IFC - Investment Funds in Canada Tax and Retirement Planning Questions and Answers

Question 1

An investor in a non-registered account earns $1,000 in interest from a bond, $1,000 in eligible dividends from a Canadian corporation, and realizes a $1,000 capital gain from selling a mutual fund.
Which of the following statements correctly describes the tax treatment of this income?

Accepted Answer

The interest income is fully taxable, the eligible dividends receive a tax credit, and only 50% of the capital gain is taxable.

Answer

All three types of income are taxed at the same marginal tax rate.

Answer

The capital gain is tax-free, while the interest and dividend income are fully taxable.

Answer

The dividend income is tax-free, the capital gain is fully taxable, and 50% of the interest income is taxable.

Question 2

Marco made a contribution to a spousal RRSP for his wife, Julia, in January 2024. In December 2025, Julia withdraws funds from that spousal RRSP. According to the attribution rules, who is responsible for paying the tax on this withdrawal?

Accepted Answer

Marco, because the withdrawal occurred within the three-year attribution period.

Answer

Julia, because she is the annuitant of the plan.

Answer

Both Marco and Julia will split the tax liability equally.

Answer

Neither, as withdrawals from a spousal RRSP are tax-free.

Question 3

A client, age 72, has a Registered Retirement Income Fund (RRIF) valued at $500,000 on January 1st. They must make a minimum withdrawal for the year. Which of the following statements about the taxation of their RRIF withdrawals is correct?

Accepted Answer

Any amount withdrawn above the minimum annual amount will be subject to withholding tax.

Answer

The minimum annual withdrawal amount is exempt from all income tax.

Answer

There is no maximum limit on RRIF withdrawals, and all withdrawals are free from withholding tax.

Answer

The client is not required to make a withdrawal until age 75.

Question 4

An individual has an RRSP deduction limit of $15,000 for the year. They contribute $18,000 to their RRSP. What is the immediate tax consequence of this action?

Accepted Answer

A 1% per month penalty tax is applied to the excess contribution amount of $1,000.

Answer

There are no immediate tax consequences due to the lifetime over-contribution allowance.

Answer

The entire $18,000 contribution is subject to a 1% penalty tax per month.

Answer

The financial institution will automatically refund the $3,000 over-contribution.

Question 5

Which of the following is a key difference between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP) regarding withdrawals?

Accepted Answer

TFSA withdrawals are tax-free and the withdrawn amount is added back to the contribution room in the following year.

Answer

RRSP withdrawals are tax-deductible, while TFSA withdrawals are taxed as income.

Answer

TFSA contribution room is permanently lost upon withdrawal, whereas RRSP room is regained.

Answer

Withdrawals from both TFSAs and RRSPs are always tax-free and do not affect contribution room.

Question 6

A Canadian resident moves to a country that does not have a tax treaty with Canada. The individual makes a lump-sum withdrawal from their RRSP after becoming a non-resident. What is the standard withholding tax rate that will be applied by the financial institution?

Accepted Answer

25%

Answer

10%

Answer

15%

Answer

30%