U4 Flashcards
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.
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).
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
D. any of the above, depending on the plan
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
D. within 90 days of leaving the company
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.
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.
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
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%)].
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
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)].
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
D. March 1st of next year
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
C. $5,000 she received as business income as a limited partner in Songs Unlimited
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
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.
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
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
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
B. reduce his RRSP deduction limit for next year
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
$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).
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
$19,300
Lucas has a PAR of $19,300 calculated as [(cumulative PAs + cumulative PSPAs) – termination benefit] or [($54,000 + $4,800) – $39,500].
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
$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)).
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
defined benefit pension plan
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
$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)).
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
$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
Shui is in a 32% marginal tax bracket. What is his RRSP contribution factor?
1. 471 3. 125 3. 200 6. 800
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.
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
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.
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.
Joe’s contribution on Jane’s behalf reduced Jane’s contribution limit by $5,000.
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
it increased her taxable income by $2,000
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
to split income with your spouse
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
last year
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
Lou pays tax on $0, Moira pays tax on $2,000