngsmorethancoveredhistaxliabilityfor theyear.Larryestimatesthat,basedonhisself-employmentincome,hisnettaxowingfor 2018willbe$8,000.Whichofthefollowingstatementsistrue?
A.Larrymustfilehisreturnfor2018byApril30,2019.
B.Larryshouldpayinstalmentsin2018.
C.Larrymustpayhisincometaxfor2018byJune15,2019.
D.IfLarryhasasmuchincomein2019ashehadin2018,hewillhavetopayinstalments during2019.
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.DoraChenhasdeterminedthatherminimumtaxinstalmentsfor2018are$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 etaxreturnfortheyearendedMarch31,2017 wasnotfileduntilMay12,2019.Theunp aidtaxonMarch31,2017was$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.Forits2018taxation year,itsincometaxreturnisdueon:
A.January31,2019.
B.February28,2019.
C.April30,2019.
D.May31,2019.
E.Noneoftheabove.
26.Forits2018taxationyear,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$62,000in2016,$95,000in2017,and $75,000in2018.Thecompanywouldliketominimizeits2018instalments.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 themonwhatitsmonthlyinstalmentsforthe2018taxyearwillbe.Itstaxespayableforits November30,2016andNovember30,2017 yearswere$13,800and$13,200,respectively.Itsestimatedtaxespayablefor theNovember30,2018yearare$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.ACanadianpubliccorporationhadfederaltaxespayablein2016and2017exceeding $3,000.Onecorrectoptionithaswithrespecttoits2018instalmentsistopay:
A.equalinstalments,onaquarterlybasis,basedonits2017federaltaxespayable.
B.onamonthlybasis,instalmentsequalto1/12thofitsestimated2018federaltaxes payable.
C.onelump-sumpayment,withinthreemonthsofits2018yearend.
D.onamonthlybasis,instalmentsequalto1/12thofits2016federaltaxespayable.
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.DoraBurchfilesher2018incometaxreturnonMarch2,2019.ShereceivesanilassessmentonJune3,2019.However,onDecemb er28,2019,shereceivesareassessment indicatingthatsheowesasubstantialamoun tofadditionaltax.Shewouldliketoobjectto thisreassessment.Whatisthelatestdateforhertofileanoticeofobjection?(Ignorethe effectofleapyearifapplicable.)
A.March2,2020. B.April30,2020.
C.March28,2020.
D.December28,2020.
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.TomArnoldfiledhis2018taxreturnonMarch1,2019.TheCRAmailedanoticeofassessmenttoTomdatedMay15,2019,andTomreceiveditonMay30,2019.IfTom disagreeswiththenoticeofassessment,whatisthelatestdatehehastofileanoticeofobjection?
A.90daysfromMarch1,2019.
B.90daysfromApril30,2019.
C.90daysfromMay15,2019.
D.90daysfromMay30,2019.
E.Noneoftheabove.
37.MinnieBelangerisretired.Shefiledher 2018taxreturnonMarch5,2019.Shereceived aportionofthetaxrefundclaimedandanassessmentnotice,datedApril19,2019,which setoutthedifferencebetweentheamountclaimedandtheamountoftherefund.As Minniedisagreeswiththenoticeofassessment,shewishestofileanoticeofobjection. Whatisthelatestdateshehastofileanoticeofobjection?
A.March5,2020. B.April19,2020. C.April30,2020. D.July18,2019. E.June15,2020.
38.Forapubliccorporation,whichofthefollowingstatementsiscorrectwithrespecttofiling anoticeofobjection?
A.Itmustbefilednolaterthan180daysfromthedateonthenoticeofassessment.
B.Itmustbefiledthelaterof90daysafterthedateonthenoticeofassessmentandone yearfromthefilingdateforthereturnunderassessment.
C.Itmustbefiledthelaterof180daysafterthedateonthenoticeofassessmentandone yearfromthefilingdateforthereturnunderassessment.
D.Itmustbefilednolaterthan90daysafterthedateonthenoticeofassessment.
39.MarcMayerfiledhis2018personaltaxr eturnonMarch1,2019.Neitherhenorhis spousehasbusinessincomeinanyyear.TheCRAmailedaNoticeofAssessmenttoMarc datedMay5,2019andMarcreceiveditonMay14,2019.IfMarcdisagreeswiththeNoticeofAssessment,hehasuntilwhichoneofthefollowingdatestofileaNoticeof Objection?
A.August3,2019. B.August12,2019.
C.March1,2020.
D.April30,2020.
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’s2018NetIncomeincludesbusin essincome.Whenishis2018taxreturndue? Bywhatdatemusthis2018taxliabilitybepaidinordertoavoidtheassessmentofintereston amountsdue?
ExamExerciseTwo-2(IndividualDueDates)
Ms.JeanineFarrelhas2018NetIncomewhichincludesbusinessincome.Whenisher2018 taxreturndue?Inaddition,indicatewhenanyremainingtaxliabilitymustbepaidinorderto avoidhavinginterestassessedontheamountdue.
ExamExerciseTwo-3(DeceasedTaxpayerDueDate)
GeorgeKlausediesonMarch1,2019.Allofhisincomeduring2018wasearnedthroughhis unincorporatedaccountingpractice.Bywhatdatemusthisrepresentativesfilehis2018 incometaxreturn?Explainyouranswer.
ExamExerciseTwo-4(DeceasedTaxpayerDueDate)
GloriaKlumpdiesonDecember1,2018.Muchof her2018incomeresultedfromanunincorporatedbusinesswhichsheoperated.Bywhat datemustherrepresentativesfileher2018 incometaxreturn?Explainyouranswer.
ExamExerciseTwo-5(IndividualInstalments)
Atthebeginningof2018,thefollowinginformationrelatestoSarahElmsley:
YearNetTaxOwing
2016$1,800 20176,400 2018(Estimated)3,600
IndicatewhetherMs.Elmsleyisrequiredtom akeinstalmentpaymentsduring2018.Explain yourconclusionand,ifyouranswerispositive,indicatetheminimuminstalmentsthatwillbe requiredandwhentheyaredue.
ExamExerciseTwo-6(IndividualInstalments)
HoraceGreesomfiledhis2017returnontime .Atthebeginningof2018,thefollowinginformationrelatestoMr.Greesom:
Amounts
YearTaxesPayableWithheld
2016$56,000$45,000 201749,00046,200 2018(Estimated)65,00045,000
WhatamountswillbeshownontheInstalmentRemindernoticesfor2018andwhenwillthe amountsbedue?Shouldhepaythoseamounts?Explainyourconclusion.
ExamExerciseTwo-7(IndividualInstalments)
Atthebeginningof2018,thefollowinginformationrelatestoJerryFarrow:
IsMr.Farrowrequiredtomakeinstalmentpaymentsduring2018?Ifheisrequiredtomake instalmentpayments,indicatetheamountsthatwouldberequiredundereachofthethree alternativemethodsofcalculatinginstalments.Indicatewhichalternativewouldbe preferable.
ExamExerciseTwo-8(PenaltiesAndInterestForIndividuals)
Despitethefactthathernettaxowinghasbeenbetween$7,000and$8,000inthetwo previousyears,andisexpectedtobeasimila ramountduring2018,MarshaFieldshasmade noinstalmentpaymentsfor2018.WhilehernormalfilingdatewouldbeApril30,2019,she doesnotfileher2018returnorpaythebalanceowinguntilAugust24,2019.Whatpenalties andinterestwillbeassessedforthe2018taxationyear?
ExamExerciseTwo-9(PenaltiesAndInterestForIndividuals)
AshisTaxableIncomein2017wasnil,MarkFeltondidnotmakeanyinstalmentpayments during2018.Incompletinghisreturnfor2018,hefindsthathehastaxpayableof$22,500. WhilehisnormalfilingdatewouldbeApril30,2019,hedoesnotfilehisreturnorpaythe balanceowinguntilSeptember12,2019.Whatpenaltiesandinterestwillbeassessedforthe 2018taxationyear?Markhasfiledhisreturnontimeinallpreviousyears.
ExamExerciseTwo-10(CorporateInstalments-RegularAndSmallCCPC)
LemarLtd.hasaDecember31yearend.ItisnotasmallCCPC.For2016,itstaxespayable were$71,500,whilefor2017,theamountwas$93,600.For2018,itsestimatedtaxes payableare$114,700.Whatwouldbetheminimu minstalmentpaymentsforthe2018taxationyearandwhenwouldtheybedue?HowwouldyouranswerdifferifLemarLtd.qualified asasmallCCPC?
ExamExerciseTwo-11(CorporateInstalments-RegularAndSmallCCPC)
ChemcoInc.hasaDecember31yearendandisnotasmallCCPC.For2016,itstaxespayable were$146,300,whilefor2017,theamountwas$94,650.For2018,itsestimatedtaxes payableare$52,300.Whatwouldbetheminimu minstalmentpaymentsforthe2018taxationyearandwhenwouldtheybedue?HowwouldyouranswerdifferifChemcoInc. qualifiedasasmallCCPC?
ExamExerciseTwo-12(CorporateInstalments-RegularAndSmallCCPC) DustinInc.hasaSeptember30yearendandisnotasmallCCPC.Foritstaxationyearending September30,2016,itstaxpayablewas$33,500. Thecorrespondingfigurefortheyear endingSeptember30,2017was$93,400.Itisesti matedthat,fortheyearendingSeptember 30,2018,itstaxpayablewillbe$56,200.Whatwouldbetheminimuminstalmentpayments forthetaxationyearthatendsonSeptem ber30,2018,andwhenwouldtheybedue?How wouldyouranswerdifferifDustinInc.qualifiedasasmallCCPC?
ExamExerciseTwo-13(CorporateDueDates-CCPC)
ThetaxationyearendforGrangeInc.isMarch31,2018.ItisaCanadiancontrolledprivate corporationthatclaimsthesmallbusinessdeductionandhadTaxableIncomefortheyear endingMarch31,2017of$165,000.Indicatethed ateonwhichthecorporatetaxreturnfor theyearendingMarch31,2018mustbefiled,aswellasthedateonwhichanyfinalpayment oftaxesisdue.
ExamExerciseTwo-14(CorporateDueDates)
ThetaxationyearendforLawncoInc.isJanuary31,2018.LawncoInc.isaCanadianpublic companyanddoesnotqualifyforthesmallbusinessdeduction.Indicatethedateonwhich thecorporatetaxreturnmustbefiled,aswellasthedateonwhichanyfinalpaymentoftaxes isdue.
ExamExerciseTwo-15(CorporateDueDates-CCPC)
ThetaxationyearendforBreysonLtd.isJune30,2018.ItisaCanadiancontrolledprivate corporationthatclaimsthesmallbusinessdeductionandhadTaxableIncomefortheyear endingJune30,2017of$132,000.Indicatethedateonwhichthecorporatetaxreturnforthe yearendingJune30,2018mustbefiled,aswellasthedateonwhichanyfinalpaymentof taxesisdue.
ExamExerciseTwo-16(NoticeofObjection)
NancyForthfiledher2018taxreturnaswasre quiredonApril30,2019.HerNoticeofAssessmentdatedMay15,2019indicatedthatherre turnwasacceptedasfiled.OnJuly12,2020, shereceivesaNoticeofReassessmentdatedJuly2,2020indicatingthatsheowesadditional taxes,aswellasinterestontheunpaidamounts.Whatisthelatestdateforfilinganoticeof objectionforthisreassessment?Explainyouranswer.
ExamExerciseTwo-17(NoticeofObjection)
NormanFosterfiledhis2018taxreturnaswasrequiredonJune15,2019.HisNoticeof AssessmentdatedAugust28,2019,indicatedthathisreturnwasacceptedasfiled.OnMarch 15,2020,hereceivesaNoticeofReassessmentdatedMarch8,2020indicatingthatheowes 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)
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
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.
ProceduresAndAdministration-KeyTermMatching(Moderate)
11.ThisITA245provisionattempts,inaveryge neralizedmanner,tolimittheabilityoftaxpayerstoavoidtaxthroughcertaintypesoftransactionsthathavenobonafidepurpose 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:
2016$14,256 201715,776 2018(Estimated)16,483
TheamountBarry'semployerwithholdsforthethreeindependentcasesisasfollows:
Case1 $11,800in2016,$14,150in2017,and$12,400(estimated)in2018.
Case2 $14,920in2016,$11,400in2017,and$13,226(estimated)in2018.
Case3 $11,220in2016,$13,275in2017,and$12,873(estimated)in2018.
Required:
A.Foreachofthethreecases: indicatewhetherinstalmentsarerequiredforthe2018taxationyear; inthoseCaseswhereinstalmentsarerequired,calculatetheamountoftheinstalmentsthatwouldberequiredundereachofthethreeacceptablemethods;and inthosecaseswhereinstalmentsarerequired,indicatewhichofthethreeacceptable methodswouldbethebestalternative.
B.ForthoseCaseswhereinstalmentsarerequired,indicatethedatesonwhichthepayments willbedue.
InstalmentPaymentsForIndividuals
TIFPROBLEMTWO-7
InstalmentPaymentsForIndividuals
For2016,Mr.MasonBoardmanhascombinedfederalandprovincialTaxPayableof$62,350. Forthisyear,hisemployerwithheld$61,600.
For2017,hiscombinedfederalandprovincia lTaxPayableis$29,760.Forthisyear,his employerwithheld$13,740.
For2018,heanticipateshavingcombinedfed eralandprovincialTaxPayableof$52,370.He expectsthathisemployerwillwithhold$47,390.
InJanuary,2018,youareaskedtoprovideta xadvicetoMr.Boardman.Hehasaskedyou whetheritwillbenecessaryforhimtopayinstalmentsin2018and,ifso,whattheminimum amountsthatshouldbepaidare,alongwiththedatesonwhichtheseamountsaredue.
Required: ProvidetheinformationrequestedbyMr.Boardman.Showallyourcalculations.
TIFPROBLEMTWO-8
InstalmentPaymentsForCorporations
ForthethreeyearsendingDecember31,2016 throughDecember31,2018,acorporation's combinedfederalandprovincialTaxPayableisasfollows:
2016=$153,640 2017=$186,540 2018=$172,340(Estimated)
CaseOne
CaseTwo
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearending December31,2017were$163,420,instead ofthe$186,540givenintheproblem.
CaseThree Thetaxpayerisapubliclytradedcorporation.
CaseFour
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2017were $163,420,insteadofthe$186,540givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2018.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2018.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
TIFPROBLEMTWO-9
InstalmentPaymentsForIndividuals
ForthethreeyearsendingDecember31,2018, GeorgeShivrajhadcombinedfederaland provincialTaxPayableasfollows: 2016
$13,500 2017 16,200 2018 (Estimated)18,400
Usingthisinformationconsiderthefollowingthreeindependentcases.
CaseOne Mr.Shivraj'semployerwithholds$11,200in2016,$12,900in2017,and $15,100in2018.
CaseTwo Mr.Shivraj'semployerwithholds$9,200in2016,$10,300in2017,and $14,900in2018.
CaseThree Mr.Shivraj'semployerwithholds$10,100in2016,$16,300in2017, and$14,700in2018.
Required: ForeachoftheprecedingindependentCases,calculatetheminimuminstalmentpaymentsthatarerequiredtobemadetowardsthesettlementofthetaxespayablefor theyearendingDecember31,2018.Showallrequiredcalculations.
Ifinstalmentsmustbepaid,includeinyouranswerthedatethateachinstalmentisdue.Note that,inansweringthisquestion,youshouldstateaconclusiononwhetherornotinstalments arerequired,eveniftheamountoftheinstalmentsisnil.Youshouldalsostatethebasisfor yourconclusion.
InstalmentPaymentsForCorporations
ForthethreetaxationyearsendingDecember31,2018,acorporation’scombinedfederal andprovincialtaxpayableareasfollows:
YearEndingDecember31TaxesPayable 2016$86,500 2017101,400 2018(Estimated)94,600
CaseOne
CaseTwo
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearendingDe cember31,2017were$92,100,insteadof the$101,400givenintheproblem.
CaseThree Thetaxpayerisapubliclytradedcorporation.
CaseFour
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2017were $92,100,insteadofthe$101,400givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2018.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2018.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
InstalmentPaymentsForIndividuals
TIFPROBLEMTWO-11
InstalmentPaymentsForIndividuals
ForthethreeyearsendingDecember31,2018, GloriaSloanhadcombinedfederaland provincialTaxPayableasfollows:
2016
$23,600
2017 25,400
2018 (Estimated)27,200
Usingthisinformationconsiderthefollowingthreeindependentcases.
CaseOne Ms.Sloan'semployerwithholds$23,100in2016,$21,100in2017,and $23,300in2018.
CaseTwo Ms.Sloan'semployerwithholds$24,100in2016,$18,600in2017,and $23,700in2018.
CaseThree Ms.Sloan'semployerwithholds$19,100in2016,$20,200in2017, and$24,300in2018.
Required:
A.Foreachofthethreecases:
indicatewhetherinstalmentsarerequiredforthe2018taxationyear.Showallofthe calculationsrequiredtomakethisdecision; inthosecaseswhereinstalmentsarerequired,indicatetheamountoftheinstalments thatwouldberequiredundertheapproachusedintheCRA'sinstalmentreminder; and inthosecaseswhereyouhavecalculatedtheinstalmentsrequiredundertheCRA'sinstalmentreminder,indicatewhetheryo ubelievethereisabetterapproachand calculatetherequiredinstalmentsunderthatapproach.
B.ForthoseCaseswhereinstalmentsarerequired,indicatethedatesonwhichthepayments willbedue.
TIFPROBLEMTWO-12
InstalmentPaymentsForCorporations
ForthetaxationyearendingDecember31,2016,acorporation'scombinedfederaland provincialTaxPayableis$57,600.Thecorres pondingfigurefor2017is$67,900.Fortheyear endingDecember31,2018,itisestimatedthatcom binedfederalandprovincialTaxPayable willbe$62,900.
CaseOne
CaseTwo
CaseThree
CaseFour
Thetaxpayerisapubliclytradedcorporation.
Thetaxpayerisapubliclytradedcorpor ation.Assumethatitscombinedfederal andprovincialtaxespayablefortheyearendingDecember31,2017were $61,400,insteadofthe$67,900givenintheproblem.
ThetaxpayerisasmallCCPC.
ThetaxpayerisasmallCCPC.Assumethatitscombinedfederalandprovincial taxespayablefortheyearendingDe cember31,2017were$61,400,insteadof the$67,900givenintheproblem.
Required: ForeachoftheprecedingindependentCases,providethefollowing information:
1.Indicatewhetherinstalmentsarerequire dduring2018.Provideabriefexplanationof yourconclusion.
2.Calculatetheamountofinstalmentsthatwouldberequiredundereachoftheacceptable methodsavailable.
3.Indicatewhichoftheavailablemethodswouldbestservetominimizeinstalmentpaymentsduring2018.Ifinstalmentsmustbepai d,indicatethedatesonwhichtheyaredue.
TIFPROBLEMTWO-13 Appeals
Mr.JamesSimonhasaskedforyourserviceswithrespecttodealingwithaNoticeofReassessmentrequestingadditionaltaxforthe2014taxa tionyearwhichhesayshehasjustreceived. Yourfirstinterviewtakesplaceaweeklater,onApril25,2018,andMr.Simoninformsyouthat hehashadconsiderabledifficultywiththeCRAinpastyearsand,ontwooccasionsinthepast fiveyears,hehasbeenrequiredtopaypenaltiesaswellasinterest.
Withrespecttothecurrentreassessment,heassuresyouthathehascompliedwiththelaw andthatthereisamisunderstandingonthepartoftheassessor.Afterlisteningtohimdescribe thesituation,youdecideitislikelythathisanalysisofthesituationiscorrect.
Required: Indicatewhatadditionalinformationshouldbeobtainedduringtheinterview withMr.Simonandwhatstepsshouldbetakenifyoudecidetoaccepthimasaclient.
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.
