Investment Tax

Question 1

You purchased 1000 units in Money market fund at the beginning of the year, the units were priced at a fixed net asset value of $10 per unit. You did not reinvest income. At the end of year, the fund reported distribution of $1.25 per unit in interest income and $0.35 per unit in capital gain. You has an effective tax rate of 45% and held the investment outside RRSP.
How much you will pay in tax on fund?

Answer 1

a. A money market fund distributed interest income to the unit holder on a monthly basis and capital gain at the end of the year
b. At the end of the year, the fund manager issues a T3 supplementary or T5 slip to each unit holder, reporting the interest income and capital gains.
c. T3—trust income allocations and designations—how much you received from mutual funds in Non-registered accounts
e. T5- Investment income, includes interest, dividends, and royalties you earned in tax year

Question 2

T4 - all income slips

Answer 2

i. T4A,pension, retirement, annuity and other income
ii. T4A (OAS) Old age security
iii. T4A(P) – Canada Pension Plan Benefits
iv. T4E – Statement of employment insurance and other benefits
v. T4RIF – income from registered retirement income fund
vi. T4RSP – statement of Registered retirement saving plan

Question 3

Corporation can have nay year end
has 60 days to apy and 180 days to fil
90 days for smal bisinss

Answer 3

Trust, dec 31 usually, 90 days to file and pay

Question 4

Individual T1
Corp T2,
Trust T3

Answer 4

T3 statment of trust income
T4 employment income
T4A CPP OAS
T4RSP RRSP withdraw
T5 investment income 
T2200 statement of conditions of employment
T5007 Social assisance payments ect

Question 5

Deceased Tax payers–Executor file the tax return,
dies on 5 Sep 2021, Apr 30 next year, more than 6 months
dies on Dec 10, June 10, give you 6 month

Answer 5

Late Filing Penalites

Prescribed rate of interet +4%

Question 6

First time filing penalty of late
5% penalty on the balance owing +1% per month for up to 12 month

Second time filing penalty
10% on the balance owing +2% per month for up to 12 month

Answer 6

Unreported income
10% of unported income
50% of the difference between understaed tax and the tax withold on the unreported income

Question 6

first year of late income might be 17% penalyt and unreported income @10%
second year of late income reprot bight be 34% of late penalyt and unreported income of 50%

Answer 6

CLP- 12 months living together or raise child

Seperate: separeate for 90 days

Question 7

c. Gross up – CCPC eligible Fed @15.0198%, Not eligible small biz @9.0301%

Answer 7

Standby charge– biz car for personal use is TAXABLe benefits
- c. The standby charge is reduced when the vehicle is driven primarily for business
keeping non-employment use to less than one -half of the ttl distan

Question 8

employer-paid life insurance

• The premium paid would be considered a taxable benefit
  b. Employer paid premiums— Death Benefits on life insurance policies are tax – free

Answer 8

What about employer-paid health insurance premiums

a. There are none
b. Employer paid premiums
i. —Premiums are fully deductible for the employer
ii. - Premiums are not a taxable benefit for the employee
c. Employee paid premiums
- Any premiums paid by the employee qualify towards a medical expense tax credit.

Question 9

of tax planning strategies

Answer 9

a. Eliminating Tax – earning income within a Tax Fress Savings Account, w.d from TFSA are tax free
b. Reducing tax – the use of income splitting techs to reduce the overall amount of taxes that spouses would pay
c. Deferring tax – can take advantage of potentially lower tax rates in the future

Question 10

Calcualte tax
All source of income - Employ, Business, Investment
- allowable deduction - business expense, RRSP contribution
- get Net Income
- then additiaonal tax deduction on net income —GET TAXABLE INCOME

Calculate the gross amt of tax payable

Answer 10

d. Calculate the amount of gross tax payable
e. Calculate the net tax payable and determine the balance due or refund

f. In step 5, tax credits applied, you may have tax credits from chartable donations, form dividends received from Canadian corporations or from investments in a LSVCC
g. BALANCE DUE OR REFUND==Net Tax payable (Step 5) - tax withheld at source

Question 11

16. What is the automobile allowance rates for 2019 as per CRA?
    a. 0.58 on the first 5000 km driven
    b. 0.52 per km over the 5000 jkm threshold

Answer 11

c. Reimbursements above these rates are considered taxable benefits

Car Allowance is for Employee using Personal Car for Business Purpose

Question 12

19. Who pay the premium on Employee LTD plan?

With Long Term Disability – LTD plans, employees typically pay their own premium in order to ensure that the end benefits (could be received for many years) are received tax free

Answer 12

c. If employer pays the premium, then it’s taxable

Question 12

19. Who pay the premium on Employee LTD plan?

With Long Term Disability – LTD plans, employees typically pay their own premium in order to ensure that the end benefits (could be received for many years) are received tax free

Answer 12

c. If employer pays the premium, then it’s taxable

Question 13

2. You work for qualified CCPC, she earned 1000 stock options by her employers, exercise price $20 and 2 year vesting period. At the time granted, the CCPC was valued at 15, you didn’t pay any fees for the stock options. After 2 years, CCPC was valued at 27 per share, you exercise the options. 16 month later, you sold the 1000 share for 32 each. How much is capital gain?

Answer 13

a. Wrong answer 32-20, multi 1000=12000
b. Correct one 32-27=5*1000=5000
c. CCPC, when you exercise the stock options, you paid CG
d. Non-CCPC, immediate taxable benefits?

Question 13

2. You work for qualified CCPC, she earned 1000 stock options by her employers, exercise price $20 and 2 year vesting period. At the time granted, the CCPC was valued at 15, you didn’t pay any fees for the stock options. After 2 years, CCPC was valued at 27 per share, you exercise the options. 16 month later, you sold the 1000 share for 32 each. How much is capital gain?

Answer 13

a. Wrong answer 32-20, multi 1000=12000
b. Correct one 32-27=5*1000=5000
c. CCPC, when you exercise the stock options, you paid CG
d. Non-CCPC, immediate taxable benefits?

Question 14

4. Tax deduction – this is from GROSS INCOME TO DEDUCT -> get Net income as next step
   a. Contribution to RRSP
   b. Annual Union/Professional dues
   c. Childcare expenses insurred so you can work

Answer 14

d. Disability supports deduction
e. Business investment loss
f. Moving expenses incurred to move closer to a new job
g. Eligible support payments, spousal support, child support
h. Carrying charges and interest expense to earn taxable income
i. Other employment expense

Question 15

b. Be careful here interest, not all report in T5, but this is a bond mutual fund, must be T3 form;
c. If it is interest from individual bond, reported on T5 form

Answer 15

16. Your employer paid life insurance premium $25/months. You passed away while coverage was still in force. Your wife receives the death benefit 250K. which of the following accurately describe the tax situation of these premiums and the death benefit
    a. The death benefit is received tax-free ….
    b. Employer paid premiums were taxable benefit for you

Question 16

20. If you get 1000 dividends in Canadian company vs. America company. Your 40% MRT, how much tax will you save

Answer 16

a. Canadian company – gross up to 1380, tax at 13800.4, get credit 15.02%, net tax payable would 1380 (0.4-15.02%)=344.72
b. USD company – 1000*0.4=400
c. You will save 400-344.72

Question 17

TFSA- Max amount 81500

Answer 17

2015-10,000

2016 -5500

Question 18

d. CDSG beneficiary must be under the age of 49 and be eligible for the disablist tax credit , several and prolonged disability

Answer 18

e. Contributions can be made till the beneficiary turns 59 although CDSG grants can only be received till the end of the beneficiary’s 49 year
f. Max lifetime contribution limit is 200K with no annual limit
g. Grants need to stay in the plan for the minimum of 10 years to avoid being claw back

Question 19

If you redeemed the LABOUR SPONSORED VENTURE Capital CORPROTION (LSVCC) shares after owning them for 7.5 year, you still have to pay back the entire LSVCC tax credit

Answer 19

c. The Income TAX Credit requires that the shares be held for MINIMU OF 8 YEARs to avoid the recapture of federal and provincial tax credit

Question 20

7. What advantage applies to donating publicly listed shares to a charity, where the FMV of shares is greater than the investor’s adjusted cost base?

Answer 20

a. The shares are donated at FMV, you make donation will not have to pay tax on the accrued capital gain, but will still receive a tax credit based on FMV of securities
b. Share cost base is 25, now 100, you donor does not pay tax on the 75 accrued gain, but still get a tax credit based on current FMV of 100

Question 21

8. Tax implication of contributing publicly traded shares in kind to TFSA

Answer 21

a. If FMV> higher than the adjusted cost base, the investor must pay tax on deemed capital gain
b. If FMB < adjusted cost base, you cannot claim the capital loss , same way for RRSP ….????

Question 22

10. In RESP, what is difference btw an EAP and AIP
    d. Accumulated Income payment – if not go PSE, the amount can be transferred from RESP to CONTRIBUTOR’S RRSP in order to defer taxation to defer taxation is known as accumulated income payment

Answer 22

a. Education Assistance Payment (EAP) – payments to an eligible beneficiary attending post-secondary education are paid from Grants and accumulated growth on the principal amounts invested

Question 23

14. Is there a limit on how much a taxpayer can contribute to an LSVCC?
    a. There is no Limit to the amt that an individual can invest in Laboour-Sponsored venture capital corporations – LSVCC

Answer 23

b. However, the federal and provincial government credits are paid only on the first 5000 invested each year
c. 15% on the first 5000 contributed, which results in max federal tax credit of $750

Question 24

When must excess charitable donation tax credits – CDTC be claimed

a. Excess donations can be carried forward up to 5 years,
b. In the year of death, excess credits can be carried back one year, and the deceased’s previous tax return could be adjusted, not automatic, an application would need to be made

Answer 24

c. Except in the year of death and preceding year, when it is 100%, the limit for claiming donations to charities, including Crown gifts, donations to the federal or provincial government, is 75% of one’s net income

Question 25

19. What are the tax implications if assets are gifted to a minor child (under age of 18), resulting in interest, dividend, and capital gain income?

Answer 25

a. Interest and dividends are attributed back to the gifting parent or family member
b. Capital gains do not attribute back
c. TAXATION of Capital Gains stay with Child or Grand Child

in this case, if give assets to kids, give them growth stock, less intersts dividends, but have potential to grow

Question 26

22. What is superficial loss

fake loss, if investment sold at loss then repurchase at any point that is 30 days before or after the sale, then it is superficial loss and cannot claim for tax purpose

Answer 26

a. The end of tax year approaches, many investors are tempted to sell shares at loss, to incur a capital loss for tax purposes then immediately buy them back

Question 27

25. Personal use property
    a. Listed personal property is a specific list of general personal use property that could realistically appreciate. Any losses experienced on these items can be used to offset gains on assets from the same list. Listed personal property includes :

Answer 27

i. Coins
ii. Jewellery
iii. Artwork
iv. Rare manuscripts/books
v. Stamps

Question 28

c. DPSP, contributions along with any growth or income that is received will be tax sheltered until withdrawn by the employee

Answer 28

27. With reference to “Personal use Property”, what is the 1000 rule?
    a. All purchases are deemed to be at amt of no less than 1000
    b. All sales are deemed to be at amt proceeds of no less than 1000

Question 29

c. DPSP, contributions along with any growth or income that is received will be tax sheltered until withdrawn by the employee

Answer 29

27. With reference to “Personal use Property”, what is the 1000 rule?
    a. All purchases are deemed to be at amt of no less than 1000
    b. All sales are deemed to be at amt proceeds of no less than 1000

Question 30

30. To what extent can CPP/QPP income be split between spouses?

Answer 30

a. Spouses are permitted to split their CPP/QPP benefits in retirement according to the length of time that they were together during the contributory period up to a max of 50% of each spouse’ benefit. This rule would prevent a couple form marrying at age 64 and expecting to splt CPP benefits a year later
b. If both spouses are eligible for CPP and they decide to split pensions, then they must both splt their benefit

Question 31

33. For a business to qualify for the small business tax rate on income up to 500,000, what two criteria must it meet?

Answer 31

a. Generate its income from an active business within Canada

b. Be a Canadian -controlled private corporation (CCPC)

Question 32

39. Up to 50% of qualifying eligible pension income can be transferred form one spouse to another (common law partner) as an income splitting measure.

Answer 32

What qualifies if the individual is under age 65?

a. Registered pension payment
b. Canadian under age 65: registered pension payments
c. Canadian age 65 and over: Registered pension payments, plus RRSP and RRIF annuity payments
d. Note w.d from RRSP (not annuity payment income) and OAS, GIX and CPP/QPP payments do not qualify.
e. CPP/QPP income splitting follows slightly different rules and is outlined below

Question 33

40. Specified investment business SIB rules found in the income tax act intended to prevent?

Answer 33

a. Prevent taxpayer form taking advantage of the small business deduction by incorporating a company for the sole purpose of earning passive income such as interest, dividends, and capital gains
b. Specified Investment business is NOT eligible for the small business deduction.

Question 34

41. In what way does “Professional corporation” such as one that a doctor may establish, differ form a ‘personal service business’ (PSB)?

Answer 34

a. Certain professionals, doctors, lawyers…etc, are permitted to incorporate their practice in most provinces.
b. Unlike PSBs, professional corporations are eligible for the small business deduction and applicable tax rates
c. This type of corporation is ideal when the professional’s current income greatly exceeds his or her current needs

Question 35

45. Are fees paid for investment counsel tax deductible?

Answer 35

b. If you used the services of an investment counsellor for specific investment advice, administration, or management of securities, then investor may claim a full deduction for fees, but not commissions paid for the services. Generally, fees are tax deductible if they meet these three criteria:
c. Fees for general financial planning or advice, commissions, registered accounts, or RRSP trustee fees are not deductible

Question 36

46. What are the tax implications if assets are gifted to an adult child resulting in interest, dividend, and capital gain income

Answer 36

a. There is no attribution
b. The interest, dividend and capital gain income would be taxed in the adult child’s hands and would not be attributed back to the gifting parent

Question 37

48. What is CNIL?

Cnil STANDS FOR cumulative net investment loss

Answer 37

a. Cnil STANDS FOR cumulative net investment loss and reduces the available lifetime capital gains exemption.
b. The CNIL balance is the amount by which the total of all investment expenses exceeds the total of all investment income for a given year.
c. Investment expense including carry charges, rental losses, net capital losses, and limited partnership losses.

Question 38

5. Johnny is part of deferred profit-sharing plan (DPSP). He is in 43% marginal tax bracket. He has an option of receiving 25,000 in cash or shares that are worth 25000 with adjusted cost base (ACB) of 15,000. What would be the tax savings if he elect to receive the shares and then immediately sell them rather than receive cash directly?

Answer 38

a. Get cash, fully treated as regular income – 25000 DPSP w/d 43% MRT=10750 tax owing
b. Take stock
1. ACB portion, treated as regular income
1. 15000x43% =6450
2. Capital gain portin
1. (25000-15000)50%X43%=2150
3. Total taxliability: 6450+2150=8600
c. Acutal tax savings 10750-8600=2150

Question 39

6. You gifted 100 shares of ABC corporation to her 10 year-old daughter, Nadine, when the shares were worth $40. You originally purchased the shares for $35. The shares have paid $1 dividdents every year on Jan 1. Nadine is now 15 year-old and has just sold all of the shares at $50 each.

Answer 39

What are the tax consequences of this transaction for you in the current tax year/

a. As the shares were originally gifted from a parent to a minor child, the dividend income will have attributed back to Fiona. $1 X100.
b. While capital gains are taxed in the hands of a minor child who receives gifted securities, any interest or dividend income attributes back to the parent until the child turns 18.
c. So this year you have 100 taxable dividend income
d. When you first gifted the shares to kid, you have to pay tax on the capital gain to date. Cost 35, they were worth 40, yu pay tai on the gain of $5. The new cost to kid is 40
e. When kid sell share, capital gain 1000, half is taxable.
f. Taxation of Capital Gains stays with the child or grandchild

Question 40

10. Normally, contribution to RESP can made till the end of 31st anniversary year and must be closed by end of the 35th anniversary year. What type of plan extends these time frames to 36-40 year respectively?
    a. Specified plan—where disable beneficiary for RESp
    b. To be considered disables, the individual must be eligible to receive the disablity tax credit -DTC

Answer 40

11. Charitable donations tax credit:
    - Up to 100 of one’s net income in the year of death and the preceding year
    - Up to 75% of one’s net income every year other,
    - Excess donation

Question 41

14. You have rare coin for 1800, but it’s not authentic, a very good replica. You just sold the coin for 700, what are the tax implications for this type of loss?
    a. You would have capital loss of 800. Since the coin is considered personal listed property, can use the loss the offset any gains or other listed property

Answer 41

b. All personal use property is subject to the 1000 rule., change that amt to 1000 for tax purposes
c. Listed personal property is a special type of personal use property coz losses on listed personal property can be used to reduce capital gains on other listed personal property
d. Listed personal property includes”’ Coins, Jewelry, Art, Rare manuscripts books, and stamps. –memeorid ared Coin JARS
e. Losses on regular personal use property cannot be used for tax purposes

Question 42

Charitable donations result in following tax credits:

Answer 42

a. Charitable donations of up to 75% of net income qualify for federal tax credit of 15% on the first 200 and 29% on the balance over 200
b. Federal marginal tax rate Is 33% for income earned over the 210,371 thresholds
c. The remainder of the donation would qualify for tax credit of 29%

Question 43

16. For retirees over age 65, RPP payments, RRIF payments or RRSP annuity payment would qualify for income splitting
    a. RRSP withdrawal is a lump sum w/d and would not qualify for pension splitting at any age. However, if RRSP is the form of an annuity that is providing income, then would qualify for income split

Answer 43

b. If you are below 65y.o, eligible pension income includes registered company pension benefits RPP only
c. CPP benefits can only be spit if both spouses are over age 60 and receiving CPP. In this case spouse can spit their CPP/QPP benefit in the retirement according to the length of time they were together during the contributory period, to a max of 50% of each spouse benefit

Question 44

17. Your income is 240,000, exceed 210371, donation 40,000. How much total charitable donation tax credit?

Answer 44

a. First donation 2000.15=30
b. Secondly, your income exceed 210371 threshold – 240000-210371=29629,
1. Then 296290.33=9777.57
c. Thirdly the remaining of 40000- 29629-200= 10171*0.29=2949.59
d. Totoal 30+9777.57+2949.59

Question 45

18. You have RESP, kid drop the post-educating, after repaying the grants and w.d principal amount tax free. You have 70000 remining in accumulated income payment – AIPs. This you hus and wife fall under 25% and 43% MRT, respectively. What is the lowest possible liability – tax and penalty that hus and wife could incur today if make the maximum allowable transfer to RRSP?

Answer 45

a. Accumulated income payments AIP, would be taxed at the contributor’s marginal tax rate + penalty of 20%
b. The tax and penalty are avoided to the extent the contributor transfers the income to his/her RRSP, subject to max of 50,000, provided the investor has the contribution room
c. One of the benefits of contributing jointly with a spouse, is it permits either spouse to transfer the AIPs to either or both spouse RRSP.
d. Step 1 How much AIP exceed the 50,000 can be transfer in RRSP to defer paying tax and avoid paying the 20% penalty
1. 70000-50000=20000 remaining
e. Step 2 remain 20,000X25% marginal tax rate=5000
f. Apply for 20% tax penalty = 20000*0.2=4000
g. Add the tax liability + the penalty =4000+5000=9000

Question 46

25. You bought a vintage car for 500, sold for 3000, what is the tax consequence of this transaction?

Answer 46

a. 1000 rule, cost is 1000, cg =2000

b. If you bought a painting 50 and eventually sold it for 100, thx taxable amt is 0

Question 47

29. You contribute 8000 to RRSp use it to buy provincially registered LSVCC. You are in 43% tax bracket and resides in a province that provides a 15% tax credit on LSVCC purchase. What is the after tax cost of the investment?

Answer 47

a. 8000- savings from RRSp 8000X0.43
b. Need to minus federal tax credit (5000X15&)
c. Need to minus provincial tax credit (5000X15%)
d. There is no limit to the amt that can be invested in LSVCC, however, the federal and provincial government credits are paid only ON THE FIRST 5000 invested each year. The tax credit are
1. Federal 15% on the first 5000 contributed, which results in a max federal tax credit of 750
2. Provincial – similar credit to the federal one

Question 48

31. You loaned kid money, CRA prescribed rate set by 5%, you son must pay the loan back with interest rate of 5% or higher within 30 days after the end of each year the loan is place

if he pay on Jan 31. not count

Answer 48

you have tfsa account, name Alex as beneficiary. If anyone other than the surviving spouse is named as beneficiary, the deceased account ceases to be TFSA, if you deceased your TFSA loses it tax free status , becomes non-registered account. There will be no tax consequence at death
Any income earned after the death is taxable once it reaches the beneficiary hands…