Deck 3: Planning Your Tax Strategy

Question 1

Several courses of appeal are available to taxpayers who disagree with a revenue service ruling on their tax return audit.

Answer 1

False

Question 2

Most taxpayers have to file quarterly payments of estimated amounts owed for taxes.

Answer 2

False

Question 3

Deductions are amounts that a taxpayer is allowed to deduct from taxable income.

Answer 3

False

Question 4

If you are a self-employed individual, you do have to make both employee and employer contributions to the CPP or QPP.

Question 5

Income from a partnership is included under net business income.

Question 6

Real-estate property taxes are significant but not a major source of revenue for local governments.

Question 7

There is a withholding on tax paid to Canadian residents on interest, dividends, rent and royalties.

Question 8

About one-third of each dollar you earn goes towards income taxes

Question 9

An estate tax is imposed on the value of an individual's property at the time of his or her death.

Question 10

A field audit requires that a taxpayer visit an auditing agent to clarify some aspect of his or her tax return.

Question 11

Tax-exempt income has a greater financial benefit than tax-deferred income.

Question 12

Taxable income is the total earnings of a person.

Question 13

There is no significant difference between a federal tax credit and a federal tax deduction.

Question 14

A tax credit is an amount subtracted directly from the amount of taxes owed.

Question 15

Tax assistance from an attorney is less common than using a tax service.

Question 16

A tax on the value of automobiles, boats, or furniture can also be referred to as an investment tax.

Question 17

A province may impose a personal property tax.

Question 18

Tax evasion refers to illegal actions to reduce one's taxes.

Question 19

Taxes are only considered in financial planning in April.

Question 20

The principal purpose of taxes is to control economic conditions.

Question 21

Earnings from a limited partnership would be an example of ____________ income.

A)earned
B)investment
C)portfolio
D)net business income
E)excluded

Question 22

Which of the following is a standard tax credit?

A)itemized deductions
B)withholding
C)an earned tax credit
D)the basic personal amount
E)capital gains

Question 23

Money received by an individual for personal effort is ____________ income.

A)earned or employment investment
B)investment
C)portfolio
D)excluded
E)capital gains

Question 24

One of the legitimate methods to reduce one's taxes is tax avoidance

Question 25

Taxable income is used to compute a person's

A)exemptions.
B)income tax.
C)deductions.
D)tax credit.
E)exclusions.

Question 26

Which of the following would result in a reduction of taxable income?

A)portfolio income
B)tax credits
C)union dues
D)business income
E)earned income

Question 27

Jack sold $20,000 worth of stocks that were purchased one year ago for $15,000.He is in a 22% tax bracket.Jack's capital gains taxes are:

A)$500.
B)$550.
C)$1,100.
D)$2,500.
E)$4,400.

Question 28

Contributions to a Tax Free Savings Account are tax deductible

Question 29

Reductions from gross income for such items as registered retirement account contributions and RESP payments will result in

A)business income
B)taxable income.
C)earned income.
D)net income.
E)total exclusions.

Question 30

The main purpose of taxes is to

A)create jobs
B)reduce the chances of inflation.
C)generate revenue for funding government programs.
D)discourage use of certain goods and services.
E)decrease competition from foreign companies.

Question 31

____________ are expenses that a taxpayer is allowed to deduct from total income.

A)Exemptions
B)Exclusions
C)Deductions
D)Tax credits
E)Passive income

Question 32

Winning the lottery affects a person's tax situation by

A)increasing the standard deduction.
B)increasing the taxpayer's marginal tax rate.
C)decreasing itemized deductions.
D)increasing tax-exempt income.
E)having no influence at all on taxable income.

Question 33

Phillip Marnier had earnings from his salary of $40,000, interest on savings of $700, and a contribution to a registered retirement saving plan of $1,500.Phillip's net income would be

A)$39,200.
B)$40,000.
C)$39,300.
D)$38,500.
E)$41,500.

Question 34

Income that is not subject to income tax includes:

A)the GST/HST rebate.
B)the Canada child tax benefit
C)gifts.
D)lottery winnings.
E)GST/HST rebates, Canada Child Tax benefits, gifts, and lottery winnings are not subject to income tax.

Question 35

One of the legitimate methods to reduce one's taxes is tax evasion

Question 36

Money received in the form of dividends or interest is ____________ income.

A)business income
B)earned or employment
C)excluded
D)capital gain
E)investment

Question 37

The ______________ property tax is based on the value of land and buildings.

A)personal
B)real estate
C)direct
D)proportional
E)regressive

Question 38

Which of the following would be excluded from total income to obtain net income?

A)contributions to RPPs
B)mortgage interest
C)child support payments
D)foreign income exclusion
E)charitable contributions

Question 39

The use of legitimate methods to reduce one's taxes is tax ____________.

A)evasion
B)avoidance
C)exemptions
D)deferred techniques
E)reductions

Question 40

An exemption affects a person's tax situation by:

A)increasing the standard deduction.
B)increasing the taxpayer's marginal tax rate.
C)decreasing itemized deductions.
D)reducing the taxpayer's taxable income.
E)increasing tax-exempt income.

Question 41

Estimated quarterly tax installments must be made by those who

A)are employed in a foreign country.
B)receive dividends.
C)work for the government.
D)owe year-end taxes of over $2,000 for both the current year and either of the two preceding y years.
E)have been caught committing fraud.

Question 42

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:

A)receive a refund of $4,550.
B)owe $8,325.
C)owe $375.
D)receive a refund of $8,325.
E)receive a refund of $375.

Question 43

Making use of legitimate methods to reduce one's taxes is called tax ____________.

A)evasion
B)planning
C)exemptions
D)deferred techniques
E)reductions

Question 44

Which of the following people is least likely to have to file a federal income tax return?

A)a person earning $8,750
B)a person earning $10, 750
C)a person earning less than $9,600
D)a person over age 65
E)a college student

Question 45

Capital gains refer to

A)tax-exempt investments.
B)profits from the sale of an investment asset.
C)gains from the sale of capital assets
D)earnings from investments such as dividends or interest.
E)tax-deferred investments.

Question 46

The financial planning objective is to:

A)evade taxes.
B)minimize taxes.
C)maximize income.
D)maximize after-tax cash flows.
E)maximize tax credits.

Question 47

The basic personal amount is

A)the standard deduction.
B)a tax credit.
C)an itemized deduction.
D)an exclusion.
E)an exemption.

Question 48

An example of a tax-exempt investment is

A)interest on Canada savings bonds.
B)dividends from corporate stock.
C)a gain on the sale of your home.
D)earnings from a mutual fund.
E)interest on corporate bonds.

Question 49

An expense that would be included in the deductions of a taxpayer is

A)travel to work.
B)life insurance premiums.
C)union and professional dues.
D)a driver's license fee.
E)tuition fees.

Question 50

Which of the following is an example of a tax credit?

A)mortgage interest
B)amounts withheld for social insurance
C)individual retirement account contributions
D)caregiver and medical expenses
E)net business income

Question 51

Jennifer made $2,000 worth of charitable donations.Her total income is $36,000 and she is in the 22% federal tax bracket.What is her charitable donations tax credit?

A)$320
B)$440
C)$552
D)$2,000
E)$5,760

Question 52

"Grossed-up" Canadian dividends are multiplied by what amount in order to determine the level of taxable dividends?

A)15%
B)18.97%
C)45%
D)50%
E)60%

Question 53

An RPP differs from an RRSP in that

A)earnings on the RPP are tax free after five years.
B)contributions may exceed $2,000 in the RRSP.
C)an RRSP is set up by an employer for an employee.
D)An RPP is set up by an employer for an employee.
E)funds are only to be used for education expenses

Question 54

An RRSP, RPP, and IPP are examples of

A)tax-exempt retirement plans.
B)tax-deferred retirement plans.
C)capital gains.
D)self-employment insurance programs.
E)job-related expenses that are tax deductible.

Question 55

A tax ____________ is an amount subtracted directly from the amount of taxes owed.

A)credit
B)exemption
C)deduction
D)exclusion
E)shelter

Question 56

Sheira Harvey worked in Poland for part of the year and earned $50,000 while she was there.This income will not be included in her income for the year.This represents:

A)A deduction
B)An exclusion
C)An exemption
D)A tax credit
E)An increase of income

Question 57

Which type of tax expert would be of most value when you have a difference of opinion with the tax department?

A)an enrolled agent
B)a nationally-chartered tax preparer
C)a CA
D)a tax accountant
E)a tax attorney

Question 58

Most people pay federal income tax by

A)paying the total amount owed by April 15.
B)filing quarterly tax payments.
C)having amounts withheld from source.
D)earning tax credits for various deductions.
E)cashing in their saving.

Question 59

An example of a non-refundable tax credit is

A)interest on a credit card or charge account.
B)certain job-related travel expenses.
C)the cost of commuting to work.
D)life insurance premiums.
E)student loan interest fees.

Question 60

What is the maximum percentage of last year's earned income that can be contributed to an RRSP?

A)15%
B)18.
C)45%
D)50%
E)60%

Question 61

Anne had earnings from her salary of $40,000 and a contribution to a registered retirement saving plan of $1,500.Anne's' net income would be

A)$39,250.
B)$40,000.
C)$39,300.
D)$38,500.
E)$41,500.

Question 62

Winning a $10,000 the lottery affects a person's tax situation by

A)increasing the standard deduction by $10,000.
B)increasing the taxpayer's marginal tax rate to 50%.
C)is taxed at the same rate as capital gains.
D)is not taxed.
E)is added to income and taxed accordingly.

Question 63

Beginning in 2009 Canadian residents 18 and older are allowed to contribute _________ per year to a Tax Free Savings Account:

A)$1,000
B)$2,000
C)$3,000
D)$4,000
E)$5,000

Question 64

What is the maximum withdrawal amount allowed under the Home Buyers' Plan?

A)$10,000
B)$20,000
C)$25,000
D)$50,000
E)$100,000

Question 65

A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by

A)$10.
B)$28.
C)$14.
D)$50.
E)$35.

Question 66

Jeffrey is a self-employed carpenter.He bills his clients $60,000 a year.Total business expenses amount to $10,000 a year.His only eligible income tax deduction is $5,000 for an RRSP contribution.If the first $36,000 of taxable income is taxed by the Federal Government at a rate of 15% and levels up to approximately $70,000 are taxed at 22%, what is his federal tax liability before considering tax credits?

A)$5,760
B)$6,750
C)$7,380
D)$9,900
E)$12,500

Question 67

Richard sold $20,000 worth of stocks that were purchased one year ago for $18,000.He is in a 22% tax bracket.Jack's capital gains taxes are:

A)$220.
B)$440.
C)$2,000.
D)$110.
E)there is no tax on capital gains.

Question 68

Tax Free Savings Accounts have all the following characteristics except

A)The contribution limit is $5,000 per annum regardless of any amounts contributed to an RRSP/RPP.
B)The $5,000 limit is indexed to the CPI and increases in multiples of $500.
C)Contributions to a TFSA are tax deductible
D)Any unused contribution room can be carried forward.
E)Amounts can be withdrawn at any time and any amounts withdrawn can be re-contributed in the same year if one still has contribution room left over.

Question 69

Chelsea had earnings from her salary of $50,000, interest on savings of $2,000, and a contribution to a registered retirement saving plan of $2,000.Chelsea's net income would be

A)$50,000.
B)$48,000.
C)$52,000.
D)$46,000.
E)$49,500.

Question 70

The Tax Free Savings Account (TFSA) contribution limit

A)is fixed at $5,000/year
B)will increase at a rate of 10% per year
C)is indexed to the CPI and increases in multiples of $500
D)varies by an individual's income
E)decreases with increased RRSP contributions in the same year

Question 71

How many days after the end of the year are you allowed to still contribute to an RRSP and still claim it for the most recent take year?

A)15
B)30
C)45
D)60
E)90

Question 72

Non-residents must file Canadian tax returns if they are present in Canada for hoe many days in one calendar year?

A)90
B)60
C)183
D)240
E)365

Question 73

Which of the following is a non-refundable tax credit?

A)Tuition and education amount
B)GST and PST paid on purchases
C)Moving expenses
D)Life insurance premiums
E)Basic personal amount

Question 74

Contributing $2,000 to an RRSP changes the Tax Free Savings Account (TFSA) contribution by

A)reducing the limit by $1,000
B)reducing the limit by $2,000
C)reducing the limit by $3,000
D)does not reduce the TFSA contribution limit
E)Increases the TFSA limit by $2,000

Question 75

In 2009, Glenn is allowed to contribute $5,000 to a TFSA.He contributes $2,000 for that year.If he withdraws $1,000 the same year from the TFSA account, the following year:

A)$3,000 contribution room is added to the 2010 TFSA limit
B)the TFSA limit for 2010 is unchanged
C)the TFSA limit for 2010 is reduced by $1,000
D)$4,000 contribution room is added to the 2010 TFSA limit
E)$1,000 is added to taxable income for 2010

Question 76

Tax records should be kept for a minimum of __________ rears from the date you receive your notice of assessment

A)you are not required to keep your tax records.
B)until age 65
C)three years for all records
D)six years for all records
E)three years, six years, or indefinitely, depending on the type of record

Question 77

Identify the correct statements I.Tax deductions are more valuable to a high income earner than tax credits.
II)RESPs are excellent income splitting vehicles for families with young children.
III)Students can deduct moving expenses when they move back home to take up a summer job.

A)I and II, only
B)II and III, only
C)I and III, only
D)I, II and III
E)I only

Question 78

A tax credit of $100 for a person in a 28 percent tax bracket would reduce a person's taxes by

A)$100.
B)$28.
C)$72.
D)$50.
E)$35.

Question 79

Tax Freedom Day occurs:

A)the time in the year when your income has paid the portion of taxes imposed by all levels of government
B)there is no Tax Freedom Day
C)the time in the year when your income has paid the portion of taxes imposed by the federal government
D)the time in the year when your income has paid the portion of taxes imposed by the provincial government
E)Any time you do not pay GST or PST

Question 80

To help you cope with taxes, common goals related to tax planning include all the following except:

A)Knowing the current tax laws and regulations that affect you
B)Maintaining complete and appropriate tax records.
C)Making employment and purchase decisions that leave you with the greatest after-tax cash flows and net wealth
D)Making investment decisions that leave you with the greatest after-tax cash flows and net wealth
E)Minimizing taxes