IFC Tax and Retirement Planning 3 — Questions and Answers
Question 1: Which of the following is NOT a registered retirement savings vehicle in Canada?
- RRSP
- RRIF
- RESP (Correct answer)
- LIRA
Correct answer: RESP
An RESP (Registered Education Savings Plan) is designed for education savings, not retirement savings.
Question 2: A Locked-In Retirement Account (LIRA) contains funds that originated from which source?
- Personal RRSP contributions
- TFSA transfers
- Pension plan commuted values (Correct answer)
- CPP overpayments
Correct answer: Pension plan commuted values
A LIRA holds commuted values transferred from employer-sponsored defined benefit or defined contribution pension plans.
Question 3: What is the spousal RRSP attribution rule designed to prevent?
- Excess contributions beyond the annual limit
- Income splitting by withdrawing funds immediately after contribution (Correct answer)
- Converting RRSP funds to a RRIF before age 71
- Using RRSP funds to invest in prohibited assets
Correct answer: Income splitting by withdrawing funds immediately after contribution
The attribution rule attributes withdrawals back to the contributing spouse if the plan is collapsed within three calendar years of the last contribution.
Question 4: How is the RRSP contribution limit for a given year determined?
- It is a flat $30,000 for all taxpayers
- It is 18% of the prior year's earned income, minus any pension adjustment, subject to a maximum (Correct answer)
- It equals the TFSA limit plus the pension adjustment
- It is based on total household income divided by two
Correct answer: It is 18% of the prior year's earned income, minus any pension adjustment, subject to a maximum
The RRSP limit is 18% of the previous year's earned income minus the pension adjustment (PA), up to the annual maximum.
Question 5: A client receives Canada Pension Plan (CPP) payments. How are these payments taxed?
- Tax-free as a government benefit
- As capital gains at the 50% inclusion rate
- As fully taxable income at the marginal rate (Correct answer)
- At a preferred flat rate of 15%
Correct answer: As fully taxable income at the marginal rate
CPP payments are fully included in the recipient's taxable income and taxed at their marginal tax rate.
Question 6: What is the age by which an RRSP must be converted or collapsed?
- Age 65
- Age 69
- Age 71 (Correct answer)
- Age 75
Correct answer: Age 71
An RRSP must be converted to a RRIF, annuity, or collapsed by December 31 of the year the annuitant turns 71.
Question 7: Which of the following investment types is PROHIBITED inside a TFSA?
- Canadian equity mutual funds
- GICs
- Shares of a connected corporation (Correct answer)
- Government bonds
Correct answer: Shares of a connected corporation
Shares of a corporation in which the TFSA holder has a significant interest (connected corporation) are considered a prohibited investment.
IFC Tax and Retirement Planning 3
Which of the following is NOT a registered retirement savings vehicle in Canada?