Deck 4: Tools for Financial Planning - Using Tax Concepts for Planning

Question 1

A capital gain results from profit on the sale of capital assets.

Answer 1

True

Question 2

Deductions and tax credits both benefit high-income individuals more than moderate earners.

Answer 2

False

Question 3

Self-employed taxpayers must have paid all taxes owing by April 30th of each year.

Answer 3

True

Question 4

You have to file a personal tax return by April 30 each year only if Canada Revenue Agency sent you a request to file.

Question 5

Union dues and spousal support payments can be deducted in the calculation of taxable income.

Question 6

Your gross wages are subject to Canada Revenue Agency taxes that will fund your CPP one day.

Question 7

There is a clawback of social assistance payments on income above a certain level.

Question 8

Canada's tax system is called "progressive," which means the higher someone's income,the higher the percentage of income paid in taxes.

Question 9

Canadians can deduct interest payments they made on loans they took to make RRSP contributions.

Question 10

The combined Federal and Provincial tax rates vary a lot from province to province.

Question 11

The T4 slip provided by your employer shows all your earnings and deductions for the year.

Question 12

RRSP rules limit a taxpayer's contributions to the higher of 18 percent of total income to a maximum amount of $25 000.

Question 13

All interest and dividends received by an individual taxpayer are taxable.

Question 14

Students should not file income tax returns if their income is below the basic personal amount.

Question 15

Provincial governments collect property taxes.

Question 16

The Basic Personal Amount is a non-refundable tax credit that reduces ones taxes by $11 138 in 2014.

Question 17

Filing an income tax return,even when you have no tax to pay,may increase the amount of RRSP contributions you are allowed in later years.

Question 18

If Jack has total RPP and RRSP contributions of $9000,he can deduct that amount from his total income to calculate his taxable income.

Question 19

Interest expense paid on home loans and car loans is deductible from your income tax.

Question 20

Knowledge of individual income taxes is somewhat relevant to financial planning.

Question 21

Tax avoidance may be subject to both criminal and civil prosecution.

Question 22

Tax credits are used to reduce tax

A)when calculating total income.
B)after total taxes payable are calculated.
C)before you subtract all deductions.
D)by deducting them from total income.

Question 23

Organizing your records to take advantage of tax credits and deductions and investing in tax sheltered accounts like RRSPs and TFSAs are the best ways to avoid taxes.

Question 24

If you are a married taxpayer supporting a spouse whose has less than $10 000 income,

A)you must be the one to claim all tax credits.
B)you are entitled to a spousal or common-law partner tax credit.
C)you are entitled to a dependent partner tax deduction.
D)your spouse will not be able to apply for the GST/HST refund.

Question 25

The basic personal amount is a non-refundable tax credit that can reduce tax payable to zero for people with income under $10 000.

Question 26

Even if you have no tax to pay,it is beneficial to file a tax return because

A)you can carry forward non-refundable tax credits to future years.
B)you can get a tax refund for your RSP contributions.
C)you may be eligible for a tax-free refundable GST/HST credit.
D)it is required by law,if you are over 18.

Question 27

Jessie is 65 and has taxable income of $66 000.She would have her age amount credit fully clawed back.

Question 28

Canada's taxation rules are called "progressive." This means

A)taxes are deducted from your income and withheld at the source.
B)that Canada's tax system supports progressive social programs.
C)the higher your income,the higher your tax rate.
D)government benefits are clawed back when someone's income exceeds a certain threshold.

Question 29

Tuition,education expenses,and charitable donations can be carried forward to reduce taxes in future years.

Question 30

An investor who receives $10 000 interest will pay higher taxes than one who receives ?$10 000 from eligible dividends.

Question 31

Various tax planning tools include RRSPs,TFSAs,RESPs and taking advantage of the opportunity to invest in capital assets.

Question 32

If you are supporting a spouse who attended school and had $3000 income

A)you can claim the tuition,education and textbook tax credits.
B)his or her non-refundable tax credits can be used to reduce your tax.
C)you are entitled to a caregiver tax credit.
D)you can deduct his or her personal basic amount.

Question 33

Tuition,pension,and age amount credits can be transferred to your spouse if you have no tax to pay.

Question 34

By what date must self-employed individuals file their income tax returns?

A)December 31
B)April 30
C)June 15
D)90 days after their fiscal year-end

Question 35

The Spousal/common law tax credit is available to those supporting a spouse who had earnings under $11 138 in 2014.

Question 36

You have a salary of $30 000,an RPP deduction of $2000,$1000 interest on your line of credit and paid union dues of $800.If the basic personal amount is $11 138 and the federal tax rate is 15 percent,what federal tax do you owe?

A)$4340
B)$2259
C)$2529
D)$2409

Question 37

Interest paid on a qualified student loan can be used to reduce tax owing through a tax credit.

Question 38

The maximum medical expenses deduction cannot exceed three percent of total income.

Question 39

Tax evasion occurs when taxpayers attempt to deceive Canada Revenue Agency by knowingly reporting less tax payable than what the law requires them to pay.

Question 40

Michelle is an independent cleaning contractor but her customers provide the necessary cleaning supplies and equipment.Michelle may not be qualified as a self-employed individual.

Question 41

Jerome is recently divorced and has two children that live with his ex-wife.What deductions should Jerome claim on his tax return?

A)Child support payments
B)Spousal support payments
C)Caregiver deduction
D)Child care expenses

Question 42

Which of the following is not a legitimate deduction in Canada?

A)Mortgage interest on your home
B)Union dues
C)RRSP contributions
D)The cost of investment advice

Question 43

Interest income would come from earnings on

A)stocks.
B)term deposits.
C)RESPs.
D)sale of mutual funds.

Question 44

Which of the following income is taxed at the lowest rate?

A)Salary
B)Interest
C)Capital gains
D)Tips

Question 45

Which of the following is not taxable income?

A)EI payments
B)Life insurance benefits
C)Rental income
D)The use of a company car

Question 46

John has been told that he should not take any overtime because it will push him into the next tax bracket.Which of the following is True?

A)Moving into the next marginal tax bracket could reduce John's net income overall.
B)The marginal tax brackets apply to tax credits and deductions and will not make a direct difference to John's net income.
C)Moving into the next tax bracket will give John a larger refund on his RRSP contribution.
D)Moving into the next tax brackets will give John a larger refund from his tax credits.

Question 47

If a stock was purchased for $3000 in January 2003 and is sold in June 2003 for $4000,what is the taxable result?

A)Capital gain of $1000 and taxable income of $500
B)Business income of $1000 and taxable amount of $1000
C)Capital gain of $1000 and taxable income of $1000
D)Taxable capital gain of $1000

Question 48

Which of the following can be used to reduce your federal income taxes?

A)Child support payments for a six year old
B)Real estate taxes
C)Provincial income taxes
D)Student loan interest

Question 49

Which of the following best summarizes the correct process?

A)Calculate total income,subtract tax credits and deductions,determine refund or balance owing.
B)Add all deductions and subtract the credits from total income,determine refund or balance owing.
C)Calculate total income,deduct RRSP contribution,apply tax credits and deductions,determine refund or balance owing.
D)Calculate total income,subtract deductions,calculate taxable income,apply tax credits,determine refund or balance owing.

Question 50

For people in the highest marginal tax bracket,which would save them the largest financial benefit?

A)A $10 000 RRSP contribution
B)A $10 000 RESP contribution.
C)A $10 000 TFSA contribution.
D)These would all be the same.

Question 51

Income earned from the sale of an asset for more than you paid for it is classified as

A)dividend income.
B)business income.
C)capital gain.
D)windfall.

Question 52

If George is 65 and in a combined marginal tax bracket of 42 percent,then

A)he can save $840 on his taxes if he applies his son's $2000 of tuition amount.
B)he can save $840 on his taxes from his $2000 RRSP contribution.
C)he can save $840 on his taxes from his $2000 medical expenses.
D)All of the above are correct.

Question 53

Which would reduce taxes the most for a high income earner (income over $100 000)?

A)$4800 interest on a student loan
B)$4800 RRSP contribution
C)$4800 medical expenses
D)These would have the same effect.

Question 54

Which of the following income is taxable income?

A)Insurance benefits
B)Inheritances
C)Scholarship income
D)Tips received

Question 55

If a stock was purchased in January 2004 for $1000 and sold in December 2005 for $3000,what is the taxable result?

A)Taxable capital gain of $2000
B)Taxable capital gain of $1000
C)Income of $2000
D)Annual taxable gain of $500

Question 56

When taxable income on a progressive basis exceeds certain thresholds

A)a higher rate of tax is charged on all levels.
B)tax credits become more important.
C)deductions reach a maximum allowable amount.
D)the tax rate is increased until a new income level is exceeded.

Question 57

The Federal Government's use of net income versus taxable income ensures

A)a progressive tax system.
B)lower income individuals benefit the most.
C)single parents benefit more.
D)all taxpayers are treated equitably.

Question 58

Jake invested $800 in an RRSP.If he is in the 30 percent marginal tax bracket,he will

A)pay $120 less in taxes.
B)pay $240 less in taxes.
C)receive an $800 tax credit.
D)receive a $400 tax deduction.

Question 59

Fred's income this past year included salary of $70 000,$3000 investment income,a $4000 capital gain from selling some stock and a $5000 inheritance.For tax purposes,what is his total income this year?

A)$80 000
B)$82 000
C)$75 000
D)$77 000

Question 60

For qualified individuals,a contribution to a registered retirement savings plan (RRSP)will be

A)a tax credit.
B)a deduction from total income.
C)an employment deduction.
D)a deduction from federal tax payable.

Question 61

Robert is 66 and so qualifies for the age amount.His taxable income for 2014 was $65 000.The threshold income for the age amount is $34 873 and the maximum age amount is $6915.What age amount will he qualify for?

A)$3710
B)$2397
C)$6916
D)zero

Question 62

Which of the following items is affected by the taxpayer's income level?

A)The amounts deducted for employment expenses
B)The amounts that can be deducted for charitable contributions
C)The amount of clawback on social assistance payments
D)Basic personal exemptions

Question 63

Which of the following is not a feature of a registered education savings plan (RESP)?

A)The Educational Assistance Payments
B)The tax deduction for the contributions
C)The Canada Education Savings Grant from the government
D)The Canada Learning Bond for modest income families

Question 64

Roan is a student in Ontario who travelled to BC for his summer job.When in BC he worked in mining camps and his residence was over 40 km from his actual place of employment.He spent $2000 moving to BC and back to Ontario and earned $22 000.During the remaining eight months he went to school full time.Which of the following describes his tax situation best?

A)He will be able to claim full tax credits for moving expenses,tuition,education,books and the personal amount.
B)He will be able to deduct half the $2000 moving expenses because he lived more than 40 km from his work,and can claim tax credits tuition,education,textbooks and the basic personal amount.
C)He will be able to deduct $2000 for moving expenses and claim tax credits tuition,education,textbooks and the basic personal amount.
D)He will not be able to deduct moving expenses as he lived more than 40 km from his work,but he can claim tax credits tuition,education,textbooks and the basic personal amount.

Question 65

The T4 slip provided by your employer shows all your

A)income earned and tax deducted for the year.
B)income,professional dues,and taxes for the year.
C)income earned and deductions for the year.
D)income and deductions made by that employer for the year.

Question 66

Meg makes RRSP contributions resulting in a tax rebate of $1200 each year.She is in a 30 percent tax bracket.What was the amount of her contribution?

A)$3000
B)$4000
C)$22 222
D)Unknown

Question 67

Which taxpayers among the following can deduct some of his or her medical expenses?

A)Jane,who has an income of $40 000 and medical expenses of $1100
B)Claude,who has an income of $60 000 and medical expenses of $2100
C)Peter,who has an income of $65 000 and medical expenses of $2375
D)Paula,who has an income of $26 000 and medical expenses of $700

Question 68

Reginald is thinking about asking his employer to defer a $5000 bonus to next year's income because he would have to pay $2050 in tax if he received it this year.What should he do?

A)If his marginal tax rate next year will be less than 35 percent he should consider deferring it.
B)He should take the bonus now because of the opportunity cost.
C)If his marginal tax rate next year will be less than 45 percent,he should defer it to next year.
D)If his marginal tax rate next year will be less than 41 percent,he should defer it to next year.

Question 69

When considering allocating funds to a TFSA account versus an RRSP account,which of the following is least critical?

A)Avoiding taxation on the investment funds
B)The intended purpose for the investment funds
C)The marginal tax bracket of the individual
D)The financial goals of the individual

Question 70

Fillipe is in the forty percent marginal tax bracket and has a variety of income sources.Which of the following will he owe the least tax for?

A)$1000 interest income
B)$1000 dividend income
C)$1000 award from his company
D)$2000 capital gain

Question 71

Melanie,a homeowner,has mortgage interest of $3000,RRSP contributions of $1500,and charitable contributions of $500.According to her filing status,a basic personal amount of $11 138 is allowed.How much should Melanie deduct on her tax return?

A)Her only deduction is the $1500 RRSP contribution.
B)She can deduct $12 638,her basic personal amount and her RRSP contribution.
C)She can deduct $13 138,her basic personal amount,charitable donation and her RRSP contribution.
D)She has deductions of $2000 for her RRSP and charitable donation.

Question 72

Which of the following would produce the largest financial benefit to a tax payer who earns $96000 and is in the forty percent marginal tax bracket and the twenty five percent average tax bracket? Assume that all items are options of equal importance.

A)A $5000 contribution to his/her child's RESP
B)A $5000 medical expenses amount for orthodontics
C)A $5000 contribution to his/her TFSA
D)A $5000 contribution to his/her RRSP

Question 73

If you are working as a Certified Financial Planner and you pay $500 to the association every year for membership,you can deduct this amount on your personal tax return as

A)union/professional dues as long as you receive a tax receipt.
B)an eligible tax credit as long as you do not get reimbursed for the amount.
C)an employment expense as long as you receive a tax receipt.
D)union/professional dues as long as you do not get reimbursed for the amount.

Question 74

Which of the following is True for postsecondary students?

A)Payments from the RESP their parents set up for them are tax free if used for education.
B)Scholarship income awarded to a student is tax free.
C)Bursary income is tax free if the education amount tax credit is applied for.
D)All these income sources are tax free to students.

Question 75

Your earnings for last year were $42 000.How much of an RRSP contribution can you make this year (if you have no other RRSP room)?

A)$5670
B)$4200
C)$7560
D)Insufficient information

Question 76

Sally's total income is $38 000 and she divorced last year.She does not own a home,but has charitable contributions of $1500 and interest on her car of $2100.This year she also paid spousal support of $2000,child support of $5000,and tuition of $2600.Her basic personal amount is $11 138.What is Sally's taxable income?

A)$34 500
B)$31 900
C)$36 000
D)$20 762

Question 77

Marta received an inheritance of $20 000 and wants to allocate it towards her six-year-old son's education in the most effective manner.Which of the following considerations will have the greatest financial impact?

A)Contributing to an RESP in such a way as to collect the maximum Canada Education Savings Grant
B)Benefiting from the tax deferral in an RESP account as quickly as possible
C)Applying for the Canada Learning Bond as soon as possible
D)Collecting the maximum Educational Assistance Payments in the RESP account

Question 78

Ralph has total income of $53 000.He has business expenses of $18 000,made a $5000 RRSP contribution and incurred $4000 in college expenses for his daughter,who did not work and is a freshman at a local community college.Personal basic exemptions of $11 138 and a marginal tax rate of 26 percent apply.Compute Ralph's taxable income for the current year.

A)$18 862
B)$26 000
C)$30 000
D)$14 862

Question 79

Your earnings last year were $120 000,which is the 40 percent marginal tax bracket and 30 percent average tax bracket,in your province.How much would your taxes be reduced if you made the full RRSP contribution for this year (and had no additional RRSP room)?

A)$6480
B)$8640
C)$21 600
D)$12 960

Question 80

Which of the following is not an acceptable method of reducing your tax bill?

A)Taking a loan for investment purposes and deducting the interest
B)Increasing your contributions to tax-advantaged retirement accounts
C)Using as many deductions as possible to reduce your marginal tax rate
D)Deducting employment expenses you were reimbursed for