Income Tax Law and Policy

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Income Tax Law and Policy

• 045.259 02 Winter 2004
• Professor Lorna Turnbull

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Tax is

• Interesting
• Pervasive
• Fun
• In movies
• At heated dinner-table conversations
• In songs

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What is Tax?
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What is Tax?

• Fines and Penalties?

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What is Tax?

• Fines and Penalties?
• Royalty Payments?

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What is Tax?

• Fines and Penalties?
• Royalty Payments?
• Prices?

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What is Tax?

• A compulsory transfer of money from private
  individuals or organizations to the government
  not paid in exchange for some specific good or
  benefit.

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What is Tax?

• What about a lottery ticket?

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What is Tax?

• What about a lottery ticket?
• It cost 1, which is paid to the government, for
  what benefit?

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What is Tax?

• What about a lottery ticket?
• It cost 1, which is paid to the government, for
  what benefit?
• Who buys lottery tickets?

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What is tax about?

• Raising revenue
• Social engineering
• Redistribution of Wealth
• Correct market failures
• Stabilize the economy
• Increase economic growth

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What is tax about?

• Constitutional powers
• Historical context in Canada
• Tax formation process
• Self-assessment nature of the system

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Five elements to tax system

• Base
• Rate
• Unit
• Period
• Administration

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Base

• Three possibilities income, expenditure and
  wealth
• Canada taxes income
• What is income?
• Haig-Simons I C ?W
• Uses (C ?W) definition
• Sources (EBPCGMisc) definition
• s.3

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Rate

• Four brackets with progressive rates
• s. 117 (2)
• Indexed s. 117.1
• Progressive, regressive, proportional
• Marginal rate
• Average rate
• Effective rate

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Unit

• Who pays the tax?
• Individual vs. group (couple or family)
• Canada taxes individual (with a few exceptions)
• US taxes the couple

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Period

• The time period over which the income is measured
• One year
• Calendar year for most taxpayers

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Administration

• Who collects and how
• Self-assessment
• CCRA

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Analytical tools

• Time value of money tax deferral
• Inflation
• Tax incidence
• Simplicity, neutrality and equity
• Horizontal and vertical
• Deductions and credits
• Tax expenditures

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Income Tax Return Assignment

• Complete a 2003 income tax return for a
  hypothetical law student Ms. Joy Taxlawe.
• The forms may be downloaded from the CCRA website
  at
• www.ccra-adrc.gc.ca/formspubs/t1general/2003/manit
  oba-e.html
• PDF 5000-r-03e.pdf
• Also use Schedule 1 and any others you may require