Chapter 3

Liability For Tax

© 2007, Clarence Byrd Inc. 1

Basic Charging Provision
 Meaning Of Person
 Individual
 Corporation

 Trust

 Taxation Year
 Individuals
 Corporations

 Trusts

© 2007, Clarence Byrd Inc. 2

 Basic Charging Provision
 Meaning Of Taxable Income

 Residence Vs. Citizenship

 Canada
 U.S.

© 2007, Clarence Byrd Inc. 3

Residence Of Individuals
 The average Canadian
individual whose job,
family, dwelling place,
and other personal
property are all in
Canada, would clearly
be a Canadian resident
and, as a result, he
would be liable for
Canadian taxation on
his worldwide income.

© 2007, Clarence Byrd Inc. 4

 Temporary Absence From
Canada
 Basic Ties
 Dwelling
 Spouse Or
Common-Law Partner
 Dependants

© 2007, Clarence Byrd Inc. 5

Temporary Absence From
Canada
 Other Considerations
 Personal Property
 Social Ties
 Economic Ties
 Health Card, Driver’s
License
 Vehicle Registration
 Passport
 Canadian Unions Or
Professional
Associations
© 2007, Clarence Byrd Inc. 6
 Part Year Residence
 Taxation Basis
 Worldwide Income
 Pro Rata For Year

 Entering Canada
 Usual Immigration Rules

© 2007, Clarence Byrd Inc. 7

Part Year Residence
 Departing
Canada: Latest
Of:
 Departure Date
 Departure Of
Spouse And
Dependants
 Establishment Of
New Residence

© 2007, Clarence Byrd Inc. 8

 Deemed Residents
1.Sojourners in Canada for 183 days or
more.
2.Members, at any time during the year, of
the Canadian armed forces when stationed
outside of Canada.

© 2007, Clarence Byrd Inc. 9

 Deemed Residents
3.Ambassadors, ministers,
high commissioners,
officers or servants of
Canada, as well as
agents general, officers,
or servants of a
province, provided they
were Canadian residents
immediately prior to
their appointment.
© 2007, Clarence Byrd Inc. 10
 Deemed Residents
4. An individual performing
services, at any time in the
year, in a country other than
Canada under a prescribed
international development
assistance program of the
Government of Canada,
provided they were resident
in Canada at any time in the
3 month period preceding
the day on which those
services commenced.

© 2007, Clarence Byrd Inc. 11

 Deemed Residents
5. A child of a deemed
resident, provided they
are also a dependant
whose net income for
the year was less than
the base for the basic
personal tax credit
($8,929 for 2007).

© 2007, Clarence Byrd Inc. 12

 Deemed Residents
6.An individual who was at any time in the
year, under an agreement or a convention
with one or more other countries, entitled
to an exemption from an income tax
otherwise payable in any of those
countries, because at that time the person
was related to, or a member of, the family
of an individual who was resident in
Canada.

© 2007, Clarence Byrd Inc. 13

Residence Of Corporations

 Incorporated In Canada After April

26, 1965
 Deemed Resident

© 2007, Clarence Byrd Inc. 14

Residence Of Corporations

 Incorporated In Canada Before April

27, 1965
 Deemed Resident If:
 Was Resident At Any Time
 Carried On Business In Canada

© 2007, Clarence Byrd Inc. 15

Residence Of Corporations

 Incorporated Outside Of Canada

 Mind And Management Of Company

© 2007, Clarence Byrd Inc. 16

 Residence Of Trusts

 Choices
 Beneficiaries
 Assets

 Management

© 2007, Clarence Byrd Inc. 17

 Taxation Of
Non-Residents
 Employment In
Canada

 Carried On
Business In
Canada

 Disposition Of
Taxable
Canadian
Property © 2007, Clarence Byrd Inc. 18
 Concept Of Income
 Economist’s View
 Not Very Specific
 Based On Wealth Or Assets
 Accountant’s View
 Recognize Revenue
 Match Expenses
 GAAP Based

© 2007, Clarence Byrd Inc. 19

 Concept Of Income
 CRA View
 Employment Income
 Business Income

 Property Income

 Taxable Capital Gains

 Other Inclusions And Deductions

© 2007, Clarence Byrd Inc. 20

 Section 3 Rules
ITA 3(a) Non-Capital Positive ITA 3(b) Taxable Capital Gains
Sources Of Income Less Allowable Capital Losses

ITA 3(c) Subtract Subdivision (e) Deductions

From The Sum Of ITA 3(a) And 3(b)

ITA 3(d) Subtract Non-Capital Losses

Net Income For Tax Purposes

© 2007, Clarence Byrd Inc. 21

 Tax Planning Principles
 Introduction
 Tax Avoidance Or
Reduction
 Private Health Care
 Lifetime Capital Gains
Deduction
 Discounts On Employer’s
Products
 Lifestyle Benefits

© 2007, Clarence Byrd Inc. 22

 Tax Planning Principles
 Tax Deferral
 Registered Pension Plans
 Tax Shelter Arrangements

© 2007, Clarence Byrd Inc. 23

 Tax Planning
 Income Splitting
 A. No Splitting
 $483,548 Income Taxes = $131,212
 B. Individual And Spouse
 $241,774 Each Taxes =
$122,194
 C. Individual, Spouse, And Two
Children
 $120,887 Each Taxes =
$104,160
© 2007, Clarence Byrd Inc. 24
 Tax Planning
 Tax On Split
Income (“Kiddy
Tax”)
 Under 18
 Certain Types Of
Income Taxed At
29%
From First Dollar
 Limits Income
Splitting
© 2007, Clarence Byrd Inc. 25