IFC Tax and Retirement Planning 4

Question 1

Under which circumstance can TFSA contribution room be re-contributed in a subsequent year?

Accepted Answer

Any withdrawal amount is added back to contribution room on January 1 of the following year

Answer

Amounts withdrawn from a TFSA are added back to the holder's contribution room at the beginning of the next calendar year.

Question 2

What is the primary tax advantage of contributing to an RRSP?

Accepted Answer

Contributions generate a deduction reducing current taxable income

Answer

RRSP contributions are deducted from taxable income in the year of contribution, reducing the taxpayer's current income tax liability.

Question 3

Which pension income qualifies for the pension income tax credit at the federal level for individuals under age 65?

Accepted Answer

Annuity payments from a registered pension plan

Answer

For individuals under 65, only pension income from a registered pension plan (RPP) qualifies for the pension income tax credit.

Question 4

A client over-contributes $3,000 to their RRSP beyond the allowed room. What is the penalty?

Accepted Answer

1% per month on the excess amount

Answer

CRA charges a 1% per month penalty on cumulative RRSP excess contributions above the $2,000 lifetime over-contribution buffer.

Question 5

How does income-splitting using a spousal RRSP benefit a high-income earner?

Accepted Answer

The contributor claims the deduction but the lower-income spouse will eventually report withdrawals as income

Answer

The contributing spouse gets the tax deduction now, while the lower-income spouse will pay tax on eventual withdrawals at a lower marginal rate.

IFC - Investment Funds in Canada Practice Test