Module 1 summary
Introduction and concept of income
Module 1 is an introduction to the Income Tax Act (ITA). It reviews the reason for its existence and the principles that govern its interpretation. It then focuses on the ITA structure and explains how to search for and interpret its provisions. The module concludes with the study of two basic concepts: first, who must pay tax in Canada; second, what is the concept of income for purposes of the ITA.
• The most desirable characteristics of an income tax are: o horizontal equity o vertical equity o neutrality o flexibility o certainty o feasibility and efficiency
• The most important guidelines for evaluating tax policy are: o equity/fairness o simplicity and compliance o balance o stability o economic growth o international competitiveness
• Since the ITA is used not only to collect taxes, but also to implement social, economic, and monetary policies, it is amended regularly, which explains its complexity.
• Accountants are often faced with ethical questions when preparing tax returns or providing tax advice.
• Tax advisers and preparers should be aware of third party civil penalties under the ITA (section 163.2 — Third Party Civil Penalties and IC 01-1).
• The administration of the ITA is Canada Revenue Agency's (CRA) responsibility. CRA has specific legislated enforcement and administrative responsibilities.
• The Canadian tax system is based on self-assessment. Taxpayers must file T1 income tax and benefit returns on specified dates. Since the Canadian tax system is self-assessing, the burden of proof with respect to the assertions made by the taxpayer in the returns rests with the taxpayer.
• Taxes are deducted at source on employment income. Taxpayers must generally make instalment payments on other sources of income.
• The interpretation of the ITA is easier if you understand its