Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
1) Which of the following is not considered to be a separate entity
for tax purposes in Canada?
1) _______
A) Proprietorships B) Corporations
C) Individuals D) Trusts
2) Which of the following attitudes and actions will help
decision-makers develop an efficient approach to taxation?
2) _______
A) Tax costs to a business should be regarded as controllable
expenses, much like product costs and selling costs.
B) All managers should own a copy of the Income Tax Act.
C) Functional managers should not be held responsible for the
tax effects of decisions within their divisions.
D) Cash flows should be considered from a before-tax
perspective when making decisions.
3) Which of the following statements is true? 3) _______
A) Payment of the return on equity is deductible by the
corporation and is a form of business income for the
individual.
B) Payment of the return on equity is not deductible by the
corporation and is a form of business income for the
individual.
C) Payment of the return on equity is not deductible by the
corporation and is a form of property income for the
individual.
D) Payment of the return on equity is deductible by the
corporation and is a form of property income for the
individual.
4) When assessing the value of a corporation, the most relevant
information that decision-makers normally consider is
4) _______
A) the potential for before-tax profits.
B) cash flow before-tax.
C) the current rate of corporate tax.
D) the potential for after-tax profits.
5) Income tax is calculated for which of the following jurisdictional
groups?
5) _______
A) Municipal, provincial, and federal
B) Municipal, federal, and international
C) Municipal, provincial, and international
D) Provincial, federal, and international
6) Two investor corporations may not enter jointly into which of the
following?
6) _______
A) Proprietorship B) Partnership

C) Separate corporation D) Joint venture
7) Which of the following statements is false? 7) _______
A) Income tax should be considered a controllable cost.
B) The tax cost to a business should not be regarded as a cost of
doing business.
C) Cash flow should be calculated on an after-tax basis.
D) The value of an enterprise should not be based on pre-tax
cash flow.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers
the question.
8) The text book lists four fundamental tax variables that a
manager needs to consider when making business
decisions. These variables are: 1) primary types of income;
2) entities subject to taxation on income; 3) alternative
forms of business and investing structures used by taxable
entities structure; and 4) tax jurisdictions. List the relevant
variables within these four categories.
8) _____________
9) ABC Corporation is in the 25% income tax bracket. John
Adams is an employee at ABC and is in the 40% tax
bracket. The company has offered John a 10% pay raise.
His current salary is $50,000.
Required:
A) Calculate the after-tax cost of the raise to the
corporation.
B) Calculate the after-tax cost of the raise for John.
Show all calculations.
9) _____________
10) Explain what is meant by the statement that 'tax should be
treated as a 'controllable cost''.
10) _____________

1) A
2) A
3) C
4) D
5) D
6) A
7) B
8) Income: Business, Property, Employment, Capital Gains
Entities: Individuals, Corporations, Trusts
Forms of business: Proprietorship, Corporation, Partnership, Limited Partnership,
Joint Venture, Income Trusts
Tax Jurisdictions: Provincial, Federal, Foreign
9) A) Actual cost to ABC: ($50,000 × 10%) × (1 - .25) = $3,750
B) Actual value for John: ($50,000 × 10%) × (1 - .4) = $3,000
10) Just as decision makers in business must control costs such as product, occupancy,
selling, and many others, so should tax costs be regarded as controllable. The
actions and activities of the organization must be analyzed at all levels, and across
departments, to determine the impact on the overall tax cost.

Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
1) The manager at Big Company Corporation has decided to sell a
piece of capital equipment after the company's year-end in order
to avoid paying capital gains tax this year. Which tax planning
method will the manager be using?
1) _______
A) This is a form of tax evasion and is not allowed.
B) Shifting income from one time period to another.
C) Transferring income to another entity.
D) Converting the nature of income from one type to another.
2) Which of the following scenarios illustrates a potential tax
avoidance scheme?
2) _______
A) A shareholder owns two corporations and undertakes legal
steps in order to permit loss utilization between the two
companies.
B) Property transferred between arm's-length parties is valued at
fair market value.
C) A man transfers property to his child at a value less than fair
market value.
D) Dividends received from shares transferred from a wife to her
husband are taxed in the hands of the wife.
3) The manager of Little Company Ltd. has decided to sell a piece of
capital equipment after the company's year-end in order to avoid
paying tax on capital gains this year. The manager is engaging in
3) _______
A) tax evasion. B) tax planning.
C) tax avoidance. D) GAAR.
4) Certain skills are necessary for successful tax planning. One of
these skills is applying the time value of money. Which of the
following is FALSE regarding this skill?
4) _______
A) Applying the time value of money is a tool used for wealth
accumulation.
B) If a taxpayer invests $1,000 for one year at a rate of return of
14% and is subject to a 45% tax rate, the after-tax value of
the investment will be $1,077.
C) If a taxpayer earns an annual return of 12% and is subject to a
40% tax rate, the annual after-tax return is 4.8%.
D) If a taxpayer invests $1,000 at 8% and subsequently earns
$48 in after-tax income on the investment at the end of the
first year, the taxpayer's tax rate is 40%.
5) Which of the following statements regarding GAAR is true? 5) _______
A) The purpose of GAAR is to catch tax evaders.
B) Individuals who organize their affairs in order to pay as little
tax as possible will automatically be subject to GAAR.
C)

not be an
avoidance
transaction if
the taxpayer establishes that it is undertaken primarily for
bona fide business, investment or family purposes."
D) When an avoidance transaction takes place, the
anti-avoidance rule is automatically applied in all
circumstances.
SHORT ANSWER. Write the word or phrase that best completes each statement or answers
the question.
6) Steven James earned $150,000 this year in profits from his
proprietorship, which placed him in a 45% tax bracket.
The rate of tax for Canadian-controlled private
corporations in his province is 15% on the first $500,000
of income. Personal tax rates (federal plus provincial) in
James' province are:
On the first $45,000 24%
On the next $45,000 32%

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6. Global approach
8) a) ($10,000 × 1.12) × (1 - .42) = $10,696
b) $10,000 × .12 × .42 = $504
9) An individual is seeking a beneficial outcome, and therefore, applies an application
that is not specifically prohibited by law. Tax planning
A business is seeking a beneficial outcome, and therefore, does not report a portion
of revenue earned during the year. Tax evasion
Two unrelated companies take steps to become related in order to shift income from
the profitable business to the company with losses. Tax avoidance
10) A. Shifting income from one entity to another
B. Shifting income from one type of income to another
C. Shifting income from one time period to another

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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or
answers the question.
1) Joe is a Canadian citizen. In March of 20X1, Joe was transferred
to the United States with his company. His wife and child moved
with him at that time. Joe chose not to sell his house, and instead,
lends it to his family during the winter months when they visit

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8)
Allison Hill moved to Canada on April 30
th
of this year.
She was born and raised in Belgium, and moved to Canada
to start a career in architecture. She earned $45,000 from
May to December of this year from her new employer.
Prior to leaving Belgium, Allison earned $10,000 of
employment income. She also received $1,000 in
dividends in March and $1,000 in dividends in September
from stocks in a European corporation. Allison's parents
sent her a cheque for $2,000 as a gift for her 25
th
birthday
in August.
Required:
Determine Allison's residency status for Canadian tax
purposes for the current year. How much income is Allison
required to report on her T1 tax return? Explain why any
items have not been included in your calculations.
8) _____________
9) Answer the following questions which pertain to the
administration of the Canadian Income Tax system.
Individuals (who do not carry on a business) must file an
income tax return for the most recent calendar year by
what date?
Individuals who carry on an unincorporated business must
file an income tax return for the most recent calendar year
by what date?
Who is responsible for the filing of a deceased taxpayer's
tax return?
What is the taxation year for an inter vivos trust?
What is the taxation year for a testamentary trust?
A trust must file an income tax return within how many
days of its taxation year-end?
What is the taxation year for a corporation (other than a
professional corporation)?
A corporation is required to file an income tax return
within how many months of its taxation year-end?
9) _____________
10) ABC Corporation purchased inventory from Galaxy W holesalers. The

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