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Question 1

Which of the following statements is true regarding DPSPs?
A. they are contributory plans
B. employers contribute a fixed amount to the plan
C. significant shareholders of the company cannot be beneficiaries of the DPSP
D. The maximum contribution limit is 1/9 the money purchase limit.

Answer 1

C. significant shareholders of the company cannot be beneficiaries of the DPSP

The plan cannot specify a significant shareholder or non-arm’s length person as a beneficiary under the plan (that is, a person who has the influence to affect business policies, either because of his or her direct involvement in the company, or because he or she is related to someone of influence).

Question 2

The John Steere Company had a payroll expense of $832,000 for its 26 employees and made $500,000 in profit. The company also has a DPSP. What is the minimum acceptable contribution the company may be required to make to its DPSP?
A. $2,600, as $100 per employee
B. $5,000, as 1% of profits
C. $8,320, as 1% of total employee earnings
D. any of the above, depending on the plan

Answer 2

D. any of the above, depending on the plan

Question 3

Ernie is a member of a DPSP and his benefits are vested. He will be retiring next week at the age of 65. Ernie can expect to receive his first pension payment:
A. at the time specified in the DPSP contract
B. within 7 days of attaining age 71
C. within 7 days of leaving the company
D. within 90 days of leaving the company

Answer 3

D. within 90 days of leaving the company

Question 4

Rita has been a member of her company’s DPSP for 10 years. She has been monitoring the activity of the DPSP fund and is unhappy with the results. She wants to transfer her vested share from the DPSP fund to another plan without incurring income tax. She can accomplish this by doing any of the following, except:
A. Rita can transfer her vested amount directly to an RPP.
B. Rita can transfer her vested amount directly to an RRSP or RRIF.
C. Rita can transfer her vested amount directly to another DPSP that names her as annuitant.
D. Rita can receive the amount in cash and then contribute it to her RRSP, provided she makes the contribution within 60 days of the end of the year in which she receives the income.

Answer 4

D. Rita can receive the amount in cash and then contribute it to her RRSP, provided she makes the contribution within 60 days of the end of the year in which she receives the income.

Question 5

Sonali is a member of her employer's DPSP. If she earns $85,000 and the money purchase limit for the year is $26,230, what is the MAXIMUM contribution that can be made to the DPSP on behalf of Sonali?
A. $13,115
B. $15,300
C. $26,230
D. $30,600

Answer 5

A. $13,115

Although DPSP contributions can only be made by the employer, the contribution limit is based on the income level of the employee who is the beneficiary. This limit is set as [the lesser of (employee’s salary x 18%) and (money purchase limit x 50%)]. Therefore, the maximum DPSP contribution that can be made on behalf of Sonali is $13,115 calculated as [the lesser of ($85,000 x 18%) and ($26,230 x 50%)].

Question 6

Gloria has worked for the same employer for the last several years. Her employer does not offer a pension plan to employees. Gloria's earned income for last year was $117,000; for this year, her earned income will be $129,000. If the RRSP contribution limit last year was $25,370 and this year, the RRSP limit is $26,010, how much new RRSP contribution room will Gloria have this year?
A. $21,060
B. $23,220
C. $25,370
D. $26,010

Answer 6

A. $21,060

Gloria’s new contribution room for this year is $21,060 calculated as [the lesser of (earned income for previous year × 18%) and current RRSP contribution limit] or [the lesser of ($117,000 × 18%) and $26,010)].

Question 7

Selina wishes to make an RRSP contribution and claim the corresponding deduction for the current tax year. If this year is a leap year, what is the LATEST date by which Selina must make her contribution?
A. February 29th of this year
B. December 31st of this year
C. February 29th of next year
D. March 1st of next year

Answer 7

D. March 1st of next year

Question 8

Fiona’s salary was $87,000. All of the following items are included in earned income for the purpose of calculating her current RRSP contribution limit, except:
A. $2,000 she received in allocations from an employee profit sharing plan
B. $2,000 she received in royalties for a song she wrote
C. $5,000 she received as business income as a limited partner in Songs Unlimited
D. $6,000 she received from her ex-husband in taxable alimony payments

Answer 8

C. $5,000 she received as business income as a limited partner in Songs Unlimited

Question 9

Gerome has a self-directed RRSP, which holds investments worth $15,000. All of the following statements are true, except:
A. he probably pays $100 to $125 per year in management fees
B. he may pay $150 for investment advice
C. he can use any management and investment advisory fees as a tax deduction
D. he may be better off putting his investments into a basic RRSP

Answer 9

C. he can use any management and investment advisory fees as a tax deduction

Since the Federal Budget of March 6, 1996, fees paid for the management of funds in an RRSP or for advice related to those investments are not tax deductible. Management fees for a self-directed RRSP typically cost $100 to $125 per year and investment advice may be 1% of the assets or $150, calculated as ($15,000 × 1%). Because of the fees and the many investment alternatives available that can be registered directly, it only makes sense to establish a self-directed RRSP if the amount to be invested is at least $20,000 and the beneficiary intends to implement a fairly sophisticated investment strategy.

Question 10

What investment is INELIGIBLE to be held in a registered plan?
A. guaranteed investment certificates
B. covered call options
C. gold bars
D. a commodity futures contract

Answer 10

D. a commodity futures contract

Common non-qualified investments include:

• shares of many private corporations
• commodity futures contracts
• listed personal property, such as works of art and antiques
• gems and other precious stones
• real estate

Question 11

Kyle is a member of his employer’s defined benefit pension plan. The pension adjustment (PA) reported for his participation in the pension plan this year will:
A. reduce his RRSP deduction limit for this year
B. reduce his RRSP deduction limit for next year
C. have no effect on his RRSP deduction limit
D. reduce his RRSP deduction limit for the previous year

Answer 11

B. reduce his RRSP deduction limit for next year

Question 12

Last year, Jeff earned $55,000, and as a result he earned a benefit entitlement of $1,100 in the company's defined benefit pension plan. What is the amount of Jeff's new contribution room arising this year?
	$600
	$1,100
	$8,900
	$9,900

Answer 12

$600

Jeff’s current contribution limit is $9,900, calculated as 18% of his previous year’s income or ($55,000 × 18%). This is reduced by a pension adjustment of $9,300, calculated as ((9 × $1,100) - $600). Thus, his new contribution room is $600, calculated as ($9,900 - $9,300).

Question 13

Following 11 years of service with Nocturne Inc, Lucas received a termination benefit of $39,500. He was a member of Nocturne's defined benefit RPP for nine years during which time he incurred cumulative PAs in the amount of $54,000 and a PSPA of $4,800. How much of a PAR will be reported to Lucas?
	$14,500
	$19,300
	$34,700
	$58,800

Answer 13

$19,300

Lucas has a PAR of $19,300 calculated as [(cumulative PAs + cumulative PSPAs) – termination benefit] or [($54,000 + $4,800) – $39,500].

Question 14

Jack belongs to a defined contribution pension plan. He and his employer each make a contribution of 4% of his earnings. This year, Jack earned $52,000. What is his PA?
	$2,080
	$4,160
	$8,360
	$17,720

Answer 14

$4,160

For defined contribution pension plans, the pension adjustment is the total of all employer and employee contributions to the pension plan. Therefore Jack’s PA is $4,160, calculated as (2 × (4% × $52,000)).

Question 15

A past service pension adjustment (PSPA) can only occur under a(n):
	deferred profit sharing plan
	defined benefit pension plan
	defined contribution pension plan
	unregistered pension plan

Answer 15

defined benefit pension plan

Question 16

Emily worked at Indian Feather College. She joined the college's pension plan after she worked there for four years. Four years ago in June, when she reached 55 years of age, she retired to pursue her interests in aboriginal history. She received a retiring allowance of $30,000. Emily had 11 full or partial years of service prior to 1996, and 3 years of service prior to 1989 when she was an employee, but not a member of the plan. How much of her retiring allowance was Emily eligible to rollover into an RRSP upon her retirement?
	$26,500
	$27,500
	$28,500
	$29,500

Answer 16

$26,500

Emily can rollover $2,000 for each full or partial year that she was an employee prior to 1996. Emily can rollover $1,500 for each year prior to 1989 when she was an employee, but not a member of the plan. Emily had 11 full or partial years of service prior to 1996, and 3 years of service prior to 1989 when she was an employee, but not a member of the plan. So, Emily can rollover $26,500 to her RRSP, calculated as the lesser of ($30,000 and (($2,000 × 11) + ($1,500 × 3)).

Question 17

At the end of last year, Louisa over contributed $6,000 to her RRSP. If Louisa's new RRSP contribution room arising this year is $8,000, what is the maximum she can contribute to an RRSP this year without facing a penalty for over contribution?
	$0
	$2,000
	$4,000
	$8,000

Answer 17

$4,000

Over-contributions that exceed a limit of $2,000 are subject to a penalty tax of 1% per month. Thus, Louisa must use her new room of $8,000 to first offset her over contribution of $6,000, leaving a total of $2,000 in room remaining. However, if Louisa wishes, she could contribute a total of $4,000, calculated as ($2,000 + $2,000), and still be within the over contribution allowance of $2,000

Question 18

Shui is in a 32% marginal tax bracket. What is his RRSP contribution factor?

1. 471
3. 125
3. 200
6. 800

Answer 18

Shui’s RRSP contribution factor is 1.471, calculated as (1 ÷ (1 - 32%)) where 32% represents Shui’s marginal tax bracket. This factor reflects the income tax deduction that Shui will receive for his RRSP contribution. Assuming Shui has $1,000 in after-tax savings, he can invest $1,000 outside of his RRSP, or $1,471, calculated as ($1,000 × 1.471), within his RRSP.

Question 19

Nancy has made an overcontribution of $1,500 to her RRSP. All of the following statements are true, except:
A. she will not be charged a penalty on the over contribution
B. the investment income earned on the over contribution will be treated as taxable income in the year earned
C. the over contribution will be taxable when withdrawn
D. she can contribute another $500 to the plan without incurring a penalty

Answer 19

B. the investment income earned on the over contribution will be treated as taxable income in the year earned

The investment income on any over contribution is not taxable until the funds are withdrawn. A taxpayer may make an over contribution of up to $2,000 without incurring a penalty. The over contribution and the accumulated investment income are taxable only when withdrawn.

Question 20

On December 31st of last year, Jane and Joe had been living together as common-law partners for 14 months. Joe contributed $5,000 to a spousal RRSP under which Jane is the annuitant. He also contributed $5,000 to his own individual RRSP. Jane and Joe each have a contribution limit of $18,000. What statement is FALSE?
Joe can claim a $10,000 deduction on his income tax return.
If Jane withdraws $5,000 from her RRSP next year, the amount withdrawn will be taxed in Joe’s hands.
Joe’s contribution on Jane’s behalf reduced Jane’s contribution limit by $5,000.
If Jane withdraws money from her spousal RRSP in two years and no further contributions have been made to Jane’s spousal RRSP, the amount withdrawn will be taxed in Jane’s hands.

Answer 20

Joe’s contribution on Jane’s behalf reduced Jane’s contribution limit by $5,000.

Question 21

Six years ago in January, Janet contributed $6,000 to a spousal RRSP for her husband, Chris. Two years ago, Janet purchased another spousal RRSP in the amount of $2,000, from a different institution. Last year, Chris withdrew $3,000 from the original RRSP. How did this affect Janet’s taxable income for the year?
it did not affect her income, because more than 3 years had lapsed from the time the original RRSP was purchased
it increased her taxable income by $2,000
it increased her taxable income by $3,000
it increased her taxable income by $4,000

Answer 21

it increased her taxable income by $2,000

Question 22

Why would you contribute to a spousal RRSP?
it enables you to make contributions to an RRSP without having earned income (provided your spouse or common-law partner has earned income)
to take advantage of your spouse’s RRSP contribution room
to split income with your spouse
to contribute a greater amount than what you are normally allowed

Answer 22

to split income with your spouse

Question 23

Four years ago in January, Agnes contributed $10,000 to a spousal RRSP under which her common-law spouse, Emily, is the annuitant. Agnes deducted the amount of her contribution from her income tax return for five years ago. What was the earliest year that Emily could have withdrawn this money from her spousal RRSP such that it was taxed entirely in her hands?
4 years ago
3 years ago
2 years ago
last year

Answer 23

last year

Question 24

Lou and Moira are a common-law couple. On December 31st two years ago, Lou contributed $5,000 to Moira’s spousal RRSP. On June 20th of last year, Lou and Moira separated. This year, Moira withdraws $2,000 from her spousal RRSP. Who will pay the tax on this withdrawal?
Lou pays tax on $5,000, Moira pays tax on $0
Lou pays tax on $2,000, Moira pays tax on $0
Lou pays tax on $0, Moira pays tax on $5,000
Lou pays tax on $0, Moira pays tax on $2,000

Answer 24

Lou pays tax on $0, Moira pays tax on $2,000

Question 25

Martin withdrew $15,000 from his RRSP four years ago under the Home Buyers' Plan. He made a designated repayment to his RRSP of $1,000 two years ago and last year. This year, he designated $600 as an HBP repayment. What is Martin's HBP balance following these three payments?
	$11,000
	$12,000
	$12,400
	$13,400

Answer 25

$12,000

A taxpayer’s HBP balance at any point in time is calculated as the total of all eligible withdrawals under the plan, minus the total of all amounts that he or she designated as an HBP repayment or that were included in his or her income because he or she failed to repay the required amounts to an RRSP.

Martin was required to make his first repayment two years ago-the second calendar year following the year of his withdrawal- and each annual payment is supposed to be $1,000, calculated as ($15,000 ÷ 15). While Martin made the required repayments two years ago and last year, his repayment this year was too small. Consequently, he will be required to include $400 in his income for this year, calculated as ($1,000 - $600). Therefore, his HBP balance is $12,000, calculated as [$15,000 - ($1,000 + $1,000 + $600 + $400)].

Question 26

The following individuals want to make a withdrawal from their RRSPs on July 31st of this year under the Home Buyers’ Plan. Which person would NOT qualify as a first-time home buyer under the Home Buyers’ Plan?
Max, who had previously owned a condo that he used as his principal residence, until he sold it three years ago in August.
Holly, who purchased her first home on July 15th of this year.
Keltie, who had previously owned a farm house that he used as his principal residence, until he sold it five years ago in March.
Trilby, who purchased her first home which will close on August 20th of this year.

Answer 26

Max, who had previously owned a condo that he used as his principal residence, until he sold it three years ago in August.

Most participants in the HBP must qualify as a first-time home buyer. However, the term first-time home buyer is a dreadful misnomer, because a taxpayer may be able to use the program during the purchase of his second, third or even 10th home.
Under the HBP rules, a first-time home buyer is defined as anyone who has not owned a home that she occupied as her principal residence at any time during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before the withdrawal. For individuals who want to make an HBP withdrawal on July 31st of this year, this means that they cannot have owned another principal residence between January 1st four years ago and June 30th of this year.

Question 27

Four years ago, Trevor withdrew $15,000 from his RRSP under the HBP. He made his scheduled repayments of $1,000 two years ago and last year. This year, he made an RRSP contribution of $4,000, which he designated as an HBP repayment. What is his minimum HBP repayment for next year?
	$0.00
	$600.00
	$750
	$1,000.00

Answer 27

$750

Question 28

Yvon made an RRSP withdrawal under the Home Buyers’ Plan. He would have to repay his withdrawal before the expiry of the maximum repayment period in any of the following situations, except if:
he dies
he sells the house 4 years prior to completing the repayments
he becomes non-resident
he reaches the year in which he turns 71 years of age

Answer 28

he sells the house 4 years prior to completing the repayments

Question 29

George purchased a qualifying home on September 15. He made a withdrawal of $15,000 from his RRSP under the Home Buyers' Plan (HBP) on September 10, five days earlier, to help finance his downpayment. George failed to plan for unanticipated expenses related to his new home ownership, and he would like to withdraw another $5,000 under the HBP. What is the latest date in that year on which George can make an eligible withdrawal?
	September 15
	September 31
	October 15
	December 31

Answer 29

October 15

A taxpayer is permitted to make multiple withdrawals under the HBP, provided that he or she does not exceed the maximum amount and he or she makes the withdrawals within a prescribed period of time. The taxpayer cannot withdraw an amount from his or her RRSP under the HBP if the taxpayer or his or her spouse already owned the qualifying home more than 30 days before the date of withdrawal.
So, the latest that George can make a second HBP withdrawal is October 15, which is 30 days after September 15.

Question 30

What statement about TFSAs is correct?
Like an RRSP, contributions to a TFSA are tax deductible.
Overcontributions will result in a 1% monthly fee based on the TFSA dollar limit for the year.
As of age 18, contribution room begins accumulating even if the individual is not yet an account holder.
A Government of Canada bond would be an ineligible TFSA investment.

Answer 30

As of age 18, contribution room begins accumulating even if the individual is not yet an account holder.

Contribution room begins accumulating once an individual has attained age 18. This would be the case even if he or she has yet to open a TFSA. Unlike RRSP contributions, TFSA contributions are not tax deductible. Overcontributions will be subject to a penalty tax calculated monthly and based on 1% of the highest excess amount—and not 1% of the TFSA dollar limit—each month the situation applies. Investments that can be held in an RRSP, RRIF or RESP can be held in a TFSA. This would include a Government of Canada bond.

Question 31

In March of this year, Amanda invested $2,800 in a TFSA. This year was the first year Amanda did not maximize her TFSA contribution room. In June, she withdrew $1,500 to pay for veterinarian bills after her cat required minor surgery. If the TFSA dollar limit this year is $5,500 and it is expected to remain at the same level next year, how much will Amanda be able to contribute to her TFSA next year?
	$3,700
	$5,500
	$7,000
	$9,700

Answer 31

$9,700

Next year, Amanda will have TFSA contribution room in the amount of $9,200 calculated as (TFSA dollar limit for next year + unused contribution room from this year + eligible withdrawals from this year) or [$5,500 + ($5,500 – $2,800) + $1,500].

Question 32

Hong made an in-kind contribution of his precious metals mutual fund shares to his TFSA. He purchased 500 shares of the fund at an NAVPS of $8.00; at the time of the transfer to his TFSA, the NAVPS of the fund was $12.75. By how much will Hong’s taxable income increase this year as a result of this transaction?
Hong will not incur a tax liability because he didn’t actually dispose of his shares.
$1,187.50
$2,375.00
$6,375.00

Answer 32

$1,187.50

When an in-kind contribution is made to a TFSA, there will be a deemed disposition of the property based on its fair market value at the time of the transfer. If the deemed disposition results in a capital gain, the taxpayer must report the taxable portion of the gain as part of his or her total income for the year where it will be subject to tax at his or her marginal tax rate. Hong must report a taxable capital gain in the amount of $1,187.50 calculated as [(deemed proceeds of disposition at time of transfer – ACB) x capital gains inclusion rate] or [(($12.75 x 500) – ($8 x 500)) x 50%].

Question 33

Fatima made a $5,000 contribution to the TFSA of her husband Khan. Khan invested the funds in a GIC that earned $100 of interest income. What are the tax implications to Fatima and Khan?
Fatima must report the $100 on her tax return.
Khan must report the $100 on his tax return.
Fatima must report $50 on her tax return; Khan must report $50 on his tax return.
There will be no tax implications with respect to the $100.

Answer 33

There will be no tax implications with respect to the $100.

Question 34

Olivia is 24 years old. Being a recent college graduate, she just got her first full-time job at a medical clinic where she earns $30,000 per year. Olivia does not have any savings and her employer does not offer her any pension benefits. If Olivia wants to establish a monthly savings program, in what vehicle should she contribute her funds?
	TFSA
	RRSP
	either a TFSA or an RRSP
	bank account

Answer 34

TFSA

Typically, for an individual who has just recently joined the workforce and has a relatively low income and little in the way of savings, a TFSA is preferred.