CIFC Taxation of Investment Funds and Investor Accounts 2

Question 1

What is a 'superficial loss' under Canadian tax rules, and what is its consequence?

Accepted Answer

A capital loss that is denied when the same or identical property is repurchased within 30 days before or after the sale

Answer

A superficial loss is denied by the CRA when the investor (or an affiliated person) repurchases the same or identical property within 30 days on either side of the sale; the denied loss is added to the ACB of the reacquired property.

Question 2

An investor switches from Fund A to Fund B within the same mutual fund family. What is the tax consequence in a non-registered account?

Accepted Answer

The switch is treated as a disposition of Fund A, potentially triggering a capital gain or loss

Answer

For tax purposes, a switch between funds is a disposition of the original fund units and an acquisition of new units, which can trigger a capital gain or loss even if no cash changes hands.

Question 3

How does contributing to an RRSP reduce an investor's current-year tax liability?

Accepted Answer

RRSP contributions are deductible from taxable income, reducing the amount of income subject to tax

Answer

RRSP contributions are deducted directly from taxable income, so the tax savings equal the contribution amount multiplied by the investor's marginal tax rate.

Question 4

What happens to a capital loss that exceeds capital gains in a given tax year for a Canadian investor?

Accepted Answer

The excess loss can be carried back 3 years or carried forward indefinitely to offset future capital gains

Answer

Net capital losses can be carried back three years or carried forward indefinitely, but they can only be used to offset capital gains, not other types of income.

Question 5

Foreign income (interest and dividends) earned inside a non-registered Canadian account is subject to which tax treatment?

Accepted Answer

It is included in Canadian taxable income and may be subject to foreign withholding tax, for which a foreign tax credit may be available

Answer

Foreign income must be included in Canadian taxable income in full, and while foreign withholding taxes may be deducted, a foreign tax credit can offset double taxation.

(CIFC) Canadian Investment Funds Course Practice Test

(CIFC) Canadian Investment Funds Course Practice Test

CIFC Taxation of Investment Funds and Investor Accounts 2