Tax and Retirement Planning Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax and Retirement Planning flashcards as text
Under which circumstance can TFSA contribution room be re-contributed in a subsequent year?
Answer: Any withdrawal amount is added back to contribution room on January 1 of the following year
Amounts withdrawn from a TFSA are added back to the holder's contribution room at the beginning of the next calendar year.
What is the primary tax advantage of contributing to an RRSP?
Answer: Contributions generate a deduction reducing current taxable income
RRSP contributions are deducted from taxable income in the year of contribution, reducing the taxpayer's current income tax liability.
Which pension income qualifies for the pension income tax credit at the federal level for individuals under age 65?
Answer: Annuity payments from a registered pension plan
For individuals under 65, only pension income from a registered pension plan (RPP) qualifies for the pension income tax credit.
A client over-contributes $3,000 to their RRSP beyond the allowed room. What is the penalty?
Answer: 1% per month on the excess amount
CRA charges a 1% per month penalty on cumulative RRSP excess contributions above the $2,000 lifetime over-contribution buffer.
How does income-splitting using a spousal RRSP benefit a high-income earner?
Answer: The contributor claims the deduction but the lower-income spouse will eventually report withdrawals as income
The contributing spouse gets the tax deduction now, while the lower-income spouse will pay tax on eventual withdrawals at a lower marginal rate.
Which of the following describes Old Age Security (OAS) clawback?
Answer: High-income recipients must repay part or all of OAS through the OAS recovery tax
The OAS recovery tax (clawback) requires recipients whose net income exceeds the annual threshold to repay a portion of their OAS benefits.
What is the key difference between a defined benefit (DB) and a defined contribution (DC) pension plan?
Answer: DB plans guarantee a specific retirement income, while DC plans depend on investment returns
A DB plan promises a predetermined retirement benefit based on salary and years of service, while a DC plan's benefit depends on accumulated contributions and investment performance.