Chapter 9.1

Question 1

Most techniques for minimizing taxes incorporate one or more of the three strategic categories:

Answer 1

tax elimination
tax reduction
tax deferral.

Question 2

This tax minimizing technique typically involves the transfer of assets from a person in a high tax bracket to a spouse or child in a lower tax bracket.

Answer 2

Income-Splitting

Question 3

These rules often restrict one’s ability to split income or capital gains among family members to reduce taxes payable by the family group.

Answer 3

Attribution Rules

Question 4

Explain attribution rules for interest and dividends

Answer 4

Interest and dividends cannot be transferred to one’s spouse or minor child for the purpose of income splitting. They will be taxed in the hands of the transferor.

Question 5

Explain attribution rules for Capital Gains

Answer 5

Capital gains triggered on the sale of an asset, originally transferred from one’s spouse, are also subject to income attribution.

Question 6

It should be noted that ________ ______received by a minor child on property from a parent are not currently subject to income attribution.

Answer 6

capital gains

Question 7

Attribution does not occur if…

Answer 7

you lend the funds and charge interest at prevailing prescribed rates or greater. Interest must be paid within 30 days after the end of the year.

Question 8

With the exception of transfers between spouses, all other transfers between related parties are deemed to take place at……
Therefore, capital gains or losses are realized at…..

Answer 8

fair market value

the time of transfer.

Question 9

If you gift money/property to a spouse what taxes would the giver have to pay on investment income?

Answer 9

Investment income or losses and capital gains or losses are attributed to giver.

Question 10

When gifting money to a family member under 18, what taxes are attributed to the giver?

Answer 10

Investment income or losses are attributed to giver; capital gains or losses are not attributed.

Question 11

When gifting money to your child over 18 years of age, what taxes are attributed to the giver?

Answer 11

No attribution occurs. The child would pay the taxes

Question 12

When loaning money to your spouse at the prescribed interest rate, what are the attribution rules with investment income?

Answer 12

No attribution occurs because you’re paying the prescribed interest rate.

In the case when you are not paying the prescribed interest rate, all investment income or losses is attributed to the lender

Question 13

When giving a loan to a spouse, family member under 18 years of age, or a child over 18 years of age, and you charge them interest on the loan at the prescribed rate, what are the attribution rules?

Answer 13

No attribution occurs because you’re paying the prescribed interest rate.

In the case when you are not paying the prescribed interest rate, all investment income or losses is attributed to the lender, except with family members under 18 and a child over 18, capital gains and losses are not attributable.

Question 14

If you sell a stock to your spouse, how do you avoid attribution?

Answer 14

The sell must be made a fair market value, and you must elect out of spousal rollover; otherwise, investment income or losses, and capital gains or losses are attributed to the seller.

Question 15

Funds lent to a non-arm’s-length individual for the purpose of earning income from a ________ _____ ________ corporation do not result in attribution to the transferor.

Answer 15

qualified small business

Question 16

No attribution occurs on any type of income from assets given to a child who is at least ____ at the end of that year.

Answer 16

18 years old

Question 17

If a client transfers money to an adult child as a loan, rather than a gift, and if the Canada Revenue Agency decides that the primary motive for the transfer is to ______ _______income attribution rules can apply.

Answer 17

Avoid Tax

Question 18

Regardless of the children’s age, generally there will be no attribution of ______ _____ on the invested money back to the client

Answer 18

Capital Gains

Question 19

How can you avoid attribution when giving existing investments to your children under 18?

Answer 19

The assets will be deemed to have been disposed at fair market value, and therefore, you will have to pay capital gains or losses depending if the investment has increased or decreased in value from when you bought it.

Question 20

Regarding Spousal RRSP’s, To avoid the withdrawal being attributed to the contributor, the funds must remain in the plan for at least ____ calendar years after contribution (Jan 1 to Dec 31).

Answer 20

two

Question 21

Canadians receiving “qualifying pension income” are entitled to allocate up to ____% of the sum of all “qualifying pension income” to their spouse

Answer 21

50%

Question 22

For Canadians age 65 and over, the major types of qualifying pension income are…

Answer 22

registered pension plan (RPP) payments, registered retirement income fund (RRIF) payments, and RRSP annuity payments

Question 23

For Canadians under age 65, qualifying pension income primarily includes

Answer 23

RPP Payments

Question 24

Although not considered “qualifying pension income,” spouses are permitted to share their CPP or QPP retirement pensions if both spouses agree. Once it is determined how much can be shared, they can each share up to ___% with the other spouse

Answer 24

50%

Question 25

When a client transfers money to a lower-income family member to pay expenses rather than investing, the attribution rules…

Answer 25

do not apply

Question 26

Four tax credits in particular can be passed to a client’s spouse:

Answer 26

• Age credit (if the spouse was 65 years or older in the year)
• Disability credit (if the spouse had a severe mental or physical impairment, supported by a signed Form T2201)
• Pension credit (if the spouse had pension income)
• Tuition credit (if the spouse attended a qualifying post-secondary school)

Question 27

Clients are permitted to report one spouse’s ________as the other spouse’s income, which can make sense if the first spouse’s income is low. In doing so, the higher-earning spouse further reduces the income of the low-earning spouse. Thus, the high-earning spouse increases the spousal tax credit that he or she is entitled to claim.

Answer 27

dividends

Question 28

In fact, a taxpayer is allowed to make this election only if it increases the spousal tax credit.

Answer 28

Reporting one spouse’s dividends as the other spouse’s income.

Question 29

A valid tax planning strategy is to avoid borrowing to consume; instead, one should borrow to invest in a non-registered portfolio, thus making interest payments ____ _________.

Answer 29

tax deductible.

Question 30

Unlike interest payments on non-investment loans, such as a loan to purchase a house, interest
payments on investment loans are deductible for tax purposes. However, the interest is only deductible
if the investments have an expectation of earning…….

For example, the interest on a loan to invest in an RRSP, RESP, or TFSA is not tax deductible.

Answer 30

taxable income from the investment

Question 31

For superficial losses, The restricted period starts 30 days ______ the loss sale and ends 30 days ______
the loss sale.

Answer 31

Before

After

Question 32

The superficial loss rules state that an investor cannot take a tax loss if the security sold at a loss is repurchased by the investor or an ______ ______ within a certain time frame

Answer 32

affiliated party (Such as your spouse or kids)

Question 33

Investors may claim a tax deduction of fees (other than __________) paid to an investment counsellor for
investment advice, administration, or management of securities

Answer 33

commissions

Question 34

Any savings invested in the…… will be sheltered from tax. His heirs will receive the full value of the policy, including the insurance and investment portions, free of tax.

Answer 34

exempt whole life policy

Question 35

A qualified small business corporation (QSBC) is defined as either of two entities:

Answer 35

A Canadian-controlled private corporation (CCPC) in which 90% or more of its assets are used in an active business carried on primarily in Canada. (Farming usually)

A CCPC whose assets consist of shares or debt of connected CCPCs that meet the definition above

Question 36

If the cumulative amount of investment income minus investment expenses is negative, the balance is called a

Answer 36

cumulative net investment loss (CNIL)

Question 37

Regarding charitable donations, In-kind donations of publicly listed securities to charitable organizations and public and private foundations are exempt from _______ ______ tax upon contribution.

Answer 37

capital gains tax

Question 38

_______ ______ _____ are an efficient way for clients to make charitable donations of securities that benefit their chosen charities and, at the same time, receive tax benefits.

This is what Benefaction is

Answer 38

Donor-advised Funds

Question 39

A taxpayer’s charitable donations of up to ___% of net income qualify for a federal tax credit of ___% for the first $200 of the donation and ___% of the balance.

It is a good strategy to combine charitable donations for the entire family unit on one tax return, thereby limiting the ____% threshold to a single $200 portion of the whole amount.

Answer 39

75% of net income

15% on the first $200

29% tax credit on the balance

15% threshold

Question 40

The federal charitable donation tax credit rate on taxable income over $216,511 is ____% rather than 29%.

Answer 40

33%

Question 41

Very specific personal assets that tend to increase in value over time.

Answer 41

Listed personal properties

Question 42

What is the $1,000 rule for personal property?

Answer 42

The rule states that taxpayers are exempt from capital gains on disposals of personal-use property if the amount received is less than $1,000. Any amount over $1,000 is treated as a capital gain

Question 43

If you sell listed personal property at a loss, what capital gains can it be used against?

Answer 43

It can only be used on capital gains on other listed personal property. It cannot be used to offset a capital gain on the sale of securities or other personal assets.

Question 44

Types of Listed Personal Property

Answer 44

• Prints, etchings, drawings, paintings, sculptures, and other similar works of art
• Jewelry
• Rare folios, manuscripts, and books
• Stamp and coin collections

Question 45

How do you calculated the gains on a secondary residence when it is sold?

Answer 45

The gains are allocated to each year on a straight-line basis when the property is sold. For example, if a person owned a cottage for 10 years, and it increased in value by $20,000 the taxable capital gain per year of ownership would be $10,000 (50% of $20,000).

Question 46

Another example of a deemed disposition is when securities are transferred from a ____________ account to an RRSP.

Answer 46

non-registered investment

Question 47

an investment in certain types of property that has the potential of reducing income taxes in the year of the investment and the following years after the investment.

Answer 47

A Tax Shelter

Question 48

Generally, clients view tax shelters as a form of tax savings, where in reality it is a form of tax _________

Answer 48

deferral

Question 49

What is a labour-sponsored venture capital corporations (LSVCCs)?

Answer 49

A labor-sponsored venture capital corporation (LSVCC) refers to a corporation created by a Canadian labor union that exclusively provides venture capital to Canadian companies. Investors can purchase units in these funds just as they would mutual fund shares.

Question 50

There are two types of LSVCCs:

Answer 50

federally registered and provincially registered

Question 51

What is the minimum holding period on a labour-sponsored venture capital corporation

Answer 51

There is a minimum holding period of eight years

Question 52

Labour-sponsored venture capital corporations are a type of

Answer 52

tax shelter

Question 53

An investment in LSVCCs of up to
$5,000 entitles an investor to a federal tax credit of ___%. Provincial tax credits may also be available depending on the province

Answer 53

15% ($750)