Ch 13 - Impediments to Wealth Accumulation

Question 1

four types of taxable investment income

Answer 1

1. Interest
2. Canadian source dividends and foreign source dividends
3. Capital gains
4. Return of capital

Question 2

Profit or loss from a short sale is considered __ from a tax perspective

Answer 2

Income

Question 3

Four considerations are very important when making tax-loss harvesting trades:

Answer 3

1. The CRA imposes certain limitations
2. Portfolio risk and return profile could change
3. Transaction costs may be prohibitive
4. Portfolio losses may be too great

Question 4

Explain the 3 steps of Crystallization?

Answer 4

• Sell position with capital loss
• Sell number of shares in winning position to cover all of the capital loss in other position in order to use tax loss harvesting.
• Buy back same amount of number of shares in winning position to increase the ACB

Question 5

In which case is the technique of selling the most expensive securities first useful?

Answer 5

When the same investment resides in two or more taxable accounts owned by different people

Question 6

Tax efficiency measures

Answer 6

how much of a pre-tax return an investor keeps after paying tax liabilities on realized or unrealized gains

Question 7

what is the capture ratio

Answer 7

• the relative proportions of after-tax and pre-tax returns

* If portfolio 1 returned 10% before taxes and 9% after taxes, its capture ratio is 90%

Question 8

What are Canadian development expenses (CDEs)

Answer 8

funds spent on drilling and completing oil wells, or sinking or excavating mine shafts

Question 9

How much and for how long is Someone who invests in flow-through shares able to claim as a tax deduction?

Answer 9

all of the upfront costs of the shares

option of carrying the deduction back three years or forward seven years

Question 10

What does a Limited partnership investment tax shelters Provide investors?

Answer 10

A flow-through of expenses from a business for tax deductions

Question 11

alternative minimum tax

Answer 11

Ensures taxpayers pay a minimum amount of tax even if a significant portion of their income is sheltered or reduced by certain deductions

Question 12

The price of an RRB is affected only by changes in

Answer 12

the real interest rate

Question 13

Inflation sensitive assets

Answer 13

• Real Return Bonds
• Real Estate
• Commodities
• Collectibles