CAEC Financial Literacy and Personal Finance 3

Question 1

What does CRA stand for in Canada?

Accepted Answer

Canada Revenue Agency

Answer

CRA stands for the Canada Revenue Agency, the federal body responsible for administering tax laws, collecting taxes, and delivering government benefit programs.

Question 2

What is a T4 slip used for in Canada?

Accepted Answer

To report employment income and tax deductions for income tax purposes

Answer

A T4 slip (Statement of Remuneration Paid) is issued by employers to report an employee's annual income and tax deductions to both the employee and the CRA.

Question 3

What is a Tax-Free Savings Account (TFSA)?

Accepted Answer

A registered account where investment growth and withdrawals are not subject to tax

Answer

A TFSA allows Canadians to save and invest money where all growth and withdrawals are completely tax-free, although contributions are made with after-tax dollars.

Question 4

What is the main tax benefit of contributing to a Registered Retirement Savings Plan (RRSP)?

Accepted Answer

Contributions reduce your taxable income in the year they are made

Answer

RRSP contributions are deductible from your taxable income, which reduces the amount of tax you owe in the year you make the contribution.

Question 5

What is compound interest?

Accepted Answer

Interest earned on both the principal and previously accumulated interest

Answer

Compound interest is calculated on both the initial principal and the interest that has already been added, causing savings to grow progressively faster over time.

(CAEC) Canadian Adult Education Credential Practice Test

(CAEC) Canadian Adult Education Credential Practice Test

CAEC Financial Literacy and Personal Finance 3