CPA CFE Taxation Canada 2

Question 1

Under the Income Tax Act, what is the general rule for the tax treatment of capital cost allowance (CCA) on depreciable property?

Accepted Answer

CCA is a discretionary deduction up to the maximum rate prescribed for each class, calculated on the undepreciated capital cost (UCC) of the class using the declining balance method

Answer

CCA must equal the accounting depreciation expense

Answer

CCA is mandatory and must be claimed at the maximum rate

Answer

CCA is calculated on a straight-line basis only

Question 2

When a taxpayer disposes of depreciable property and the proceeds exceed the UCC of the class but are less than the original cost, what tax consequence arises?

Accepted Answer

Recapture of CCA, included in business or property income

Answer

A capital gain

Answer

A terminal loss

Answer

No tax consequence

Question 3

Under the Income Tax Act, what is the attribution rule for income from property transferred to a spouse?

Accepted Answer

Income and capital gains earned on the transferred property are attributed back to the transferor and taxed in their hands

Answer

No attribution rules apply to spousal transfers

Answer

Only capital gains are attributed back

Answer

Attribution only applies if the transfer exceeds $100,000

Question 4

What is the tax treatment of a shareholder benefit under Section 15 of the Income Tax Act?

Accepted Answer

The value of the benefit conferred on a shareholder (other than certain corporate shareholders) is included in their income

Answer

Shareholder benefits are tax-free

Answer

Shareholder benefits are deductible to the corporation but not taxable to the shareholder

Answer

Only benefits exceeding $10,000 are taxable

Question 5

Under the Income Tax Act, what is the General Anti-Avoidance Rule (GAAR) designed to do?

Accepted Answer

Deny tax benefits from transactions that comply with the literal words of the Act but result in a misuse or abuse of the provisions of the Act

Answer

Reduce the overall tax burden for Canadian residents

Answer

Eliminate all tax planning opportunities

Answer

Apply only to non-resident taxpayers

Question 6

For GST/HST purposes, which of the following supplies is zero-rated in Canada?

Accepted Answer

Basic groceries (milk, bread, vegetables, fresh meat)

Answer

Restaurant meals and prepared foods

Answer

Alcoholic beverages

Answer

Snack foods and carbonated drinks