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

Question 1

Self-employed taxpayers must file a tax return by June 15 of each year.

Answer 1

True

Question 2

Canada's tax system is called "progressive," meaning that the more you earn the more you pay in taxes.

Answer 2

True

Question 3

The T4 slip provided by your employer shows all earnings but not the deductions made for the year.

Answer 3

False

Question 4

Knowledge of individual income taxes is crucial to sound financial planning.

Question 5

Knowledge of tax laws can help you conserve your income.

Question 6

Deductions represent an amount that can reduce total income to arrive at a taxable income.

Question 7

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

Question 8

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 9

Your gross wages are subject to Canada Revenue Agency taxes that fund the social assistance benefits and health care programs.

Question 10

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 11

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

Question 12

Excise taxes are different than income taxes because they are applied to tobacco and alcohol purchases.

Question 13

Gross income consists of all reportable income from any source.

Question 14

Students should not file income tax returns because they have to pay sales taxes such as the GST and PST.

Question 15

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

Question 16

Canadians pay taxes on the entire amount of capital gains income they receive by selling an investment at a profit.

Question 17

Taxpayers can have more than the minimum amount of required income tax withheld from each paycheque.

Question 18

Employee contributions to qualified registered pension plans (RPPs)are deducted from total income to calculate taxable income.

Question 19

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

Question 20

Canada Revenue Agency charges all Canadians the same tax rates but the provinces have different tax rates.

Question 21

Carrying charges and interest expense are an allowable deduction if they were used to earn investment income.

Question 22

The basic personal exemption is an amount that reduces income for the taxpayer with high earnings.

Question 23

Tax credits amount to the same savings as tax deductions.

Question 24

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

Question 25

All employees can deduct interest or carrying charges on all loans.

Question 26

If your tax calculated is zero, refundable credits may be paid to you.

Question 27

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

Question 28

Once you have reached age 60 you will be able to claim an age amount deduction.

Question 29

You will pay less tax on dividends received because the corporation paying the dividend to you has already paid some tax on this money.

Question 30

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

Question 31

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

Question 32

Taxpayers who have high taxable incomes may have some or all of their social assistance payments clawed back.

Question 33

Interest paid on student loans can be used to reduce tax owing.

Question 34

The key tax planning decisions in building your financial plan are knowing what tax savings are currently available to you and how you can increase your tax savings in the future.

Question 35

RRSP contributions do not reduce the amount of tax you have to pay.

Question 36

To qualify as a deduction, medical expenses must exceed 5 percent of total income.

Question 37

A tax credit is available to those supporting a spouse who had low earnings during the year.

Question 38

The basic personal amount is a non-refundable tax credit.

Question 39

Non-refundable tax credits should be used first to reduce tax because they cannot be carried forward to reduce taxes in later years.

Question 40

Tax credits are used to reduce total income.

Question 41

Which of the following taxes is paid on your salary?

A)Federal income tax
B)Municipal tax
C)Goods and Services Tax
D)Excise tax

Question 42

Tax evasion is a good tax planning technique because it results in larger refunds.

Question 43

Tax planning involves activities and transactions that will eliminate taxes where possible.

Question 44

The knowledge of tax laws can help you

A)save the PST you pay.
B)improve the return on your investments.
C)recover payment of excise taxes.
D)maximize retention of earned income.

Question 45

GST credit for low-income families and the Working Income Tax Benefit are examples of non-refundable tax credits.

Question 46

Tax avoidance is normally best done at the end of the year when all sources of income are known.

Question 47

Michael is an independent contractor for repairs and maintenance, but his customers usually provide him with the necessary tools and equipment. Michael may not be qualified as a self-employed individual.

Question 48

When must self-employed individuals file their income tax returns by?

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

Question 49

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 50

Medical expense amount tax credit is meant to address total medical expenses that are greater than either 3 percent of your total income or $2024, whichever is less.

Question 51

Tax avoidance is not allowed because it is a method of bending the rules to reduce tax liability.

Question 52

A clawback is meant to reduce a particular government benefit provided to taxpayers who have income below a certain minimum amount.

Question 53

Basic personal amount and spousal/common-law partner amount in non-refundable tax credit are the same.

Question 54

You have a salary of $30 000, an RPP deduction of $2000, and union dues of $800. The federal tax rate is 15.5 percent. What federal tax do you owe?

A)$4340
B)$2216
C)$1416
D)$4216

Question 55

Total amount of $10 000 interest will pay higher taxes than total amount of $10 000 eligible dividends.

Question 56

The branch of Canada's government that administers the federal tax system is called

A)Revenue Canada.
B)Canada Revenue Agency.
C)Ministry of Finance.
D)Employment Services and Taxation.

Question 57

The higher the taxable income, the higher the federal tax and the lower the provincial tax you will pay.

Question 58

Tax planning involves the careful use of refundable and transferrable credits to maximize refunds.

Question 59

Current year's capital loss can be applied only to offset future capital gains.

Question 60

Non-refundable tax credit means that the portion of the credit that is not needed to reduce your tax liability will not be paid to you this year but will be paid to you next year.

Question 61

If you are a married taxpayer supporting a spouse with a very low 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 62

If you have a salary of $38 000, medical expenses of $1600, and an RRSP contribution of $4000 and the federal tax rate is 15 percent, what federal tax will you pay?

A)$3500
B)$4860
C)$5013
D)$4929

Question 63

If a stock was purchased for $3000 in January 2003 and is sold in December 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)Capital income of $1000 and taxable capital of $500

Question 64

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 65

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 66

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 expense.
D)a deduction from federal tax payable.

Question 67

All of the following are types of taxable income except

A)government benefits.
B)life insurance benefits.
C)rental income.
D)the use of a company car.

Question 68

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)when calculating taxable income.

Question 69

If you are supporting a spouse who attended school and had very little income

A)you can use the amounts he or she paid for tuition and books to reduce your tax.
B)the spouse's non-refundable tax credits can be used to reduce your tax.
C)you are entitled to a caregiver tax credit.
D)you will be entitled to his or her personal basic exemption.

Question 70

If you were to receive $100 000 from a corporation, the most tax-efficient way to receive it would be as

A)dividends.
B)interest.
C)capital gains.
D)salary.

Question 71

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 72

Which of the following incomes are taxed at a lower rate?

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

Question 73

Interest income would come from earnings on

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

Question 74

Determining taxes requires you to address all of the following topics except

A)gross income.
B)living expenses.
C)deductions.
D)tax credits, refundable or not.

Question 75

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

A)you can make use of non-refundable tax credits during the year.
B)you may be eligible for Employment Insurance benefits.
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 76

Jake invested $800 in an RRSP. If he has a 15 percent marginal tax rate and the contribution is tax deductible, Jake will

A)pay $120 more in taxes.
B)pay $120 less in taxes.
C)receive an $800 tax credit.
D)have $800 more in taxable income.

Question 77

Which of the following incomes are taxed at a lower rate?

A)Award proceeds
B)Interest income
C)Rent received
D)Dividends

Question 78

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)that marginal tax rates decrease at higher income levels.

Question 79

Which of the following income is not taxable income?

A)Insurance benefits
B)Interest income
C)Dividends
D)Tips received

Question 80

Total income includes all of the following except

A)salary or wages.
B)interest or dividends received.
C)inheritances.
D)capital gains realized.