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MGAC50H3- Midterm Exam Guide - Comprehensive Notes for the exam ( 61 pages long!)Premium

61 pages95 viewsFall 2017

Department
Financial Accounting
Course Code
MGAC50H3
Professor
Sathees Ratnam
Study Guide
Midterm

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UTSC
MGAC50H3
MIDTERM EXAM
STUDY GUIDE
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September 6, 2017 Lecture 1: Introduction, Liability for Tax
Lecture changed to Tuesday 7-10 pm in room 212
Chapters 1-5 covered in midterm
If you are not a Canadian citizen and live in Canada, do you have to pay
income taxed in Canada?
o Depends on how long your residency is
How do we know you have an obligation to pay taxes?
Tax legislation (Income tax Act) tells us who has to pay taxes
Government makes changes to rules, write the rules using lawyers, do
loophole testing, change other legislations, CRA applies the rule
Every resident in Canada has to pay taxes (ITA)
Must pay income tax
ITA: An income tax shall be paid, as required by this Act on the taxable
income for each taxation year of every person resident in Canada at any
time in the year
o Taxation year: January to December
o Person: individuals and corporation
o You are liable to pay tax in Canada if you are a resident
Residency is not based on citizenship
Residency types
o Full-time resident
When you have ties to the country
Residency is when you start your life in the country
To be a full-time resident, the tax payer should demonstrate a
continuing state of relationship with Canada
Taxed on worldwide income
Entitled to full amount of the non-refundable credits
o Deemed resident
You don’t intend to live in Canada every year but you spend
more than 183 days in Canada in one year, you get treated
as a full-time resident and get charged income tax for that
year
Resident of another country
If a person is sojourned (temporary residence) in Canada for
183 days or more, then that person is deemed to be a full-
time resident
Taxed on worldwide income
Entitled to full amount of the non-refundable credits
o Part-time resident
If you are only a resident for part of the year
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Evidence of “clean break” or “fresh start” needed
Only taxed on worldwide income earned while a part-time
resident in Canada
For the period of non-residency, only taxed on Canadian
source income, not worldwide income
Entitled to prorated amount of the non-refundable credits
Note that an individual can make a “fresh start” in Canada
and live for more than 183 days, however, still be considered
part time resident, not deemed resident because the stay is
not temporary
o Non-resident
Pays tax under Part 1 of the ITA on certain types of income
only earned in Canada
Not entitled to non-refundable credits unless you report more
than 90% of the worldwide income to Canada
Also liable for withholding tax under part XIII [S212] at a
specified rate
The payer withholds the amount and remits to CRA. Thus, non-
resident does not have to file any tax return with CRA for
passive income (interest, dividends, etc.
Canada has Tax treaties with various countries (e.g. U.S.) to
determine residency status and also to break tie if a person is
considered resident in both countries.
If you come in September 2017 you want to leave in August 2025
o September 2017 December 2017: Part time resident
o January 2018 - December 2018: Full time resident
o January 2017- September 2017: Non-resident
o January 2025 - August 2025: part-time resident
o August 2025 December 2025: Non-resident
Agreements to avoid double taxation between Canada and the U.S.
You are a resident if you have a family in Canada
Break ties when you sell everything and take family with you
o Breaking ties is subjective to how ties are broken
Corporations
o Corporations are either resident or non-resident
o No concept of part time
o If you incorporate in Canada, the Corporation is a resident
o If a corporation is incorporated in another country but you make
strategic decisions in Canada, then the corporation can become a
resident of Canada and liable for tax in Canada
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