Chapter 1
Introduction
Areas of Practice • Why study taxation?
• Four Areas of Practice:
and Role of the • Compliance
Professional • Tax planning
Accountant • Legal interpretation
• Tax appeals and tax litigation
• Role of professional accountant in tax matters
2
Role of the
Professional
Accountant in
Tax Matters
3
Tax Principles Classification of Taxes:
• Basis of the tax
and Concepts • Head tax, income tax, wealth tax, commodity
tax, user tax, tariff tax, transfer tax, or business
transfer tax
• Incidence of the tax
• Nature of the tax
4
Tax Principles Desirable characteristics of an income tax:
• Horizontal equity
and Concepts
• Vertical equity
• Neutrality
• Flexibility
• Certainty
• Simplicity and compliance
• Feasibility and efficiency
5
Introduction • Approaches to defining income (not defined
in the Act):
to Income
• The economist’s perspective
Tax • Role of GAAP
6
Important • Doctrine of constructive receipt
concepts within • Income vs. capital
the Act • Aggregation formula
• Sourcing and tracing of income
7
Computation of
Income
© 2014 McGraw-Hill Ryerson Ltd.
Calculation of Tax Division B
Subsection 3(1)
Liability
Net Income for Tax Purposes
Division C deductions
Sections 110–114.2
Taxable Income
Subsections 2(1), 2(2)
Division E & E.1
Sections 117–127.55 Tax Liability
9
The Canadian Tax • History and Legislation
• Brief history of the Income Tax Act
System
• Constitutional basis for income taxation
• The Federal budgetary process
10
The Federal
Budgetary
Process
11
Administration • Onus of Proof – Taxpayer
• Appeals
and
• Administration and Enforcement – CRA
Enforcement • Tax Evasion, Avoidance, and Planning
of the Act
12
Tax Planning, Tax Planning Tax Avoidance Tax Evasion
Taxpayer Goal To favourably Deliberate Avoid taxes by
Tax Avoidance, reduce taxes planning of events failing to disclose
payable within and transactions to complete and
and Tax object and spirit of avoid taxes accurate
Evasion law information
Legality Legal Not illegal; Illegal; criminal
transactions can be offence; civil
ignored if wrongdoing
successfully
challenged
Penalty None Arrears and Fine, possible
interest plus taxes imprisonment,
owing and arrears, interest
possible penalties plus taxes, and
owing civil penalties
13
Interpretation Considerations: • Contextual Approach
• Precision • Form versus substance
of Tax • Plain and obvious • Exceptions override
Legislation meaning general
• Definitions in the Act • Specific words
• Meaning and followed by general
distinction in words • Precedents
commonly used in the • Interpretation Act
Act
• Intention of
Parliament
• Remission orders
14
Structure of
the Income
Tax Act
15
The Income How do I reference the Act?
Tax Act Section – subsection – paragraph – subparagraph – clause
6(1)(b)(i)(A)
16
Related • Historical footnotes
References • Related matters
• Draft legislation: Pending amendments
• Income tax application rules
• International tax conventions or treaties
• Income tax regulations
17
Other • Judicial decisions (common law)
• Forms ([Link]/en/[Link])
Interpretive • Canadian Revenue Agency (CRA) publications
Sources • Information Circulars
• Interpretation Bulletins*
• Advanced Tax Rulings
• Technical Interpretations
• Information Booklets
• Income Tax Technical News*
• Income Tax Folios
• Technical notes and explanations
• GAAP
* Gradually being replaced by Income Tax Folios
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