• McMaster University

• COMMERCE 4sb3  Midterm Cheat Sheet-2

Chapter 2- Liability for tax
Full-time Residence- Taxed on world-wide income
1. Consideration of full-time resident- Residential tie (Common law
concept) a continuing state of relationship between a person and a place.
To establish residential ties for a “continuing state of relationship”: a)
Significant residential ties: dwelling place, spouse/common-law partner,
dependents, b) Secondary residential ties: personal property, social ties
w/ Canada, economic ties, landed immigrant status,
hospitalization/medical insurance coverage, driver’s license, vehicle
registration, seasonal dwelling, passport, memberships union/
professional organization, c) Other residential ties of limited importance:
mailing address, postoffice box, safety deposit, business cards, phone
listing, newspaper/magazine subscript’n, d) nature of absence from
Canada: intention to permanently sever ties, length of visit/regularity to
Canada, residence ties outside Canada
2. Deemed full-time residence- “sojourned” in Canada in the year for
an aggregate of 183 days or more (temporary connotation)
3. Part-year residence- Taxed on worldwide income earned during part
of the year in which resident in Canada. If ties not considered severed,
the individual remains a full-time resident taxed on worldwide income.
Clean break/Fresh start: Latest of the date in which: a)leaves Canada, b)
spouse/common-law partner and/or dependents leaves Canada, c)
becomes resident of country in which he/she is immigrating
4. Non-resident- Not possible if clean-break not established. Was
employed in Canada, carried on business in Canada, or disposed of
taxable Canadian property taxable on income earned only in Canada.
Canada-US Tax Convention - exempts resident of Canada from US tax
on salaries, wages, and small remunerations (not exceeding $10KUSD)
derived from employment in US so long as ee is present in US <183
days and employer not a resident of US or have a "permanent
establishment or "fixed base" in US.
Liability of corporations for income taxes- No such thing as part-year
resident. When incorp’d, tax year begins.
1. Full-time residence- If not incorporated in Canada, may still be a
Cdn resident under the common law principle that its central mgmt and
control are in Canada.
2. Deemed resident- Incorporated in Canada after April 26, 1965. If
incorporated before April 27, 1965, deemed to be resident if it carried on
business in Canada during any taxation year ending after April 26, 1965
3. Non-resident- Taxable in Canada on its Cdn-source income (Carry on
business in Canada). May be formed for a single business purpose
which, if implemented in a single transaction, would involve no
continuity of activity in the carrying on of business. If sales person is an
ee for corporation in Canada can be considered carrying on business in
Canada.
Chapter 3- Employment income
Employee vs. Self-Employed or Independent Contractor
1. Economic Reality or Entrepreneur Test
a) Control test: Whether individual is directed by someone who is in a
position to order or require not only what is to be done but how it is to
be done (implies employee). CRA, control “exists if person for whom
services are performed has the right to control the amount, nature and
the mgmt of the work to be done and the manner of doing it. Masterservant relationship.
b) Ownership of tools: Supplies neither funds nor equip needed to do the
work (implies employee). However, major tool necessary for some work
is knowledge, expertise or skill of person doing the work. I.e.
Professional consultant. Therefore this test may not be conclusive.
c) Chance of profit/risk of loss: Has a chance of making a profit, risks
incurring a loss from bad debts, damages to assets or delivery delays and
must cover operating costs (evidence of self-employed)
2. Integration or organization test: Economically dependent on the
org? The more dependent, the more he/she will be an employee.
Supplying own desk/office space, business card, contribute in CPP?
3. Specific result test: time test; a person engaged to achieve a defined
objective and is given all the freedom to obtain the desired result
(implies independent contractor). Self employed stay for short period
and move onto next job
Income Inclusion: Gross salary, board &lodging (FMV – any amount
charged to employee), provincial health plan, financial counseling/tax
return preparation, frequent flyer programs through business trips,
>$500 non-cash gifts, group-term life insurance premiums paid by
employer, Director’s fees