CSC Canadian Taxation for Investors 2

Question 1

Which of the following describes the tax treatment of Canadian eligible dividends received by an individual investor?

Accepted Answer

They are grossed up and eligible for the enhanced dividend tax credit

Answer

Eligible dividends from Canadian corporations are grossed up by 38% and qualify for the enhanced federal dividend tax credit, reducing the effective tax rate.

Question 2

An investor sells shares for a capital gain of $20,000. What is the taxable capital gain included in income under current Canadian tax rules?

Accepted Answer

$10,000

Answer

Canada's capital gains inclusion rate is 50%, so only half ($10,000) of the $20,000 capital gain is included in taxable income.

Question 3

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

Accepted Answer

Contributions are deducted from taxable income and growth is tax-deferred

Answer

RRSP contributions reduce current taxable income and all investment growth is tax-deferred until withdrawal, when amounts are taxed as ordinary income.

Question 4

A Canadian investor holds US stocks in a non-registered account. How is US withholding tax on dividends typically treated for Canadian tax purposes?

Accepted Answer

It qualifies as a foreign tax credit to reduce Canadian tax owing

Answer

US withholding tax paid on foreign dividends can be claimed as a foreign tax credit on the Canadian tax return, reducing double taxation.

Question 5

Which type of account shelters investment income from tax as it is earned, but taxes withdrawals as ordinary income?

Accepted Answer

Registered Retirement Savings Plan (RRSP)

Answer

The RRSP shelters growth from annual taxation (tax-deferred), but all withdrawals — including principal and growth — are taxed as ordinary income in the year received.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Canadian Taxation for Investors 2