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The following is a series of DRAFT suggestions on how the SIMPIFIED income Tax Act (ITA) should read

FLAT TAX: While a flat tax is a great idea and we already have the mechanism in place to deliver this across CANADA… by way of the HST…. it would be reasonably easy to implement this and abolish the entire Income Tax Act and the Excise Tax Act. However, there are a way too many vested interests in the current system. So, the only hope is to simply SIMPLIFY the Income Tax Act. So the following is where we begin…

DRAFT VERSION BY DAN WHITE
PART I
INCOME TAX
DIVISION A
LIABILITY FOR TAX

Income Tax Act (ITA) Simplified

Income Tax In Canada

All Canadians pay tax on their worldwide income unless they pass the defined test of nonresident status.
See residency test. Section #… “Residency Test.”

Tax payable by persons resident in Canada

  1. All Canadian residents are taxed on their world wide income.
  2. All financial benefits received by a tax payer are taxable income unless specifically exempt.
  3. See definition of taxable income Section #…”Taxable Income.”
  4. See list of exemptions. Section # … “Exemptions from Taxable Income.”

Tax payable by persons non-resident in Canada. Offshore income is taxed at the normal rate except as adjusted by a relevant tax treaty between Canada and the Offshore country.

Filing of tax returns.

All Canadians must file a tax return each fiscal year when they have a tax liability owing or when they receive a demand to file from CRA.

DIVISION B
COMPUTATION OF INCOME
Basic Rules

ITA Simplified

(1) Income for taxation year

Every Individual governed under this ACT shall have as their fiscal tax year; the twelve month period of time beginning on the first day of the second month following their birthday and ending on the last day of the month a full year later.

A Taxpayer’s income is determined by the following rules.

(a) Determine the gross total of all worldwide income for the taxpayer’s taxation year.
(b) Determine the amounts of all worldwide capital gain. See definition of capital gain in Section # … “Capital Gains.”
(c) Determine the amount of taxable benefits in the tax year that a taxpayer has received but is not required to pay for.

(2) Tax Deductions for the taxation year.

(a) Determine the gross amount of allowable tax deductions for the taxation year.

(b) Determine the capital losses for the year.

(c) Determine the personal tax deductions (Tax Credits) for the year. See Section # … “Personal Deductions.”

(3) Calculate Net tax owing.

Net tax owing is the amount of tax owed when tax deductions and tax credits are subtracted from Gross Income from the taxation year.

DIVISION C
COMPUTATION OF TAXABLE INCOME

ITA Simplified

In determining taxable income all income is accepted as equal with the exception of capital gains or losses.

In determining expenses all expenses are deemed to be non discretionary unless documented otherwise.

There are five types of deductible expenses.

  1. Personal.
  2. Business.
  3. Capital
  4. Health, comprised of cure, maintenance and prevention expenses.
  5. Charitable

Business or Capital Expenses are identified by the Terms Active or Passive. Active Business expenses are occurred in the exercise of a business activity.
Passive Expenses are occurred in the nature of investments.

All business expenses must have a documented explanation for how the expense related to the active business activities.

All capital expenses must have a documented explanation of how the expense was related to a growth in net worth.

Assets purchased as part of an active business, must have a stated lifespan to where the asset will be amortized to zero value.

Assets will be depreciated equally over the stated lifespan of the asset. Depreciation is defined as capital cost allowance.

If an asset value goes to zero prior to the stated lifespan, the un-depreciated amount is deemed to be a capital loss.
If the asset is sold, then the sale price shall be original cost, minus depreciation taken minus the sale price the balance left is a capital loss or a capital gain depending on the sale amount.

Any asset obtained for less than its market value will have a tax liability on the difference between what is paid and what it is worth.

Capital gains and loss calculations are effective on the date of acquisition and the date of disposition of the assets.
Health Expenses require adequate corroborating evidence to ensure the expense was justified in either savings to the health care system or to cure an existing health problematic condition. See terms and conditions in Section #… Health Expenses.

Social programs payments are taxed at the regular tax rate unless listed as an “exempted Income” under section # … “exempted Income.”

For charitable donations to CRA approved Charities, 50% of the donated amount can be used to offset against gross income.

Business losses can be carried back three years and forward ten years.

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