CSC Canadian Taxation for Investors 4

Question 1

An investor has $8,000 in net capital losses in the current year and no capital gains. What can they do with these losses under Canadian tax rules?

Accepted Answer

Carry the losses back up to 3 years or forward indefinitely to offset future capital gains

Answer

Net capital losses can be carried back 3 years or carried forward indefinitely, but they can only be applied against capital gains, not other income.

Question 2

What is the key difference between a 'deferred' tax plan (RRSP) and an 'exempt' tax plan (TFSA) for Canadian investors?

Accepted Answer

RRSP provides a deduction now but taxes withdrawals later; TFSA offers no deduction but withdrawals are tax-free

Answer

An RRSP defers tax — you get a deduction now and pay tax on withdrawal — while a TFSA is an exempt plan where contributions are after-tax but growth and withdrawals are tax-free.

Question 3

A Canadian investor sells shares of a publicly traded corporation at a loss. At what deadline must the trade settle to claim the loss in the current tax year?

Accepted Answer

The sale must occur before December 25 to ensure settlement before year-end

Answer

Canadian securities settle T+1 (or T+2 for some), so a trade on approximately December 28–30 would not settle until after December 31; investors must sell early enough for settlement to occur by year-end.

Question 4

What is the federal dividend tax credit designed to compensate for?

Accepted Answer

The corporate income tax already paid on profits before they were distributed as dividends

Answer

The dividend tax credit is intended to reduce double taxation by giving individual shareholders credit for the corporate tax the company already paid on the earnings distributed as dividends.

Question 5

Which of the following investments held inside an RRSP generates the most immediate tax advantage compared to holding it in a non-registered account?

Accepted Answer

Government of Canada bonds paying annual interest

Answer

Interest income is taxed at the full marginal rate in a non-registered account, so sheltering highly taxed interest inside an RRSP produces the greatest tax deferral advantage.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Canadian Taxation for Investors 4