CSC Canadian Taxation for Investors 5

Question 1

A Canadian investor holds a bond that was purchased at a discount. How is the discount taxed on a strip bond held in a non-registered account?

Accepted Answer

The accrued interest (imputed interest) on a strip bond must be reported annually even though no cash is received

Answer

The CRA requires investors holding strip bonds in non-registered accounts to report the annual accrual of interest income, even though no cash interest is received until maturity.

Question 2

What is the prescribed interest rate used for, in the context of income-splitting strategies in Canada?

Accepted Answer

It is the minimum rate a higher-income spouse must charge on a loan to a lower-income spouse to avoid attribution rules

Answer

By charging at least the CRA's prescribed rate on interspousal loans, the higher-income spouse avoids attribution rules, allowing the lower-income spouse to pay tax on the investment income at their lower rate.

Question 3

Which of the following situations would create a 'deemed disposition' for Canadian tax purposes?

Accepted Answer

A Canadian resident emigrating from Canada and becoming a non-resident

Answer

When a Canadian resident emigrates and becomes a non-resident, the CRA deems a disposition of most property at fair market value on the date of departure, triggering capital gains.

Question 4

If a taxpayer contributes securities 'in-kind' to their RRSP, what is the tax consequence if the securities have an accrued gain?

Accepted Answer

The contribution is deemed to occur at fair market value, triggering a taxable capital gain on the accrued appreciation

Answer

Contributing appreciated securities in-kind to an RRSP triggers a deemed disposition at fair market value, so the investor must report the capital gain even though no cash proceeds are received.

Question 5

A Canadian investor receives a T3 slip from a mutual fund trust. Which type of income is least likely to appear on a T3 slip?

Accepted Answer

Employment income earned through the fund

Answer

T3 slips report income from trusts (dividends, interest, capital gains, foreign income), never employment income, which is reported on a T4 slip.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC Canadian Taxation for Investors 5