TAX KNOWLEDGE TEST
Do you think you know tax?
Please take this free test (with a total of 50 questions) to find out exactly how much you know.
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I. Questions on resolving your tax issues through non-dispute processes
1. Under our self-reporting tax system, taxpayers are generally required to file their tax returns for every year or reporting period. Where you did not file your tax return for a year, which one of the following statements is false:
a. The CRA may send you an arbitrary assessment for the year.
b. You may not receive a tax benefit or refund you are entitled to for the year.
c. The CRA may apply the gross negligence penalty if you turn out to have tax to pay for the year.
d. The CRA may send you a letter reminding you to file a return for the year.
2. Changing a return in income tax is a process through which a taxpayer may file a request to the CRA to make a change, amendment, or adjustment to a return that was previously filed. However, if such a request is made for the purpose of claiming refund or reducing tax payable, the taxpayer is generally not allowed to change a return for a year beyond the three-year normal reassessment period.
Regarding this limitation, which one of the following statements is true:
a. A small business corporation (SBC) is generally not subject to the normal reassessment period limitation as the CRA is authorized by the law to make a reassessment beyond the normal reassessment period, if the request for an adjustment is filed by a SBC for the purpose of claiming refund or reducing tax payable.
b. The CRA generally allows for the reassessment of a return for a corporation beyond the normal reassessment period if the request to change a return is made as a result of a court decision.
c. The CRA usually accepts requests for adjustments beyond the normal reassessment period if the requested decrease in tax is the result of an increased claim for capital cost allowance, where the taxpayer originally claimed less than the maximum amount allowed.
d. An individual is generally not subject to the normal reassessment period as the CRA is authorized by the law to make a reassessment beyond the normal reassessment period, if the request is filed by the individual for the purpose of claiming refund or reducing tax payable.
3. Changing a return in income tax is a process through which you as a taxpayer may file a request to the CRA to make a change, amendment, or adjustment to a return that was previously filed. After processing your request, the CRA may issue you a notice of reassessment reflecting the changes or a letter of decision explaining why it did not make the changes as requested. Regarding the options available to you after receiving the CRA’s reassessment or letter of decision, which one of the following statements is false:
a. Where the CRA has issued a notice of reassessment after processing your request and you are not satisfied with any part of the reassessment, you may file an objection against the reassessment.
b. Where the CRA has denied your request because your request for change was not submitted within the time limit, there will generally be no recourse in such cases.
c. Where your request was submitted within the time limit and the CRA has decided not to process your request for a reassessment, you may file an objection against the decision if the deadline for filing an objection against the assessment at issue has passed.
d. Where your request was submitted within the time limit but the CRA has decided not to process your request for a reassessment, you may file an application for judicial review of the CRA’s decision to the Federal Court of Canada if the deadline for filing an objection against the assessment at issue has passed.
4. If you have an issue with an income tax assessment you have just received from the CRA, you may file a return, change a return, or file an objection, depending on your situation, to resolve the issue. Regarding these three options, which one of the following statements is false:
a. Filing a return can be an option for you if you have never filed a return for the year.
b. Changing your return may not work for you if your request for change involves issues or information that the CRA has previously looked at or considered through an audit, review, or ruling.
c. Where you are not successful in resolving your issue by filing a request to change your return and the deadline to file an objection against the assessment has passed, you may apply for an extension of time to file an objection against the assessment. Such an application for extension is usually allowed by the CRA where the taxpayer had attempted to have the return changed before the deadline for filing an objection expires.
d. You are not allowed to file an objection against an assessment while you have the option of filing a return or changing a return open to you to resolve your issue.
5. Under the Taxpayer Relief Provisions, the CRA may waive or cancel penalties and interest for you as a taxpayer. Regarding this type of relief, which one of the following reasons may not be considered by the CRA in making the decision whether to grant your request for relief:
a. You have financial hardship and are unable to pay the penalty and interest.
b. The assessment of penalty and interest is wrong and inappropriate in your case.
c. Your non-compliance was due to extraordinary circumstances.
d. Your non-compliance was attributable to CRA’s actions.
6. Regarding the relief to cancel or waive penalties and interest under the Taxpayer Relief Provisions, which one of the following statements is true:
a. You may file an objection against the related assessment and apply for relief at the same time.
b. The CRA will not consider your request for relief if you have filed an objection against the related assessment.
c. The CRA will not process your request for relief if it is filed after the deadline to file an objection expires.
d. The CRA will not process your request for relief unless it is filed within the three-year limitation period.
7. The CRA is authorized under the Income Tax Act to exercise discretion and grant relief to allow you as a taxpayer to file certain elections late and to amend or revoke certain elections that were filed on time. Regarding this type of relief, which one of the following situations may not be cited as a reason for your request for relief:
a. You were not aware of the election provision.
b. There are unintended tax consequences if your request for relief is not granted.
c. You have taken reasonable steps to comply with the law.
d. Your request for relief is made to benefit from the new rules enacted after the due date of the election.
8. Regarding the time limit for a taxpayer to make a request under the Taxpayer Relief Provisions, which one of the following statements is true:
a. The taxpayer relief provisions are generally subject to a ten-year limitation period.
b. The taxpayer relief provisions are generally subject to a six-year limitation period.
c. The taxpayer relief provisions are generally subject to the three-year normal reassessment period.
d. There is no time limit for a taxpayer to make a request under the Taxpayer Relief Provisions.
9. If your request for relief under the Taxpayer Relief Provisions is denied or only partly granted, the CRA will give you the reasons for its decision. Regarding your right of redress in case you disagree with the decision, which one of the following statements is true:
a. You may file an objection within 90 days of the decision
b. There is no right of objection or appeal for you to dispute a discretionary decision made under the Taxpayer Relief Provisions.
c. You may file an application for judicial review of that decision to the Tax Court of Canada within 90 days of the decision.
d. You may file an application for judicial review of that decision to the Federal Court of Canada within 90 days of the decision.
10. Regarding the purpose of the Voluntary Disclosures Program (VDP), which one of the following statements is false:
a. To promote tax compliance, the VDP encourages taxpayers to come forward voluntarily and correct their non-compliance by providing relief from prosecution, penalties, and interest.
b. To promote tax compliance, the VDP encourages taxpayers to come forward voluntarily and correct their non-compliance by providing relief from prosecution, penalties, interest, and certain tax owing.
c. The VDP provides an opportunity for taxpayers to correct their non-compliance by changing a tax return or filing a return if no return was filed in order for them to avoid unwanted consequences.
d. Unlike the processes for filing a return and changing a return, the VDP is generally intended for those taxpayers who have failed to fulfill their tax obligations and want to increase their tax liabilities in order to avoid unwanted consequences.
11. There are certain conditions your application must meet to qualify for the VDP. Regarding these conditions, which one of the following statements is false:
a. One of the conditions is that your voluntary disclosure must involve information that is at least one year or one reporting period past due.
b. You may apply for relief under the VDP only if your application involves a penalty or interest.
c. You may apply for relief under the VDP once the deadline to file the relevant return has passed.
d. You application should include payment of the estimated tax owing unless it involves no taxes (for example, information returns or loss carryforward).
12. For your VDP application to be valid, it must be voluntary. Which of one the following situations is where the CRA may still consider your application voluntary and valid:
a. You knew or were aware that the CRA would take action against you with respect to the information being disclosed before submitting your application.
b. The CRA has decided to conduct an audit against you, or a person associated with you with respect to the information being disclosed, or against a third party, where the impact of the audit against the third party is sufficiently related to your disclosure. However, you have no knowledge about the audit at the time of your application.
c. The CRA has received information regarding your involvement in tax non-compliance and your disclosure is related to the information.
d. You used to be unwilling to use the VDP but your accountant has changed your mind.
13. For your VDP application to be valid, one of the conditions is that it must be complete. Regarding this condition, which one of the following statements is false:
a. For your application to be valid, you must submit all relevant information and documentation needed to correct your non-compliance at the time of submitting the application, with no exception.
b. Each application will be reviewed on its own merits when it comes to this condition.
c. If you cannot submit all the needed information or documentation due to extraordinary circumstances, you may still send your application with a request for an extension to provide the information or documentation.
d. Even if the books and records for certain years no longer exist, your application may still be considered complete as long as the CRA is satisfied that you have provided all available information and have made reasonable efforts to estimate income amounts related to the years for which documentation is unavailable.
14. The VDP provides three relief categories: the Wash Transactions, the General Program, and the Limited Program. Regarding these three categories, which one of the following statements is true:
a. The Wash Transactions category of relief applies to tax non-compliances involving offshore money laundering.
b. The General Program applies to income tax and GST/HST applications and provides relief from criminal prosecution, all penalties, and partial interest.
c. The General Program applies to income tax and GST/HST applications where the taxpayers want to correct their non-compliance, intentional or unintentional.
d. The Limited Program provides relief from criminal prosecution, all penalties and interest.
15. The Limited Program is generally for disclosure of non-compliances where there is an element of intentional conduct on the part of the taxpayer or a closely related party. Which one of the following situations may not indicate an intentional element:
a. The taxpayer lives in a wealthy neighborhood.
b. The taxpayer has used offshore vehicles to avoid detection.
c. The dollar amounts involved in the non-compliance are relatively large.
d. The non-compliance involved many years.
II. Questions on Dispute Rules and Processes
16. According to the doctrine expounded in Hickman Motors Limited v. The Queen [1997] 2 S.C.R. 336, which one of the following is not a basic rule in tax dispute resolution:
a. The Minister may proceed on assumptions in making assessments and decisions.
b. The taxpayer bears the initial onus of proof to demolish the Minister’s assumptions.
c. The benefit of the doubt should always be given to the Minister where there is ambiguity.
d. The standard of proof is the civil balance of probabilities.
17. Regarding the standard of proof in taxation, which one of the following statements is false:
a. The standard of proof in taxation is the civil balance of probabilities.
b. The civil balance of probabilities is a standard of proof same as a prima facia case.
c. The civil balance of probabilities is a degree of probability where it is more likely than not that the event or the alleged event occurred.
d. A Tax Court judge may make the decision whether the civil standard of proof is met after all the evidence of both parties is presented at hearing.
18. Regarding Canada’s model of tax dispute resolution as expounded in Hickman Motors Limited, which one of the following statements is false:
a. The Minister makes assessments based on assumptions; and the taxpayer, who bears the initial onus of proof, is required to demolish the assumptions by making out a prima facia case.
b. Where the Minister’s assumptions are demolished, the onus of proof shifts to the Minister to prove the assumptions and defend the assessment.
c. Where the onus of proof shifts to the Minister and the Minister introduces no evidence, the taxpayer is entitled to succeed.
d. Where the Minister introduces his evidence to fulfill his shifting onus of proof, the Court will consider all evidence introduced by both parties and make its decision on the merits of the assumptions.
19. Recent cases like Sarmadi v. Canada, 2017 FCA 131 represent a revision of or departure from the doctrine expounded in Hickman Motors Limited. Regarding this revision in case law, which one of the following statements is false:
a. The Minister can no longer plead those matters as assumptions that are exclusively or peculiarly within the knowledge of the Minister.
b. This revision is not favorable to taxpayers.
c. The Minister’s assumptions can only be demolished where the standard of balance of probabilities is met.
d. Where the facts are within the knowledge of the taxpayer, the burden of proof does not shift to the Minister whether his assumptions are demolished.
20. What makes tax litigation special is the privilege of the Minister’s assumptions; where an unproven allegation is pleaded as Minister’s assumption, it has the effect of reversing the onus of proof and imposing the onus on the taxpayer to disprove the assumption. However, there are strict rules on the pleadings of Minister’s assumptions. Regarding these rules, which one of the following statements is false:
a. The Minister cannot plead those matters as assumptions that are exclusively or peculiarly within the knowledge of the Minister.
b. The assumptions should be stated clearly, accurately, and adequately so that the taxpayer has no difficulty in understanding them.
c. The pleadings of assumptions may include, but not limited to, facts, law, application of law, and evidence.
d. The Minister may only plead those facts that were assumed by the Minister in assessing the taxpayer, not new facts raised subsequent to the assessment.
21. As a taxpayer challenging the assessment, you are required to “demolish” the Minister’s assumptions to discharge your initial onus of proof. The court has suggested three ways you may demolish the Minister’s assumptions. Which one of the following may not be sufficient to demolish the Minister’s assumptions:
a. You demonstrate that the assumptions are wrong.
b. You demonstrate that the assumptions do not support the assessment even if they are correct.
c. You demonstrate the Minister did not actually assume the facts, as pleaded, in assessing you.
d. You demonstrate the Minister did not actually assume the facts, as pleaded, in assessing you at the audit stage.
22. Onus of proof or burden of proof is the obligation of a party in a dispute to provide evidence to support its allegations. Regarding the Minister of National Revenue’s onus of proof in tax litigation, which one of the following statements is false:
a. The Minister bears no onus of proof except in cases where the tax legislation explicitly imposes the onus of proof on the Minister.
b. By virtue of Hickman Motors Limited v. The Queen [1997] 2 SCR 336, where the Minister’s assumptions have been “demolished” by the taxpayer, the onus of proof shifts to the Minister.
c. The Minister bears the onus of proof for any facts they rely on in defending the assessment that are not pleaded as assumptions.
d. The Minister bears the burden of proof where the gross negligence penalty is imposed.
23. Generally, tax disputes may go through three stages: audit, objection, and appeal. Regarding the audit stage, which one of the following statements is false:
a. An audit is an investigation conducted by the CRA against the taxpayer and usually results in a reassessment.
b. An audit is a process for the CRA to establish a non-compliance case against the taxpayer and it is a stage that usually creates tax disputes rather than a forum designed to resolve them.
c. The taxpayer being audited has the opportunity to make representations to the auditor during the process.
d. All audit conclusions are based on evidence.
24. The CRA normally sends an audit notification letter by mail to inform you that you have been selected for an audit. Regarding the audit, which of the following information may not be contained in the letter:
a. the taxpayer who is to be audited—you individually, your corporation, your trust, or another entity;
b. the type of tax and the year(s) for which the audit is to be conducted;
c. the method of audit to be applied in the audit;
d. documents and information you need to prepare and submit for the audit.
25. Most income tax and GST/HST audits result in adjustments and reassessments. In such cases the auditor will issue you a proposal letter outlining the audit conclusions and proposed adjustments when the field audit work is completed. If you do not agree with any part of the proposal, which one of the following responses may work for you:
a. You file an objection against the proposal letter.
b. You provide explanations and documentary evidence to show that the audit findings and conclusions are wrong.
c. You ask the auditor to provide evidence to prove the conclusions on which the proposed adjustments are based.
d. You write to the auditor and argue that the proposal is unfair.
26. The CRA has applied various methods of audit (or methods of assessment) in audits to detect non-compliance. Regarding the methods of audit, which one of the following statements is true:
a. The net-worth method is the same as the deposit method (or bank deposit analysis).
b. The net-worth method and the deposit method are contradictory to each other and so they cannot be applied at the same time in assessing a year.
c. If the method of assessment applied by the CRA is unfavorable to you, you may propose an alternative method that you think is more reasonable.
d. If you do not agree with an assessment which is based on a certain method of audit, you may challenge it by showing the problems in the application of the method.
27. Regarding the sales analysis method, which one of the following ratios is least likely to be used by the CRA to project unreported sales:
a. sales to cost of sales
b. sales to the business owner’s net-worth increase
c. sales to hours worked
d. cash sales to non-cash sales
28. The net-worth method, also known as net-worth analysis or net-worth assessment, is a calculation model used by the tax authorities to estimate a taxpayer’s unreported income. Regarding the bases for estimating the taxpayer’s total income and unreported income for a year, which one of the following statements is true.
a. The net-worth method relies on two bases to estimate the taxpayer’s total income and unreported income for a year: his/her world-wide increase in net-worth and personal expenditures.
b. The net-worth method relies on two bases to estimate the taxpayer’s total income and unreported income for a year: his/her Canadian increase in net-worth and personal expenditures.
c. The net-worth method relies on three bases to estimate the taxpayer’s total income and unreported income for a year: his/her worldwide increase in net-worth, personal expenditures, and business expenditures.
d. The net-worth method relies on three bases to estimate the taxpayer’s total income and unreported income for a year: his/her worldwide increase in net-worth, personal expenditures, and unreported business expenditures.
29. Regarding an individual’s net-worth increase, which one of the following statements is false:
a. Net worth means the net amount of assets after subtracting liabilities.
b. Net-worth increase for a year is calculated through a comparative balance sheet covering two or more years.
c. Net-worth increase for a year cannot be calculated by looking at the total assets and the total liabilities of the year.
d. Net-worth increase for a year means is the total amount of assets of the year after subtracting the total amount of assets of the previous year.
30. By virtue of the provisions of 152 (4)(a) of the Income Tax Act and 298(4) of the Excise Tax Act. the CRA may make a reassessment for a year beyond the normal reassessment period, if it is determined that the taxpayer has made any misrepresentation that is attributable to neglect, carelessness, wilful default, or fraud in filing the return.
Which one of the following situations is not considered a misrepresentation, neglect, carelessness, wilful default, or fraud in case law:
a. The taxpayer mistreated or mischaracterized a transaction based on what he truly believed to be the right thing to do after a careful assessment of the situation.
b. The taxpayer failed to review a tax return before signing it.
c. The books and records provided by the taxpayer are inconsistent with the reported income.
d. The taxpayer is unable to provide the corporation’s financial statements for the years it was in operation.
31. Filing an objection is the next step for you if you do not agree with the assessment or reassessment resulting from the audit. Regarding the nature of objection, which one of the following statements is false:
a. Audit and objection are separate processes and different in nature because an audit is an action taken by the CRA to challenge your tax filings (or no filing), while the objection is a process for you to challenge the assessment or reassessment resulting from the audit.
b. The confirmation of an assessment by the Minister at the objection stage is part of the assessment process.
c. Objection is an appeal process administered by a tribunal independent from the CRA.
d. Objection is an administrative appeal process.
32. If you are dissatisfied with the result from your objection, your next step is to file an appeal to the Tax Court of Canada. Regarding the Tax Court’s power, which one of the following statement is false:
a. The Tax Court’s power to hear appeals is generally limited to determining the validity of the assessment or reassessment (including determination or redetermination) in dispute.
b. The Tax Court may uphold the assessment, vacate the assessment, or reassess the taxpayer for some other amounts based on its conclusions.
c. The Tax Court may uphold the assessment, vacate the assessment, or direct the CRA to reassess the taxpayer for some other amounts based on its conclusions.
d. The Tax Court does not have the power to make decisions and provide relief for taxpayers on the basis of fairness or CRA’s misconduct.
33. A major difference between an objection and an appeal is that documentary evidence is usually the type of evidence the appeals officer relies on in making their decisions, while witness evidence plays an important role in the appeal at the Tax Court. Regarding witnesses at the Tax Court, which one of the following statements is false:
a. To discharge your burden of proof as taxpayer, you should normally attend the hearing as a witness; and other individuals with direct knowledge of the matter should also be called to give witness evidence at the hearing.
b. The Tax Court can draw an adverse inference against a party who does not call a material witness over whom they have exclusive control and does not give a reasonable explanation.
c. In some cases where the Income Tax Act does not require supporting documentation, credible oral evidence from the taxpayer is sufficient to demolish the Minister’s assumptions, notwithstanding the absence of records.
d. The Tax Court usually assesses the credibility of a witness on the basis of inconsistencies rather than the attitude and demeanour of the witness.
34. The Tax Court of Canada hears appeals under either the general procedure or the informal procedure. Regarding the two different procedures, which one of the following statements is false:
a. If your appeal qualifies for the informal procedure, you may elect to use the informal procedure.
b. If your appeal qualifies for the informal procedure but you don’t elect to use it, you will have to go through the general procedure.
c. If your appeal does not qualify for the informal procedure, you may make an election to use the informal procedure and get the relief you want without a limit.
d. Whether you qualify for the informal procedure will depend on the amount of tax and penalty in dispute.
35. In relative terms, the informal procedure is a simplified and less formal process while the general procedure is more formal and involves more legal steps in the appeal. Which one of the following steps applies to both procedures:
a. The applicant pays the filing fee.
b. The parties exchange a list of documents.
c. The parties apply jointly or unilaterally for a hearing date.
d. The respondent files a reply to the appellant’s notice of appeal.
III. Questions on commonly disputed issues and legal tests
36. The Tax Court of Canada has generally applied a two-step approach to determining whether a worker is an independent contractor or employee of the payor. The first step is to determine the subjective intent of each party to the relationship, and the second is to apply the traditional four-in-one test established in Wiebe Door Services, [1986] 2 CTC 200 to ascertain whether an objective reality sustains the subjective intent of the parties.
Which one of the following factors is not a part of the traditional four-in-one test:
a. control
b. duration of the work or contract
c. ownership of tools
d. chance for profit and risk of loss
37. Assuming that the CRA has raised an assessment against you personally for a corporation’s unremitted GST/HST because you were once a director of the corporation, which one of the following arguments or reasons does not provide a legal basis for you to challenge the assessment:
a. You were not a director of the corporation at the time the tax liability arose.
b. You exercised due diligence.
c. The assessment against you was issued more than two years after the corporation was dissolved.
d. Your shareholding in the corporation is under 10%.
38. Assuming that the CRA has raised an assessment against you personally for your corporation’s tax debt because they determined that the corporation had transfered property to you, which one of the following arguments or reasons does not provide a legal basis for you to challenge the assessment:
a. The underlying assessment against your corporation was wrong or invalid.
b. There was actually no transfer of property from your corporation to you.
c. The transfer did not take place in the year when your corporation’s tax liability arose.
d. Your corporation received adequate consideration for the property transferred.
39. To determine whether a taxpayer’s conduct amounts to gross negligence and justifies the penalty under Subsection 163 (2) of the Income Tax Act and/or Section 285 of the Excise Tax Act, the court generally looks at four factors. Which one of the following factors is not among the four:
a. The taxpayer’s wealth accumulated over the years.
b. The opportunity the taxpayer had to detect the error or misrepresentation.
c. The taxpayer’s education, experience and apparent intelligence.
d. The taxpayer’s genuine effort to comply.
40. Individual buyers of new housing are entitled to GST/HST new housing rebate if certain conditions are met. One of the conditions is that the housing must be purchased by individuals for use as their or their relations’ primary place of residence. Where the taxpayer’s application for the rebate is disallowed on the basis that this condition is not met, which one of the following factors is not among the CRA’s considerations:
a. whether the new housing was designated as principal residence in the T1 return of the year;
b. how long the new housing was occupied;
c. whether the mailing address was changed; and
d. whether the sufficient personal effects were moved in.
41. Regarding the rules on whether a business is entitled to claim GST/HST input tax credits (ITC), which one of the following is false:
a. The claimant must have acquired the supply.
b. The GST must be payable or was paid by the claimant on the supply.
c. A principal is entitled to claim ITCs in respect of supplies purchased by an agent on its behalf only if the agent is a GST registrant.
d. The claimant must have acquired the supply for consumption or use in the course of its commercial activity.
42. In accordance with the Income Tax Act, there are certain requirements to be met for a taxpayer to claim an expense deduction in computing business income. Which one of the following is among the requirements:
a. The expense had been paid for at the time the taxpayer made the claim.
b. The expense must have been incurred by the taxpayer.
c. The expense must have been incurred for the purpose of earning income from the business.
d. The amount of the expense must be reasonable.
43. Which one of the following concepts had been commonly used as the test to determine whether a taxpayer’s activities constituted a source of income before the landmark case Stewart v. Canada, 2002 SCC 46:
a. commercial intent
b. the taxpayer’s intended course of action
c. reasonable expectation of profit; or
d. conducting activities in a commercial manner.
44. The assessment of a shareholder benefit against a taxpayer under subsection 15(1) of the Income Tax Act is one of the most contentious issues in taxation. The purpose of the subsection is to prevent shareholders from extracting wealth from a corporation without attracting taxes. Regarding the application of the subsection, which one of the following statements is true:
a. The assessment of shareholder benefit is automatic in cases where income is found to be underreported
b. The assessment of shareholder benefit is automatic in cases where the business expenses claimed cannot be unsubstantiated.
c. Shareholder benefit should be imposed in any cases where bookkeeping/accounting errors result in an overstated balance of the due-to-shareholder account or the shareholder loan account.
d. For a benefit to be conferred on a shareholder, there must be evidence suggesting that the benefit was received by that shareholder.
45. For the purpose of determining whether a gain realized on sale of real property is a capital gain or business income, which one of the following factors is the least considered by the court in making its decision:
a. the length of the ownership period;
b. the size of the property;
c. the circumstances giving rise to the sale of the property; and
d. the taxpayer’s motive regarding the sale of the property at the time of purchase.
46. Under the Excise Tax Act, the term “builder” is given a broader definition than people commonly think. Regarding this definition for GST/HST purpose, which one of the following statements is false:
a. An individual can never be determined to be a “builder” as the definition under the Act does not include individual buyers or sellers.
b. An individual may be considered a “builder” if the individual has engaged another person to carry on the construction of new housing, has an interest in the real property at the time of the construction; and has engaged another person to carry on the construction in an adventure or concern in the nature of trade.
c. An individual may be considered a “builder” if the individual has acquired an interest in a housing unit at a time when it is under construction and has acquired the interest in an adventure or concern in the nature of trade.
d. An individual may be considered a “builder” if the individual has acquired an interest in the housing unit before it has been occupied by an individual as a residence, has acquired the interest for the primary purpose of leasing it to a person who is not an individual using it for personal purposes, and has acquired the interest in the course of a business.
47. Under our tax system, taxpayers’ tax liabilities are based on their residency. Generally, a resident of Canada is subject to Canadian taxes on their worldwide income, while a non-resident is only subject to Canadian taxes on income from sources inside Canada. Which one of the following statements regarding an individual taxpayer’s residency for tax purpose is true in terms of tax law:
a. If your spouse is a resident of Canada, you must be a resident of Canada too.
b. If you filed your tax return and paid taxes as a resident of Canada for a year, you cannot argue, later when you get audited, that you were in fact a non-resident of Canada in that year.
c. Deemed residents do not include those who sojourn in Canada for a total of 183 days or more in any calendar year.
d. Deemed non-residents are those who are factual or deemed residents of Canada but determined to be residents of other countries as a result of the application of the tax treaties Canada signed with these countries.
48. A Canadian private corporation carrying on an active business enjoys various tax benefits; however, in some cases, it is not that easy to make the determination of whether a business is an active business. Which one of the following corporations may be considered carrying on an active business?
a. A corporation with a sole shareholder-employee earns income from renting long-term housing.
b. A corporation with four full-time employees plus three part-time employees, earns income from renting long-term housing.
c. A corporation with a sole shareholder-employee earns income from Airbnb hosting.
d. A corporation with a sole shareholder-employee provides office assistant service to an executive of another company and the assistant service used to be performed by an employee.
49. A taxpayer may deduct employment expenses in computing income; however, there are requirements that need be met in order for an expense to be deductible. Which one of the following conditions is not a required for the purpose of claiming an employment expense:
a. The taxpayer must have incurred the expense.
b. The money used to pay the expense must be from employment.
c. The expense must be for the purpose of the employment.
d. The employment contract must require that the employee pay for the expense.
50. A business investment loss (BIL) is a capital loss from the disposition of a share of or a debt owed by a small business corporation; our system provides a more generous tax treatment for BIL to encourage investment in small business corporations. Regarding the claim of a business investment loss, which one of the following statements is false:
a. A small business corporation for the purpose of claiming BIL is a Canadian-controlled private corporation that employs not more than five employees.
b. A small business corporation for the purpose of claiming BIL is a Canadian-controlled private corporation that carries on an active business.
c. A taxpayer is not entitled to claim BIL from the disposition of a debt owed by or a share of a small business corporation unless the debt or share was acquired for the purpose of gaining or producing income.
d. A taxpayer may claim BIL from the the disposition a debt owed by or a share of a small business corporation and the disposition may be to an arm’s-length person or deemed to have occurred as long as certain conditions are met.
Now that you have finished the test, how do you feel about your performance? If you are not confident about your answers, the book Resolving Your Tax Issues; The Processes and Strategies has all the information to answer the test questions. If you are still unsure about the answers after going through the book, please email us and we will send you all the answers.