PERSONAL TAX FINAL EXAM REVIEW
QUESTIONS AND VERIFIED ANSWERS
\.Making contributions to an RRSP always involves what type of tax planning?
A) Tax avoidance and tax deferral.
B) Tax deferral.
C) Tax avoidance.
D) Income splitting - ANSWERS✔-B) Tax deferral
\.An individual is liable for income tax in Canada if he:
A) is a resident in Canada.
B) is a citizen of Canada.
C) has lived in Canada at any time during the year.
D) All of the above are required. - ANSWERS✔-A) is a resident in Canada
\.Mr. E moved from Buffalo, New York, USA to Vancouver, British Columbia,
Canada on May 27th of the current year. He commenced employment in Canada
on May 28th. He lived in a hotel until he took possession of his new home in
Vancouver on June 1st. His wife and children accompanied him to Canada at the
,end of the school year in June. Mr. E had no income from Canadian sources prior
to moving to Canada. For the current year, Mr. E is taxable in Canada on:
A) his Canadian source employment income from May 28th to the end of the year.
B) his Canadian source income from all sources from May 28th to the end of the
year.
C) his worldwide income from all sources from May 28th to the end of the year.
D) his worldwide income from all sources for the entire year. - ANSWERS✔-C) his
worldwide income from all sources from May 28th to the end of the year
\.Mr. A was born in Canada and has lived in Canada all of his life. On November 1st
of the current year, he was transferred by his employer to Brussels, Belgium.
There is no plan for him to return to Canada in the foreseeable future. He is not
married and has no children. For the current year, Mr. A's Canadian residence
status for tax purposes is most accurately described as:
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident - ANSWERS✔-D) part-year resident
\.Which of the following is NOT a taxable entity for Canadian income tax
purposes?
A) Darklyn Ltd., a Canadian resident corporation.
,B) Ms. Sarah Bright, a Canadian resident.
C) Walters and Walters, a group of CPAs operating as a partnership.
D) The Martin family trust. - ANSWERS✔-C) Walters and Walters, a group of CPAs
operating as a partnership
\.Which of the following amounts is NOT deducted in converting Net Income for
Tax Purposes to Taxable Income?
A) Losses of other years.
B) The lifetime capital gains deduction.
C) An amount related to the exercise or sale of stock options.
D) The excess of allowable capital losses over taxable capital gains for the year. -
ANSWERS✔-D) The excess of allowable capital losses over taxable capital gains for
the year.
\.Which of the following can be considered an advantage of an income tax system
based on progressive rates?
A) A progressive rate system is simpler to administer.
B) A progressive rate system provides greater stability in the context of changing
economic conditions.
C) A progressive system discourages tax evasion.
D) A progressive system encourages greater effort on the part of individuals. -
ANSWERS✔-B) A progressive rate system provides greater stability in the context
of changing economic conditions.
, \."We should not have a tax system which encourages investment in particular
assets or in specific areas of the country." This statement reflects which of the
following qualitative characteristics of an effective tax system?
A) Neutrality.
B) Horizontal equity.
C) Simplicity.
D) Elasticity. - ANSWERS✔-A) Neutrality.
\.With respect to loans to employees, which of the following statements is
correct?
A) If the rate on the loan is less than the market rate for similar types of debt, the
employee will have a taxable benefit equal to the difference.
B) If the proceeds from the loan are invested in income producing assets, the
interest benefit on the loan will be deductible in determining the employee's Net
Income For Tax Purposes.
C) When the loan is to assist an employee with a home purchase, the taxable
benefit must be calculated using each quarterly value for the prescribed rate.
D) The taxable benefit on an employee loan will not be altered by the amount of
interest payments the employee makes to the employer. - ANSWERS✔-B) If the
proceeds from the loan are invested in income producing assets, the interest
benefit on the loan will be deductible in determining the employee's Net Income
For Tax Purposes.
QUESTIONS AND VERIFIED ANSWERS
\.Making contributions to an RRSP always involves what type of tax planning?
A) Tax avoidance and tax deferral.
B) Tax deferral.
C) Tax avoidance.
D) Income splitting - ANSWERS✔-B) Tax deferral
\.An individual is liable for income tax in Canada if he:
A) is a resident in Canada.
B) is a citizen of Canada.
C) has lived in Canada at any time during the year.
D) All of the above are required. - ANSWERS✔-A) is a resident in Canada
\.Mr. E moved from Buffalo, New York, USA to Vancouver, British Columbia,
Canada on May 27th of the current year. He commenced employment in Canada
on May 28th. He lived in a hotel until he took possession of his new home in
Vancouver on June 1st. His wife and children accompanied him to Canada at the
,end of the school year in June. Mr. E had no income from Canadian sources prior
to moving to Canada. For the current year, Mr. E is taxable in Canada on:
A) his Canadian source employment income from May 28th to the end of the year.
B) his Canadian source income from all sources from May 28th to the end of the
year.
C) his worldwide income from all sources from May 28th to the end of the year.
D) his worldwide income from all sources for the entire year. - ANSWERS✔-C) his
worldwide income from all sources from May 28th to the end of the year
\.Mr. A was born in Canada and has lived in Canada all of his life. On November 1st
of the current year, he was transferred by his employer to Brussels, Belgium.
There is no plan for him to return to Canada in the foreseeable future. He is not
married and has no children. For the current year, Mr. A's Canadian residence
status for tax purposes is most accurately described as:
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident - ANSWERS✔-D) part-year resident
\.Which of the following is NOT a taxable entity for Canadian income tax
purposes?
A) Darklyn Ltd., a Canadian resident corporation.
,B) Ms. Sarah Bright, a Canadian resident.
C) Walters and Walters, a group of CPAs operating as a partnership.
D) The Martin family trust. - ANSWERS✔-C) Walters and Walters, a group of CPAs
operating as a partnership
\.Which of the following amounts is NOT deducted in converting Net Income for
Tax Purposes to Taxable Income?
A) Losses of other years.
B) The lifetime capital gains deduction.
C) An amount related to the exercise or sale of stock options.
D) The excess of allowable capital losses over taxable capital gains for the year. -
ANSWERS✔-D) The excess of allowable capital losses over taxable capital gains for
the year.
\.Which of the following can be considered an advantage of an income tax system
based on progressive rates?
A) A progressive rate system is simpler to administer.
B) A progressive rate system provides greater stability in the context of changing
economic conditions.
C) A progressive system discourages tax evasion.
D) A progressive system encourages greater effort on the part of individuals. -
ANSWERS✔-B) A progressive rate system provides greater stability in the context
of changing economic conditions.
, \."We should not have a tax system which encourages investment in particular
assets or in specific areas of the country." This statement reflects which of the
following qualitative characteristics of an effective tax system?
A) Neutrality.
B) Horizontal equity.
C) Simplicity.
D) Elasticity. - ANSWERS✔-A) Neutrality.
\.With respect to loans to employees, which of the following statements is
correct?
A) If the rate on the loan is less than the market rate for similar types of debt, the
employee will have a taxable benefit equal to the difference.
B) If the proceeds from the loan are invested in income producing assets, the
interest benefit on the loan will be deductible in determining the employee's Net
Income For Tax Purposes.
C) When the loan is to assist an employee with a home purchase, the taxable
benefit must be calculated using each quarterly value for the prescribed rate.
D) The taxable benefit on an employee loan will not be altered by the amount of
interest payments the employee makes to the employer. - ANSWERS✔-B) If the
proceeds from the loan are invested in income producing assets, the interest
benefit on the loan will be deductible in determining the employee's Net Income
For Tax Purposes.
