CSC Canadian Taxation for Investors 3

Question 1

How does the adjusted cost base (ACB) affect the calculation of a capital gain or loss in Canada?

Accepted Answer

ACB represents the original purchase cost plus commissions, subtracted from proceeds to determine the gain or loss

Answer

The capital gain or loss equals the proceeds of disposition minus the ACB (original cost plus allowable additions) and any selling costs.

Question 2

An investor contributes $6,000 to a TFSA and earns $400 in dividends within the account. What is the tax treatment of the $400?

Accepted Answer

The $400 is tax-free while inside the TFSA and tax-free when withdrawn

Answer

All income earned within a TFSA — dividends, interest, or capital gains — grows completely tax-free and is not taxed upon withdrawal.

Question 3

Which of the following is NOT deductible against investment income in a Canadian non-registered account?

Accepted Answer

Commissions paid to purchase securities

Answer

Brokerage commissions paid to purchase securities are added to the ACB rather than deducted as an expense; they reduce capital gains on eventual disposition.

Question 4

A Canadian resident receives $1,000 in interest from a GIC held in a non-registered account. How is this taxed?

Accepted Answer

As ordinary income at the investor's marginal tax rate

Answer

Interest income is fully included in taxable income and taxed at the investor's marginal rate — it receives no preferential treatment like dividends or capital gains.

Question 5

What happens to unused TFSA contribution room at the end of the year?

Accepted Answer

It carries forward indefinitely to future years

Answer

Any unused TFSA contribution room accumulates and carries forward indefinitely, allowing investors to contribute more in future years.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Canadian Taxation for Investors 3