Introduction to Federal Income Taxation in Canada with Study
Guide (2023-2024) 44e By Nathalie Johnstone, Devan Mescall,
Julie Robson (Solutions Manual with Study Guide, All Chapters,
100% Original Verified, A+ Grade)
CHAPTER 1
Introduction
Solution 1: Identify section of the Act
The following summary is discussed in more detail below:
Case Topic Part Division Subdivision Provision
(A) Person ..................................................... XVII — — subsection 248(1)
(B) Donation by individual............................ I E a subsection 118.1(3)
(C) Balance-due day ...................................... XVII — — subsection 248(1)
(D) Life insurance premiums ......................... I B a subsection 6(4)
(E) Capital dividend ...................................... I B h subsection 83(2)
(F) Income tax instalments for individual ..... I I — subsection 156(1)
(G) Qualified small business corporation share I C — subsection 110.6(1)
Reg. Part II,
(H) Information return for dividends ............. — — —
paragraph 201(1)(a)
(I) Definition of testamentary trust. ............. I B k subsection 108(1)
(J) Employee loan. ....................................... I B f subsection 80.4(1)
Disposition of non-depreciable capital
(K)
property ................................................... XVII — — subsection 248(1)
(L) RRSP administration fees. ...................... I B b paragraph 18(1)(u)
(M) Limit on deductible expenses .................. I B f section 67
Taxable dividends received by Canadian
(N)
corporation .............................................. I C — subsection 112(1)
(O) RRSP excess contributions ..................... X.I — — subsection 204.1(1)
(A) Person — Part XVII, subsection 248(1): The term is used throughout the Act, so it is likely to be found
in the interpretation section. The definition is similar to many in the Act in that it does not tell you exactly what a
person is; it tells you what a person includes.
(B) Donation by an individual — Part I, Division E, Subdivision a, subsection 118.1(3): Tax credits are found
in Division E. Credits that are particular to individuals are found in Subdivision a of Division E.
(C) Balance-due day — Part XVII, subsection 248(1): The term has application to all tax filers and, therefore,
should be found in the interpretation section. However, the term has a different meaning depending on the type of
tax filer. For trusts and individuals, specific timing is provided. For corporations, the provision refers to section
157.
(D) Group term life insurance premiums paid by employer — Part I, Division B, Subdivision a,
subsection 6(4): Payments made on behalf of an employee by an employer likely result in income from
employment. Subdivision a includes the provisions for calculating income from employment.
(E) Capital dividend — Part XVII, subsection 248(1): The term is found in subsection 248(1) but a definition
is not actually provided, only a reference. It refers to another section — Part I, Division B, Subdivision h,
subsection 83(2): Capital dividends are tax-free distributions by a corporation to its shareholders, so the provision
is likely to be found in Part I, Division B, Subdivision h that deals with corporations and their shareholders.
(F) Income tax instalments for an individual — Part I, Division I, subsection 156(1): The information that is
required deals with payments to the CRA; therefore this information should be found in Division I dealing with
returns, assessments, payment and appeals. [Some students may also identify subsection 155(1) as dealing with
farmers and fishermen.]
(G) Qualified small business corporation share — Part I, Division C, subsection 110.6(1): The capital gains
deduction that is available for qualified small business corporation shares is a deduction that is available in
computing taxable income and is therefore found in Division C.
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(H) Filing information return for dividends paid — Regulations Part II, subsection 201(1): The Regulations
provide important detail regarding a number of the income tax rules. In order to ensure that individuals are advised
of the information required to be reported on their personal tax returns (and to allow the CRA to ensure that the
income is reported), corporations are required to file slips such as T5s for dividends paid.
(I) Testamentary trust — Part I, Division B, Subdivision k, subsection 108(1): The phrase describes a trust so
it is likely that the definition will be found in Subdivision k dealing with trusts. Section 108 contains definitions
for the subdivision.
(J) Interest-free loan benefit — Part I, Division B, Subdivision f, subsection 80.4(1): Since the amount relates
to an employee, it might be expected that the provision would be found in section 6 (in fact the provision that
requires an income inclusion is found in subsection 6(9)). However, the actual calculation of the amount of income
is found in Subdivision f which contains rules related to the calculation of income.
(K) Disposition of non-depreciable capital property — Part XVII, subsection 248(1): The term “disposition”
is used throughout the Act, so it is likely to be found in this definition section.
(L) Limit on deduction of RRSP administration fees — Part I, Division B, Subdivision b, paragraph 18(1)(u):
At one time, when the fees were deductible, they were considered a carrying charge deductible in computing
income from property. Therefore, the restriction on the deduction is found in section 18 which provides a list of
items that are specifically not deductible in computing income from business or property.
(M) Limit on deductible expenses — Part I, Division B, Subdivision f, section 67: The restriction on the
amount of deductible expenses applies throughout the Act. Therefore, the provision is found in general rules for
computing income that are found in Subdivision f.
(N) Corporate dividend deduction — Part I, Division C, subsection 112(1): The concept deals with a deduction
that is available to a corporation. It might be expected to be found in Division B, Subdivision b dealing with the
calculation of income from property. However, in this case, the deduction is not considered to reduce income from
property but is a general deduction available in computing taxable income.
(O) Excess RRSP contributions — Part X.I, subsection 204.1(1): This is a special tax that is found in the Act
and applies when an individual has contributed more to an RRSP than is allowed by the Act. In this case, the
special tax is intended to discourage people from taking advantage of the benefits of an RRSP beyond those that
are provided for in the rules.
,Solutions to Chapter 1 Assignment Problems 3
Solution 2: Determine Income Using Ordering Rules
[Note to instructors changes to this problem from the prior year include:
Employment Income increased from $72,600 to $78,400; Business loss increased
from 4275 to $400]
Division B — Sec. 3
Par. 3(a) Subdivision a
Sec. 5, 6, 7, 8 Employment income...................................................... $ $ 78,400
Subdivision b
Sec. 9 Property income ............................................................... $ 775
Sec. 9 Rental property income .................................................... 975 1,750
Subdivision d: Miscellaneous sources
Par. 56(1)(a) Employment insurance..................................................... $ 600
Par. 56(1)(a) Retiring allowance ........................................................... 800 1,400
$ 81,550
Par. 3(b) Subdivision c: Net taxable capital gains
Par. 38 Taxable capital gains (net of allowable capital losses)..... 100
$ 81,650
Par. 3(c) Subdivision e: Miscellaneous deductions
Sec. 62 Moving expense ............................................................... $ 1,700
Sec. 63 Child care expense ........................................................... 1,800
CPP enhanced deduction 631 (4,131)
$ 77,519
Par. 3(d) Losses from non-capital sources:
Sec. 9 Business loss ................................................................ (400)
Division B income ....................................................................................... $ 77,119
Division C: Deductions — Sec 111.1
Par. 111(1)(a) Non-capital losses .......................................................................... (600)
Taxable income .................................................................................................................................. $ 76,519
Division E: Basic federal tax — Sec. 118.92
Tax before credits ....................................................................................................................... $ 12,752
Sec. 118 Personal credits..................................................................................................... (2,250)
Sec. 118.7 CPP contribution credit ....................................................................................... (469)
Sec. 118.7 EI premium credit ................................................................................................ (150)
Ssec. 118(10) Canada Employment tax credit ............................................................................ (205)
Sec. 118.2 Medical expense credit ......................................................................................... (9)
Sec. 118.1 Charitable donations credit ................................................................................... (26)
Basic federal tax .......................................................................................................................... $ 9,643
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Solution 3: Identify and Define Words/Terms Found in Section 2
Words and terms found in section 2
(A) Division A of Part I of the Act consists of section 2 of the Act. Section 2 consists of three subsections.
Subsection 2(1):
“taxable income” — This is defined in subsection 2(2).
“taxation year” — Subsection 249(1) contains the definition of a taxation year. For corporations, the taxation year
is the fiscal period of the corporation; for individuals, the taxation year is the calendar year.
“fiscal period” — This is also a defined term, found in subsection 249.1(1).
“corporation” — This word is part of a defined term in subsection 248(1), “corporation incorporated in
Canada”.
“individual” — Subsection 248(1) defines individual as a person, other than a corporation,
“person” — This is also defined in subsection 248(1). This is expanded below.
“calendar year” — This is not defined in the Act. However, the Interpretation Act defines the term in
paragraph 37(1)(a) to mean a period of twelve consecutive months commencing on January 1.
“person” — The definition of person is found in subsection 248(1). Section 248 is an interpretation section and
many of the words and terms used in the Act, which require definition, are found in this section. Person is
defined to include any body corporate and politic, and the heirs, executors, administrators or other legal
representatives of such body.
“resident” — Although the Act includes a definition of deemed residents (subsections 250(1) and (4)), the word
“resident” is not itself defined in the Act. Canadian residents are taxed on their worldwide income. As this
term is fundamental to establishing a liability for Canadian tax, there have been many court cases centred on
the issue of residency. The common law principles which have evolved from these cases are the basis for the
interpretation of this word. Residency is more fully discussed in Chapter 2.
“Canada” — Section 255 defines Canada to include certain sea beds adjacent to the coasts, as well as the airspace
above the geographic boundaries of Canada.
Subsection 2(2):
As mentioned above, subsection 2(2) is itself a definition. This subsection is for the purpose of defining
“taxable income.”
“taxpayer” is found in subsection 248(1). This is any person, whether or not liable to pay tax.
“income for the year” — Section 3 contains the blueprint for the calculation of income. The term “income,”
however, is not defined. Section 3 states: “The income of a taxpayer for a taxation year for the purposes of
this Part is his income determined by the following rules ...” In order to determine income under section 3,
one has to first know what income is. As income is not defined, we again must turn to jurisprudence and
common language. Again, there are numerous court cases over the issue of what constitutes income.
Subsection 2(3):
“employed” — Subsection 248(1) defines this word as performing the duties of an office or employment.
“business” — Subsection 248(1) defines this word to include a profession, calling, trade, manufacture, or
undertaking of any kind whatever, and an adventure or concern in the nature of trade. The definition excludes
an office or employment.
“carrying on a business in Canada” — Section 253 provides an extended meaning of this term, as it applies to non-
residents. This provides a number of criteria to expand when a business will be considered to be conducted in
Canada. However, the term “carrying on a business” is not, itself, defined. Therefore, although we have an
extended meaning of this term legislated by the Act, we will not find a legislated definition of the term itself.
Again, there have been numerous cases disputing whether a business was carried on.
“disposed” — Although the term disposed is not itself defined, “disposition” is defined in subsection 248(1) to be,
in paragraph (a), any event or transaction which entitles the taxpayer to “proceeds of disposition.” “Proceeds
of disposition” is, itself, a defined term found in subsection 13(21) and section 54.
“taxable Canadian property” — This is defined in subsection 248(1) and is quite a lengthy definition. Taxable
Canadian property includes, among other items, real property situated in Canada, shares of private Canadian
companies, and certain partnership interests and trust interests which derive their value principally from these
former two types of property.
“taxable income earned in Canada” — Subsection 248(1) defines this term to mean taxable income determined in
accordance with Division D of Part I, but in no case can this ever be less than nil.
