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LOA GOD MODE > Chapter 9.2 > Flashcards

Chapter 9.2 Flashcards

TAX-FREE SAVINGS ACCOUNTS AND OTHER PLANS USED FOR NON-RETIREMENT GOALS

1
Q

What year did the TFSA contribution limit go to $10,000 for that one year?

A

2015

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2
Q

A TFSA is an ideal source of __________ funds because the money contributed grows untaxed, and the money withdrawn is not taxed in any manner

A

emergency

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3
Q

Explain how the TFSA can be used for income spliting

A

A higher-income earning can give money to a lower-income earner to contribute to their own TFSA without affecting the contribution room of the giver. Because income is not taxed in the TFSA, no income will be attributed to the higher-income earner.

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4
Q

Furthermore, the money contributed to a TFSA can come from ________, not just from earned income

A

anywhere

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5
Q

TFSA Contribution Limits:

A 
2009 to 2012	$  5,000
2013 and 2014	$  5,500
2015	$10,000
2016 to 2018	$  5,500
2019 to 2022	$  6,000
2023	$  6,500
2024	$  7,000

Total (including 2024) = $95,000

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6
Q

What is the penalty for overcontributing to your TFSA?

A

1% per month tax

EX: if you were $4000 over from Nov & Dec 2021, then you would be charged $80 overcontribution fee

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7
Q

On what type of account is there a $2,000 excess permitted overcontribution?

A

RRSP

No permitted over-contributions with TFSA

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8
Q

Individuals are deemed to have sold the investments at fair market value when they transfer them into their ______.

A

TFSA

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9
Q

Clients may not claim a _______ ______ on a contribution in kind to a TFSA.

A

capital loss

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10
Q

What should you do prior to transferring over an investment in-kind to your TFSA that is in a capital loss position?

A

You should sell the shares prior to moving over the funds, that way you can claim the capital loss against any current, or future capital gains. If you do sell the investment prior to moving it over to the TFSA, remember you have to wait 30 days before buying it back or it will be considered a superficial loss

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11
Q

What is a qualifying transfer for a TFSA

A

When a marriage or common-law relationship breaks down, and there is a division of property as a result, a transfer may be made directly from the TFSA of one spouse (or former spouse) to the TFSA of the other spouse as part of the settlement.

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12
Q

If the named beneficiary is a person other than a ___________ the account ceases to be a TFSA when the holder dies. In effect, the TFSA account is treated as if it were deregistered and you cannot transfer the TFSA into your existing TFSA unless you have enough contribution room.

A

Spouse or Common-law partner

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13
Q

Theodore dies, leaving a TFSA valued at $25,000 to his daughter Anne. The TFSA’s value has increased by $2,000 between the time of Theodore’s death and the time of transfer, eight months later. who pays the tax and how much will they be taxed on?

A

Anne pays tax on $2,000

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14
Q

Regarding RESP’s, the maximum lifetime contribution limit is

A

$50,000

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15
Q

What is the penalty tax on excess contributions in an RESP?

A

1% per month, same as the TFSA

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16
Q

If no carry-forward room is available, what is the maximum CESG that you could be granted in one year per beneficiary?

A

$500

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17
Q

What is the lifetime CESG limit per beneficiary?

A

$7,200

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18
Q

If the beneficiary has sufficient carryforward room, the maximum annual CESG is….

A

$1,000

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19
Q

Contributions cannot be made to a resp plan at any time after the end of the year that includes the _____ anniversary of the plan, except if the beneficiary is eligible for the…

A

31st

Disability tax credit.

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20
Q

An RESP must be closed by the end of the the year of its ____ anniversary.

A

35th

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21
Q

For family plans established after 1998, each beneficiary must be less than ____ years of age at the time they are named as a beneficiary.

A

21 years of age

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22
Q

The contribution age limit for family plan beneficiaries is

A

31

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23
Q

If no RRSP contribution room remains, the investment income from the RESP must be withdrawn at the contributor’s marginal tax rate, and a _____% tax penalty must be paid. The contribution portion can be withdrawn tax-free, given that it was not tax deductible when it was contributed.

A

20%

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24
Q

For families earning in the first bracket of income, the CESG matching rate is ____% on the first $500 and _____% on the next $2,000 contributed per beneficiary per year. A total of $600 per year, per child.

A

40%

20%

25
Q

For families earning in the second bracket of income, the CESG matching rate is _____% on the first $500 and ____% on the next $2,000 contributed per child per year. The maximum government contribution is $550 per year per beneficiary.

A

30%

20%

26
Q

Explain how the Canadian Learning Bond works

A

A $500 CLB is available to families who are in the lower tax bracket.This assistance usually applies to families whose net family income is $49,020 or less in 2021 (adjusted yearly).
Additional $100 CLB instalments are deposited each year in which the child’s family is in the lower tax bracket, up to the year the child turns 15. The initial $500 CLB, plus the $100 annual instalments, provide a child with up to
$2,000.

27
Q

What is the benefit of an individual RESP rather than a family RESP

A

The benefit of an individual plan is that the beneficiary can be a non-relative, which may suit clients in certain situations.

28
Q

What are Accumulated income payments?

A

they are payments from an RESP to the subscriber in the event the beneficiary doesn’t attend post secondary education

29
Q

This account is intended to help parents and others save for the long-term
financial security of a person with disabilities

A

Registered Disability Savings Plan (RDSP)

30
Q

To qualify for an RDSP you must

A

be eligible for the disability tax credit

31
Q

The Canada Disability Savings Grant matches contributions on a sliding scale, depending on family net income and amount contributed. The total potential grant is $_______annually, with a lifetime limit of $_______

A

$3,500

$70,000

32
Q

The Canada Disability Savings Bond is available only to lower-income families, with eligibility depending on family net income. No contributions are required to be made to an RDSP to receive the Canada Disability Savings Bond. The potential limit is $_______annually and $_______over the beneficiary’s lifetime

A

$1,000

$20,000

33
Q

Contributions on an RDSP are subject to a time limit. Contributions can only be made until the end of the year in which the beneficiary turns ____.
However, matching grant and bond contributions are only available until the end of the beneficiary’s _____year.

A

59 years old

49th year

34
Q

There are no annual contribution limits on RDSPs, but there is a lifetime limit of $_________.

A

$200,000

35
Q

Government grants and bonds must stay in the RDSP for at least ____years to avoid being clawed back.

A

10 years

36
Q

It is a trust set up by a company. It can be for the benefit of all employees or for one or more classes of employees. It is not regulated by pension legislation but is registered with CRA.

A

Deferred profit-sharing plan

37
Q

An employer that establishes a ______makes cash contributions to the plan out of business profits on behalf of each employee who is a member of the plan.

A

Deferred profit-sharing plan (DPSP)

38
Q

Things you cannot hold in a Deferred profit-sharing plan are

A

you can not hold the employer’s debt offerings

The investment in a single year in equity shares of the contributing employer or in a corporation with whom the
employer does not deal at arm’s length is limited by a defined formula

39
Q

What is the maximum vesting period with a DPSP

deferred profit sharing plan

A

Two-Years

40
Q

What is alternative minimum tax?

A

places a floor on the percentage of taxes that a filer must pay to the government, no matter how many deductions or credits the filer may claim.

41
Q

What are the tax benefits of incorporation?

A

Paying corporate tax rates on active business income

could provide substantial savings when compared to employment income

42
Q

A Canadian controlled private corporation (CCPC) is taxed at the following federal rates:

A
  • 9% up to $500,000 of active business income (i.e. the small business deduction limit)
  • 15% for $500,000 and over
43
Q

Another significant advantage of incorporating a Canadian controlled private corporation (CCPC) is that

A

If the value of the company appreciates, there will be a capital gain upon disposition of the shares. If tax planning is undertaken, those shares could be qualified small business corporation (QSBC) shares, which qualify for the Lifetime capital gains exemption (LCGE)of $892,218

44
Q

Disadvantages of incorporation

A
  • It can be costly, and involves lots of paperwork.
  • Two tax returns must be filed each year: one personal, and one corporate.
  • You must keep business records such as financial statements and other paperwork
45
Q

What is a “professional corporation”

A

Certain professionals, including lawyers, doctors, dentists, and accountants, are permitted in most provinces to set up professional corporations and incorporate their practices.

it is beneficial to do so if the revenues they earn in a year substantially exceed their living expenses. Excess funds may be left inside the corporation

46
Q

companies set up to earn passive income from property.

A

specified investment businesses (SIB),

47
Q

The specified investment business (SIB) rules are intended to

A

prevent taxpayers from incorporating such a company to gain the advantage of the small business deduction

48
Q

What is the small business deduction?

A

9% up to $500,000 of active business income tax rate

49
Q

This type of business structure leads to the creation of a distinct legal identity, legally apart from the people who are its shareholders. It does not cease to exist when a shareholder dies

A

incorporation

50
Q

This type of corporation does not benefit from the small business deduction (and is therefore not eligible for the preferential corporate tax rates).

A

personal services business

51
Q

This is an amount that the government pays into a registered disability savings plan, matching contributions on a sliding scale, depending on family net income and amount contributed.

A

Canada disability savings grant

52
Q

These were originally promoted by trade unions to channel investment into new small and medium-sized businesses. Investments were eligible for federal and some provincial tax credits.

A

labour-sponsored venture capital corporations

53
Q

An individual’s balance at the end of a year is the amount by which their investment expenses for the year and all prior years exceed their investment income for those years.

A

cumulative net investment loss

It’s more about the actual costs you’ve incurred over your investment in

“spent” refers primarily to the fees and expenses incurred to manage and maintain investments rather than the book cost of investments that have decreased in value. This includes:

Management fees for mutual funds or investment accounts.
Transaction fees for buying or selling securities.
Other related expenses directly tied to the investment process.

54
Q

It is a private corporation resident in Canada that has to fulfill several requirements to be designated as such. It is linked with a qualified small business corporation.

A

Canadian controlled private corporation

55
Q

This is available only to lower-income families, with eligibility depending on family net income. No contributions are required to be made to a registered disability savings plan to receive it.

A

Canada disability savings bond

56
Q

It refers to a company set up to earn passive income from property.

A

specified investment business

57
Q

Are designed to encourage investment in relatively risky areas such as scientific research and oil and gas ventures.

A

Tax Shelters

58
Q

The exemption applies to the disposition of farm property, fishing property and qualified small business corporation shares.

A

lifetime capital gains exemption

59
Q

Available exclusively to CCPCs, this provides corporations with a reduced tax rate on up to $500,000 of active business profits. Profits qualifying for this are taxed at a federal tax rate of 9%, compared to the general rate on business profits from active businesses of 15%.

A

Small business deduction

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