1. Which of the following is a primary test used to determine individual
residency for Canadian tax purposes?
A. 183-day rule only
B. Residential ties with Canada (e.g., home, spouse, dependants)
C. Citizenship only
D. Source of income only
Answer: B.
Explanation: Canadian residency is determined by primary residential
ties (home, spouse/common-law partner, dependants) and secondary ties;
the 183-day rule is relevant but not the sole test.
2. A taxpayer receives $5,000 in employment income and $1,000 in a
taxable Canada Pension Plan (CPP) benefit. Which amount is included in
taxable income?
A. $0
B. $1,000
C. $5,000
D. $6,000
Answer: D.
Explanation: Both employment income and taxable CPP benefits are
included in taxable income.
3. Which of the following is generally not an eligible deduction for an
individual when computing net income for tax purposes?
A. RRSP contributions (within limits)
B. Moving expenses (eligible)
C. Personal living expenses (groceries, rent)
D. Union dues
Answer: C.
Explanation: Ordinary personal living expenses are not deductible;
RRSP contributions, eligible moving expenses, and employment-related
union dues may be deductible.
,4. A Canadian resident sells listed shares and realizes a capital gain of
$10,000. What portion is included in taxable income?
A. $0
B. $2,500
C. $5,000
D. $10,000
Answer: C.
Explanation: For individuals, 50% (the inclusion rate) of capital gains is
included in taxable income (so $5,000).
5. Which tax credit is non-refundable and reduces federal tax payable but
cannot result in a refund by itself?
A. Canada Child Benefit
B. Basic personal amount (federal)
C. GST/HST credit
D. Working Income Tax Benefit (refundable component)
Answer: B.
Explanation: The basic personal amount is a non-refundable tax credit; it
reduces tax payable but won’t create a refund on its own.
6. An individual receives an employer-paid group term life insurance
premium. The employer’s premiums are: are they taxable to the
employee?
A. Always fully taxable
B. Taxable only if coverage exceeds $50,000 and a taxable benefit arises
C. Never taxable
D. Taxable only for non-residents
Answer: B.
Explanation: Employer-paid group life insurance premiums result in a
taxable benefit when coverage exceeds $50,000; the benefit is calculated
based on the cost of coverage over the limit.
7. A corporation resident in Canada earned $200,000 taxable income.
Which rate applies for the small business deduction (SBD) eligibility?
A. The general corporate tax rate only
B. Small business deduction reduces federal tax if active business income
is below the small business limit (specified amount)
C. Personal tax rates apply to the corporation
D. The corporation pays no tax
Answer: B.
Explanation: Eligible Canadian-controlled private corporations (CCPCs)
, may claim the SBD on active business income up to the small business
limit, reducing federal tax.
8. Which of the following incomes is generally considered business income
(rather than capital gain) for tax purposes?
A. Proceeds from selling a rental property held as an investment for many
years
B. Gain from trading securities as part of a business of trading
C. Infrequent sale of a personal asset at a gain
D. Inherited property sold immediately
Answer: B.
Explanation: Trading securities as part of a business results in business
income; frequency, intention, and nature determine classification.
9. A non-resident of Canada carries on business in Canada through a
permanent establishment. How is Canadian tax generally applied?
A. They pay no Canadian tax on Canadian-source business income
B. Canadian tax applies to income attributable to the permanent
establishment
C. Income is taxed only in the non-resident’s country of residence
D. They pay only GST/HST, not income tax
Answer: B.
Explanation: Non-residents carrying on business in Canada through a
permanent establishment are taxed on income attributable to that PE.
10.Which of the following items is included in employment income for tax
purposes?
A. Reimbursement of eligible moving expenses by the employer (if paid
under certain conditions)
B. Reimbursement for business expenses where employee is obliged to
account and employer requires receipts (generally not taxable)
C. Cash gift unrelated to employment
D. None of the above
Answer: B.
Explanation: Properly reimbursed employment business expenses (with
receipts and employer requirement) normally are not taxable benefits;
moving expense reimbursements may be taxable unless they meet rules.
11.When calculating taxable income, a taxpayer claims a deduction for
allowable business investment losses (ABIL). ABILs result from:
A. Personal consumption only
B. Losses from disposition of certain shares or debts from small business
, corporations where specific rules apply
C. Capital gains
D. RRSP withdrawals
Answer: B.
Explanation: ABILs arise from allowed business investment losses
under prescribed conditions (e.g., certain small business corporation
shares/debts).
12.Which of the following is a federal refundable tax credit?
A. Charitable donation tax credit
B. Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit
C. Age amount (non-refundable)
D. Disability tax credit (non-refundable)
Answer: B.
Explanation: The GST/HST credit is refundable; it can result in
payments even if the recipient has no tax payable.
13.A taxpayer contributes $8,000 to an RRSP in 2024; their RRSP deduction
limit is $10,000. What is the immediate tax effect?
A. The full $8,000 may be deducted from income in the year (subject to
notice of assessment adjustments).
B. Contribution is not deductible until withdrawal.
C. RRSP contributions are taxable income.
D. Only $2,000 can be deducted.
Answer: A.
Explanation: RRSP contributions within the deduction limit can be
deducted against income in the year (or carried forward).
14.For GST/HST purposes, a small supplier is someone whose worldwide
taxable supplies are $30,000 or less over the last four consecutive
calendar quarters. What is the result?
A. They must charge and collect GST/HST from day one.
B. They are not required to register for GST/HST (subject to thresholds)
and therefore generally do not charge tax.
C. They can never register voluntarily.
D. They must charge HST but not GST.
Answer: B.
Explanation: Small suppliers under the $30,000 threshold are not
required to register and collect GST/HST (although voluntary registration
is possible).
residency for Canadian tax purposes?
A. 183-day rule only
B. Residential ties with Canada (e.g., home, spouse, dependants)
C. Citizenship only
D. Source of income only
Answer: B.
Explanation: Canadian residency is determined by primary residential
ties (home, spouse/common-law partner, dependants) and secondary ties;
the 183-day rule is relevant but not the sole test.
2. A taxpayer receives $5,000 in employment income and $1,000 in a
taxable Canada Pension Plan (CPP) benefit. Which amount is included in
taxable income?
A. $0
B. $1,000
C. $5,000
D. $6,000
Answer: D.
Explanation: Both employment income and taxable CPP benefits are
included in taxable income.
3. Which of the following is generally not an eligible deduction for an
individual when computing net income for tax purposes?
A. RRSP contributions (within limits)
B. Moving expenses (eligible)
C. Personal living expenses (groceries, rent)
D. Union dues
Answer: C.
Explanation: Ordinary personal living expenses are not deductible;
RRSP contributions, eligible moving expenses, and employment-related
union dues may be deductible.
,4. A Canadian resident sells listed shares and realizes a capital gain of
$10,000. What portion is included in taxable income?
A. $0
B. $2,500
C. $5,000
D. $10,000
Answer: C.
Explanation: For individuals, 50% (the inclusion rate) of capital gains is
included in taxable income (so $5,000).
5. Which tax credit is non-refundable and reduces federal tax payable but
cannot result in a refund by itself?
A. Canada Child Benefit
B. Basic personal amount (federal)
C. GST/HST credit
D. Working Income Tax Benefit (refundable component)
Answer: B.
Explanation: The basic personal amount is a non-refundable tax credit; it
reduces tax payable but won’t create a refund on its own.
6. An individual receives an employer-paid group term life insurance
premium. The employer’s premiums are: are they taxable to the
employee?
A. Always fully taxable
B. Taxable only if coverage exceeds $50,000 and a taxable benefit arises
C. Never taxable
D. Taxable only for non-residents
Answer: B.
Explanation: Employer-paid group life insurance premiums result in a
taxable benefit when coverage exceeds $50,000; the benefit is calculated
based on the cost of coverage over the limit.
7. A corporation resident in Canada earned $200,000 taxable income.
Which rate applies for the small business deduction (SBD) eligibility?
A. The general corporate tax rate only
B. Small business deduction reduces federal tax if active business income
is below the small business limit (specified amount)
C. Personal tax rates apply to the corporation
D. The corporation pays no tax
Answer: B.
Explanation: Eligible Canadian-controlled private corporations (CCPCs)
, may claim the SBD on active business income up to the small business
limit, reducing federal tax.
8. Which of the following incomes is generally considered business income
(rather than capital gain) for tax purposes?
A. Proceeds from selling a rental property held as an investment for many
years
B. Gain from trading securities as part of a business of trading
C. Infrequent sale of a personal asset at a gain
D. Inherited property sold immediately
Answer: B.
Explanation: Trading securities as part of a business results in business
income; frequency, intention, and nature determine classification.
9. A non-resident of Canada carries on business in Canada through a
permanent establishment. How is Canadian tax generally applied?
A. They pay no Canadian tax on Canadian-source business income
B. Canadian tax applies to income attributable to the permanent
establishment
C. Income is taxed only in the non-resident’s country of residence
D. They pay only GST/HST, not income tax
Answer: B.
Explanation: Non-residents carrying on business in Canada through a
permanent establishment are taxed on income attributable to that PE.
10.Which of the following items is included in employment income for tax
purposes?
A. Reimbursement of eligible moving expenses by the employer (if paid
under certain conditions)
B. Reimbursement for business expenses where employee is obliged to
account and employer requires receipts (generally not taxable)
C. Cash gift unrelated to employment
D. None of the above
Answer: B.
Explanation: Properly reimbursed employment business expenses (with
receipts and employer requirement) normally are not taxable benefits;
moving expense reimbursements may be taxable unless they meet rules.
11.When calculating taxable income, a taxpayer claims a deduction for
allowable business investment losses (ABIL). ABILs result from:
A. Personal consumption only
B. Losses from disposition of certain shares or debts from small business
, corporations where specific rules apply
C. Capital gains
D. RRSP withdrawals
Answer: B.
Explanation: ABILs arise from allowed business investment losses
under prescribed conditions (e.g., certain small business corporation
shares/debts).
12.Which of the following is a federal refundable tax credit?
A. Charitable donation tax credit
B. Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit
C. Age amount (non-refundable)
D. Disability tax credit (non-refundable)
Answer: B.
Explanation: The GST/HST credit is refundable; it can result in
payments even if the recipient has no tax payable.
13.A taxpayer contributes $8,000 to an RRSP in 2024; their RRSP deduction
limit is $10,000. What is the immediate tax effect?
A. The full $8,000 may be deducted from income in the year (subject to
notice of assessment adjustments).
B. Contribution is not deductible until withdrawal.
C. RRSP contributions are taxable income.
D. Only $2,000 can be deducted.
Answer: A.
Explanation: RRSP contributions within the deduction limit can be
deducted against income in the year (or carried forward).
14.For GST/HST purposes, a small supplier is someone whose worldwide
taxable supplies are $30,000 or less over the last four consecutive
calendar quarters. What is the result?
A. They must charge and collect GST/HST from day one.
B. They are not required to register for GST/HST (subject to thresholds)
and therefore generally do not charge tax.
C. They can never register voluntarily.
D. They must charge HST but not GST.
Answer: B.
Explanation: Small suppliers under the $30,000 threshold are not
required to register and collect GST/HST (although voluntary registration
is possible).
