IFC Tax and Retirement Planning 2 — Questions and Answers
Question 1: What is the annual TFSA contribution limit for 2024?
- $6,000
- $6,500
- $7,000 (Correct answer)
- $8,000
Correct answer: $7,000
The TFSA annual contribution limit was increased to $7,000 for 2024.
Question 2: Which of the following describes the tax treatment of dividends received from Canadian corporations in a non-registered account?
- Taxed at full marginal rate
- Taxed at capital gains inclusion rate
- Eligible for the dividend tax credit (Correct answer)
- Fully exempt from tax
Correct answer: Eligible for the dividend tax credit
Canadian eligible dividends benefit from the dividend tax credit, reducing the effective tax rate for Canadian residents.
Question 3: A client converts their RRSP to a RRIF. Which statement is TRUE about minimum withdrawals?
- Withdrawals are optional until age 75
- A minimum amount must be withdrawn each year based on the account value and age (Correct answer)
- The minimum withdrawal rate is fixed at 5% regardless of age
- Withdrawals can be deferred until the client's death
Correct answer: A minimum amount must be withdrawn each year based on the account value and age
RRIF minimum withdrawals are mandatory annually and are calculated based on the account's market value and the annuitant's age.
Question 4: Which type of investment income receives the most favorable tax treatment in Canada for individuals in a non-registered account?
- Interest income
- Foreign dividends
- Capital gains (Correct answer)
- Rental income
Correct answer: Capital gains
Only 50% of capital gains are included in taxable income, making them the most tax-efficient of common investment income types.
Question 5: What happens to unused RRSP contribution room?
- It expires at year end
- It carries forward indefinitely (Correct answer)
- It can be transferred to a spouse
- It is lost if no contribution is made for 3 years
Correct answer: It carries forward indefinitely
Unused RRSP contribution room accumulates and carries forward indefinitely, allowing future catch-up contributions.
Question 6: A client withdraws $10,000 from their RRSP to fund a vacation. What is the tax consequence?
- No tax since it is under $15,000
- The amount is added to income and taxed at their marginal rate (Correct answer)
- A flat 10% withholding tax is the only tax owing
- The withdrawal is subject to capital gains tax only
Correct answer: The amount is added to income and taxed at their marginal rate
RRSP withdrawals are fully included in taxable income in the year of withdrawal, with withholding tax applied as a prepayment.
Question 7: Under the Home Buyers' Plan (HBP), what is the maximum amount a first-time home buyer can withdraw from their RRSP?
- $25,000
- $35,000 (Correct answer)
- $60,000
- $50,000
Correct answer: $35,000
Effective 2024, the HBP allows first-time home buyers to withdraw up to $35,000 from their RRSP tax-free for a qualifying home purchase.
IFC Tax and Retirement Planning 2
What is the annual TFSA contribution limit for 2024?