Canadian Taxation: Multiple Choice and Long Answer Questions

1.Which of the following is a taxable benefit?

a.A cash Christmas gift to an employee from the employer valued at $450.

b.Payment of the tuition for an employee completing a degree that will benefit the employer.

c.A 20% discount on the employer’s merchandise, available to all employees.

d.Subsidized meals offered to all employees of the company assuming the price is approximately equal to the cost. 

2.Carla lives in Detroit, Michigan, USA. She commutes daily to Windsor, Ontario, Canada, where she is employed by Ford Motor Company of Canada Limited. She works 9 am to 5 pm, Monday through Friday. Which one of the following best indicates Carla’s residency status for Canadian income tax purposes for 2019?

a.A full-time resident

b.A part-year resident

c.A non-resident

d.A deemed resident (sojourner)

3.All of the following statements are true, except:

a.Canadian residents must report their worldwide income for tax purposes. 

b.If an individual is a resident of Canada for part of the calendar year, that individual only has to report his worldwide income during the period of residency for Canadian tax purposes.

c.An individual who immigrates to Canada during the year is a resident of Canada for tax purposes for the full calendar year.

d.An individual can be a resident of Canada for tax purposes, even if she is not a Canadian citizen.

4.Of the following individuals, who would be considered a part-year resident of Canada for the current taxation year?

a.Ravi is a citizen of India, where he was born and lived until moving to Canada on March 1 of the current year with his wife and child.  He was transferred by his employer to its Canadian head office.

b.Helga had lived and worked in Canada for 10 years.  She was transferred by her employer to its flagship hotel in Switzerland on March 1 of the current year for a 1 year training assignment.  Her husband remained in Canada to complete his MBA.

c.Marc is a French citizen who lives in Paris.  On March 1 of the current year he begins work as a translator in Ottawa.  It is a 1 year assignment.

d.Billy Bob is a U.S. Marshall on loan to the RCMP detachment in Nunavut.  It is a 9 month assignment.

5.Dominique, a Canadian citizen, lives in Buffalo, NY, USA. Throughout the current year she commutes to Fort Erie, Ontario, Canada, where she is the bartender at the Cross Border Bar.  She normally works 7 pm to 3 am Tuesday through Saturday. Dominique is:

Question 1

a.A deemed resident (sojourner)

b.A non-resident

c.A full-time resident

d.A part-year resident

6.With respect to the filing of an individual income tax return, which of the following statements is correct?

a.An individual is required to file an income tax return if their only source of income is business income, even if no tax is payable.

b.An individual is required to file an income tax return if they have reached the age of 18 by the end of the year.

c.If an individual has disposed of a capital property during the year, they are required to file an income tax return, even if no tax is payable.

d.An individual is not required to file an income tax return if no tax is payable for the year.

7.For the 2019 taxation year, John Bookman had a taxable capital gain of $45,000 and a net business loss of $45,000, resulting in a Taxable Income of nil.  Which of the following statements is correct?

a.John is not required to file a tax return for 2019.

b.John must file a tax return on or before June 15, 2020.

c.John must file a tax return on or before December 31, 2020.

d.John must file a tax return on or before April 30, 2020.

8.John Barron is self-employed and plans to file his 2019 tax return on June 15, 2020.  His balance-due day is:

a.April 30, 2019.

b.April 30, 2020.

c.June 15, 2020.

d.June 15, 2019.

9.Mr. Khan, a self-employed construction contractor, dies on April 1, 2019.  What is the latest filing date for his final tax return?

a.April 30, 2020.

b.June 15, 2020.

c.October 1, 2020.

d.December 31, 2020.  

10. Individuals are required to pay instalments:

a.When net tax owing is over $3,000 for any one of the past two years.

b.When net tax owing is over $3,000 for the current year and both of the two prior years.

c.When net tax owing is over $3,000 for the current year and one of the two prior years.

d.When net tax owing is over $3,000 for the current year only.

Question 1 (8 Marks)

Assume that Barry Levenor’s combined federal and provincial Tax Payable is as follows:

2017 $14,256

2018 15,776

2019 (Estimated) 16,483

The amount Barry’s employer withholds for the three independent cases is as follows:

$14,920 in 2017, $11,400 in 2018, and $13,226 (estimated) in 2019

1.Indicate whether instalments are required for the 2019 taxation year;

Question 2

2.In those Cases where instalments are required, calculate the amount of the instalments that would be required under each of the three acceptable methods;  and

3.For those Cases where instalments are required, indicate the dates on which the payments will be due.

Roman Round was born and raised in Canada, where he had lived continuously until March of 2019. Review the following facts:

The family home in Canada was listed for sale in February 2019 with hopes of selling it by June.

Roman left Canada on March 1, 2019 to begin his position in Hungary.

He left his wife and children in Canada for the children to complete the school year.

Roman took all of his personal possessions with him when he left. 

He sold his car, but the family kept a second car registered to his wife for their use in Canada. 

The Company obtained a furnished three-bedroom apartment for Roman and his family. 

Roman planned to look for a house to purchase when his family arrived. 

As a result of the slow real estate market in Canada, the family home could not be sold. The family decided to rent the house for the period that they were living in Hungary. 

In July 2019, tenants were found to rent the house and the furniture on a one-year lease.

Roman's wife and kids left Canada to join him on August 1, 2019, after selling the second car. 

Roman and his wife own a cottage in Canada which they plan to live in during a one-month vacation in each of the summers that they will be away, starting with the summer of 2019. 

Roman retained his golf club membership in Canada, because he did not want to lose the high initiation fee that he had paid fairly recently to become a member. 

Roman resigned from two Canadian business clubs that required annual membership fees. He joined similar clubs on his arrival in Hungary.

Roman was paid in Hungarian currency by the subsidiary, which deposited his pay directly into his account with Bank of Hungary. 

He kept his RRSP and his investment portfolio in Canada.

He maintained a bank account in Canada – his rental income was deposited into this account.

The tenants were instructed to withhold and remit to the Canada Revenue Agency 25% of the agreed monthly rental, as required on payments to non-residents.

1.Evaluate the alternatives in the residence issue as they relate to this fact situation. 

Section 2 – Long Answer Questions

2.Present your answer by discussing each degree of residence and its tax consequences as it applies to this fact situation. 

3.Provide your advice, in conclusion, after weighing the relevance of the facts you have considered.

Bonnie is a qualified caregiver. Bonnie is registered with Nannies R Us, a personnel agency which specializes in placing caregivers for temporary work when parents are ill or when regular caregivers are unavailable. When a client calls Nannies R Us, they indicate their needs and the requirements of the position. Nannies R Us then goes through their list of available caregivers. They will call those who they believe are most suitable and offer them the work. The caregivers have the choice as to whether they wish to take the position.

If a caregiver takes the position, they are paid by Nannies R Us at an hourly rate for the work they perform. Nannies R Us does not take any source deductions (income tax, Canada Pension Plan premiums, or Employment Insurance premiums) against this income. It is the responsibility of the caregiver to provide his or her own transportation to and from the position. The hours for the position are dictated by the client and the client generally provides detailed instructions as to what is to take place during the duration of the placement. The caregivers are responsible for ensuring that they keep up to date with emergency health procedures and general childcare issues. To this end, each caregiver registered with Nannies R Us is required to pay for and attend an annual childcare seminar as well as one workshop a year which relates to general childcare issues. 

Bonnie is currently supplementing her income from Nannies R Us with income from some of her own clients. She is working two days a week providing childcare to a family of three children. This is expected to last until the end of the year. She is also working three mornings a week for another client who is physically impaired and requires general care and attendance. This position is indefinite. In the past, Bonnie has done housekeeping to supplement her income as required.

Using the appropriate tests, determine whether Bonnie an employee or self-employed (an independent contractor). Be sure to consider both sides of the issue in detail.

Lennox Lowes was granted, in year one, an option to purchase 50,000 common shares at $1 per share from her employer, Michael Ltd., a Canadian-controlled private corporation. The shares had an estimated fair market value at this date of $1.50. However, according to the agreement, Lennox could not exercise her option until her fourth employment year. Lennox did exercise her entire option in year five; the fair market value of the shares at that time was $3. Lennox sold all the shares in year six, at $6 per share.

Discuss the tax implications of the above transactions.

Avery Clarence works for an extremely generous employer, William’s Ltd., that is a financial services and advisory firm. William’s paid the following amounts on behalf of Avery: 

a.  Registered pension plan contributions (defined benefit) -- $1,000 

b.  Provincial employer health tax -- $600 

c.  Extended health care premiums — Sun Life -- $250 

d.  Drug plan premiums — Private Healthcare Plan -- $150 

e.  Tuition fee for an interior design program offered by a local college -- $750 

f.  Non-cash Christmas gift which the company did expense for tax purposes -- $65 

g. Subsidized lunches at company cafeteria: Fair market value -- $640; Actual cost -- $420; Amount paid by William’s -- $200 

h. Membership fees in Exclusive Private Club for his personal use -- $800 

i.  Financial counselling — ABC Investment Counselling Ltd. -- $1,000

Comment on whether these amounts are taxable. Explain why or why not.

Review the details below for an Automobile owned by the employer.

Original cost of automobile including HST $25,000

Operating cost for the year paid by employer, including HST $3,000 (includes insurance of $500 but excludes parking)

Employment-use kilometres 12,000

Total kilometres driven for the year 30,000

Number of months available 12

Reimbursement to employer for personal use at 10¢ per $2,000 kilometre

Compute the standby charge, operating benefit and total automobile benefit for the use of the automobile.

On May 1 of this year, Mr. Cooper borrowed from his employer, Stanley Inc., $35,000 evidenced by a 2% promissory note with principal repayable in five equal instalments on May 1st each year and interest is payable monthly. Mr. Cooper spent the $35,000 on the following acquisitions: 

1.$8,000 for a second-hand car which he needs to carry out his duties of employment (approximately 60% of the time); and

2.$27,000 as a down payment on a new condominium which he moved into immediately.

Assume that the prescribed interest rates for this year are the following:

1st quarter: 2%

2nd quarter: 1%

3rd quarter: 3%

4th quarter: 2%

Discuss the tax consequences of the above transactions, supporting them with all necessary calculations.