Using the Income Tax Act (ITA) for CPA Canada Exams

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Tackling the Tax AOs is a daunting task due to the volume of technicals. Studying the Income Tax Act (ITA) can be tough because it’s dense and complex, with lots of divisions, sub-divisions, sections and sub-sections. This article will give you tips to study tax and help you prepare for tax competencies in CPA Canada exams.

Use memorization 

Like the CPA Canada Handbook, you will have access to the ITA during your exams, but being able to find specific information quickly will be tough due to exam time constraints and the massive amount of information in the ITA. My recommendation is memorization of specific formulas/calculations for quants and common theoretic items, like what are the pros/cons of incorporating. Some examples of commonly tested quants and theoretic items you should memorize include:

  • Tax income/payable – Individual and Corporate (common items added and deducted)
  • CCA formula
  • Residency rules
  • Employee vs Contractor (the tests)
  • Salary vs dividends (common pros/cons)
  • Sole prop. vs partnership vs corporation (common pros/cons)
  • Sale of assets vs shares
  • Loss carry fwd and deadlines
  • Tax filing and payment deadlines
  • Benefits (impact on ‘er and ‘ee)
  • Notice of assessment (NoA)/reassessment
  • Sales tax (HST/GST/ITC)

You don’t need to give references to specific sections of the ITA in your answers; you’re only expected to answer technically correct. For example, if you’re asked to discuss the tax consequences of a company’s potential perks, like parking permits, club memberships, transit pass, you don’t have to refer to specific ITA sections for each. You can simply give explanation of the implications to the company and the employees. The requirement is that your explanations must be accurate (for example, transit pass payment is deductible as a business expense to the company and they are a taxable benefit to the employee). Giving technically incorrect answers will not get you RC nor C.

Know the Income Tax Act (ITA)

While memorizing helps, we know there are lots of tax rules and criteria. Therefore, you need to  know your way around ITA and incorporate usage of the ITA into your study routine and exam writing. The following sections are frequently tested and you should practice navigating to these sections in Knotia:

  • ITA 2(2), ITA 248(1) – Primary definitions
  • ITA 114 – Secondary definitions
  • ITA 3(1) – Defines the computation of income for tax purposes.
  • ITA 9 – Calculation of income from a business or property
  • ITA 18(1) – Limitations on deductions from income
  • ITA 39(1) – Capital gains/losses
  • ITA 118(1) – Personal tax credits.
  • ITA 245(2) – General Anti-Avoidance Rule (GAAR)
  • ITA 250(1) – Residency
  • ITA 150(1.1), ITA 150 (1), ITA 248(1), ITA 165(1) – Filing requirements/deadlines

Capital Cost Allowance (CCA) is also an important section. This is in Schedule II, on the bottom of ITA.

Use the Exam Reference Schedule 

There are several formulas provided to you during both the PEP exams and the CFE. These will save you time from having to memorize or lookup in the ITA. Below is an example of what’s provided on the CFE:

Other information provided in the reference schedule include:

  • How to calculate CCA tax shield
  • The individual federal income tax rates include the ranges with the corresponding tax rates.
  • Common tax credit amounts. Note that the maximum amount allowable is provided.
  • The prescribed interest rate (base rates) for the last 3 tax years, split by quarter.
  • The maximum CCA rates for selected classes. Note here that common classes are provided, but not all. Also, there is not a description of each class, so you need to find this section in the ITA (see where above).

The full CFE Reference Schedule is available on CPA Canada’s website. I recommend downloading, printing and reviewing the full Reference Schedule from CPA Canada’s website and use it during your studies.

Conclusion

Understanding the commonly tested topics and the structure of the ITA are crucial skills for success in CPA Canada exams. The study strategies I outlined above—strategic memorization of key tax formulas, understanding the pros/cons of common tax decisions, and familiarizing yourself with frequently tested ITA sections—will improve your ability to navigate the dense material efficiently under exam conditions. 

Extra resources

More tips on how to succeed in the Tax elective are available here. Extra tax resources are available at Tax Review.