PERSONAL TAX FINAL EXAM
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REVIEW EXAM WITH COMPLETE
SOLUTIOS
Making contributions to an RRSP always involves what type of tax planning?
A) Tax avoidance and tax deferral.
B) Tax deferral.
C) Tax avoidance.
D) Income splitting -ANSB) Tax deferral
An individual is liable for income tax in Canada if he:
A) is a resident in Canada.
B) is a citizen of Canada.
C) has lived in Canada at any time during the year.
D) All of the above are required. -ANSA) is a resident in Canada
Mr. E moved from Buffalo, New York, USA to Vancouver, British Columbia, Canada on
May 27th of the current year. He commenced employment in Canada on May 28th. He
lived in a hotel until he took possession of his new home in Vancouver on June 1st. His
wife and children accompanied him to Canada at the end of the school year in June. Mr.
E had no income from Canadian sources prior to moving to Canada. For the current
year, Mr. E is taxable in Canada on:
A) his Canadian source employment income from May 28th to the end of the year.
B) his Canadian source income from all sources from May 28th to the end of the year.
C) his worldwide income from all sources from May 28th to the end of the year.
D) his worldwide income from all sources for the entire year. -ANSC) his worldwide
income from all sources from May 28th to the end of the year
Mr. A was born in Canada and has lived in Canada all of his life. On November 1st of
the current year, he was transferred by his employer to Brussels, Belgium. There is no
plan for him to return to Canada in the foreseeable future. He is not married and has no
children. For the current year, Mr. A's Canadian residence status for tax purposes is
most accurately described as:
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident -ANSD) part-year resident
,Which of the following is NOT a taxable entity for Canadian income tax purposes?
A) Darklyn Ltd., a Canadian resident corporation.
B) Ms. Sarah Bright, a Canadian resident.
C) Walters and Walters, a group of CPAs operating as a partnership.
D) The Martin family trust. -ANSC) Walters and Walters, a group of CPAs operating as
a partnership
Which of the following amounts is NOT deducted in converting Net Income for Tax
Purposes to Taxable Income?
A) Losses of other years.
B) The lifetime capital gains deduction.
C) An amount related to the exercise or sale of stock options.
D) The excess of allowable capital losses over taxable capital gains for the year. -
ANSD) The excess of allowable capital losses over taxable capital gains for the year.
Which of the following can be considered an advantage of an income tax system based
on progressive rates?
A) A progressive rate system is simpler to administer.
B) A progressive rate system provides greater stability in the context of changing
economic conditions.
C) A progressive system discourages tax evasion.
D) A progressive system encourages greater effort on the part of individuals. -ANSB) A
progressive rate system provides greater stability in the context of changing economic
conditions.
"We should not have a tax system which encourages investment in particular assets or
in specific areas of the country." This statement reflects which of the following
qualitative characteristics of an effective tax system?
A) Neutrality.
B) Horizontal equity.
C) Simplicity.
D) Elasticity. -ANSA) Neutrality.
With respect to loans to employees, which of the following statements is correct?
A) If the rate on the loan is less than the market rate for similar types of debt, the
employee will have a taxable benefit equal to the difference.
B) If the proceeds from the loan are invested in income producing assets, the interest
benefit on the loan will be deductible in determining the employee's Net Income For Tax
Purposes.
,C) When the loan is to assist an employee with a home purchase, the taxable benefit
must be calculated using each quarterly value for the prescribed rate.
D) The taxable benefit on an employee loan will not be altered by the amount of interest
payments the employee makes to the employer. -ANSB) If the proceeds from the loan
are invested in income producing assets, the interest benefit on the loan will be
deductible in determining the employee's Net Income For Tax Purposes.
Which of the following statements with respect to allowances is NOT correct?
A) An allowance from an employer to cover an employee's professional association
dues will not be included in an employee's income.
B) Reimbursement by an employer of an employee's moving expenses will not be
included in an employee's income.
C) Travel allowances provided by an employer are never included in an employee's
income.
D) In general, employers prefer allowances to reimbursements. -ANSC) Travel
allowances provided by an employer are never included in an employee's income.
Scott Bicycle Manufacturing Ltd. (SBM) is a Canadian controlled private corporation.
Brian Mills, one of SBM's employees, was granted stock options on January 15, 2020
for 10,000 shares at $3 per share. The fair market value on January 15, 2020 was $4
per share.
Brian exercised the stock options on September 30, 2020, when the fair market value
was $6 per share. In June, 2023, Brian purchased a new home and sold the shares for
$7 each.
What is the effect of these facts on Brian's Taxable Income?
A) An increase of $15,000 in 2018
B) An increase of $15,000 in 2021
C) An increase of $30,000 in 2018
D) An increase of $20,000 in 2021
E) None of the above. -ANSD) An increase of $20,000 in 2021
Jessie mows lawns during the summer. In 2023 she was paid directly by homeowners
for her work, in some case on the basis of the completed job, in other cases at an hourly
rate. Her friend Jimmy does the same work. However, he is paid at an hourly rate by a
lawn maintenance company.
Which of the following statements is correct?
A) Jessie earns business income and Jimmy earns employment income. Their
deductible expenses will be the same.
B) Jessie and Jimmy both earn employment income.
C) Jessie earns business income and Jimmy earns employment income. Jessie will be
able to deduct more expenses than Jimmy.
, D) Jessie and Jimmy both earn business income. -ANSC) Jessie earns business
income and Jimmy earns employment income. Jessie will be able to deduct more
expenses than Jimmy.
Indicate which of the following benefits provided by an employer is considered part of
employment income.
A) Subsidized meals provided in employer facilities.
B) Low rent housing.
C) Premiums under private health services plans.
D) Uniforms and special clothing. -ANSB) Low rent housing.
In which one of the following lists are ALL items relevant when computing net
employment income?
A) Employee contributions to a registered pension plan; signing bonus on accepting
employment; use of an employer-owned automobile.
B) Monthly automobile allowance; dental plan paid for by the employer; promotional
cost incurred in selling the employer's products.
C) Subsidized meals in employer's facilities; life insurance paid by the employer; legal
fees incurred to collect unpaid salary.
D) Tips and gratuities; dental insurance paid by the employer; exercise of options to
purchase shares of the publicly traded employer. -ANSA) Employee contributions to a
registered pension plan; signing bonus on accepting employment; use of an employer-
owned automobile.
John secured employment as a commissioned salesman in July, 2023. In 2023, he
received a base salary of $60,000, and $5,000 of commissions. A further $6,000 of
commissions earned in December was paid to him in January, 2024.
John worked away from the office negotiating sales contracts, and he is required to pay
his own vehicle and promotional expenses. His employer has signed a Form T2200
certifying that requirement, and certifying that no reimbursements are paid for any
expenses John incurs to earn commissions. John incurred the following costs from July
through December 2023:
Meals and entertainment for potential customers $14,000
Driving costs (90% of driving was for employment purposes):
Fuel 4,000
Insurance 750
Repairs 2,250
Total Leasing costs (@$500 per month) 3,000
What is the maximum deduction John may claim for employment expenses in 2023?
Save
REVIEW EXAM WITH COMPLETE
SOLUTIOS
Making contributions to an RRSP always involves what type of tax planning?
A) Tax avoidance and tax deferral.
B) Tax deferral.
C) Tax avoidance.
D) Income splitting -ANSB) Tax deferral
An individual is liable for income tax in Canada if he:
A) is a resident in Canada.
B) is a citizen of Canada.
C) has lived in Canada at any time during the year.
D) All of the above are required. -ANSA) is a resident in Canada
Mr. E moved from Buffalo, New York, USA to Vancouver, British Columbia, Canada on
May 27th of the current year. He commenced employment in Canada on May 28th. He
lived in a hotel until he took possession of his new home in Vancouver on June 1st. His
wife and children accompanied him to Canada at the end of the school year in June. Mr.
E had no income from Canadian sources prior to moving to Canada. For the current
year, Mr. E is taxable in Canada on:
A) his Canadian source employment income from May 28th to the end of the year.
B) his Canadian source income from all sources from May 28th to the end of the year.
C) his worldwide income from all sources from May 28th to the end of the year.
D) his worldwide income from all sources for the entire year. -ANSC) his worldwide
income from all sources from May 28th to the end of the year
Mr. A was born in Canada and has lived in Canada all of his life. On November 1st of
the current year, he was transferred by his employer to Brussels, Belgium. There is no
plan for him to return to Canada in the foreseeable future. He is not married and has no
children. For the current year, Mr. A's Canadian residence status for tax purposes is
most accurately described as:
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident -ANSD) part-year resident
,Which of the following is NOT a taxable entity for Canadian income tax purposes?
A) Darklyn Ltd., a Canadian resident corporation.
B) Ms. Sarah Bright, a Canadian resident.
C) Walters and Walters, a group of CPAs operating as a partnership.
D) The Martin family trust. -ANSC) Walters and Walters, a group of CPAs operating as
a partnership
Which of the following amounts is NOT deducted in converting Net Income for Tax
Purposes to Taxable Income?
A) Losses of other years.
B) The lifetime capital gains deduction.
C) An amount related to the exercise or sale of stock options.
D) The excess of allowable capital losses over taxable capital gains for the year. -
ANSD) The excess of allowable capital losses over taxable capital gains for the year.
Which of the following can be considered an advantage of an income tax system based
on progressive rates?
A) A progressive rate system is simpler to administer.
B) A progressive rate system provides greater stability in the context of changing
economic conditions.
C) A progressive system discourages tax evasion.
D) A progressive system encourages greater effort on the part of individuals. -ANSB) A
progressive rate system provides greater stability in the context of changing economic
conditions.
"We should not have a tax system which encourages investment in particular assets or
in specific areas of the country." This statement reflects which of the following
qualitative characteristics of an effective tax system?
A) Neutrality.
B) Horizontal equity.
C) Simplicity.
D) Elasticity. -ANSA) Neutrality.
With respect to loans to employees, which of the following statements is correct?
A) If the rate on the loan is less than the market rate for similar types of debt, the
employee will have a taxable benefit equal to the difference.
B) If the proceeds from the loan are invested in income producing assets, the interest
benefit on the loan will be deductible in determining the employee's Net Income For Tax
Purposes.
,C) When the loan is to assist an employee with a home purchase, the taxable benefit
must be calculated using each quarterly value for the prescribed rate.
D) The taxable benefit on an employee loan will not be altered by the amount of interest
payments the employee makes to the employer. -ANSB) If the proceeds from the loan
are invested in income producing assets, the interest benefit on the loan will be
deductible in determining the employee's Net Income For Tax Purposes.
Which of the following statements with respect to allowances is NOT correct?
A) An allowance from an employer to cover an employee's professional association
dues will not be included in an employee's income.
B) Reimbursement by an employer of an employee's moving expenses will not be
included in an employee's income.
C) Travel allowances provided by an employer are never included in an employee's
income.
D) In general, employers prefer allowances to reimbursements. -ANSC) Travel
allowances provided by an employer are never included in an employee's income.
Scott Bicycle Manufacturing Ltd. (SBM) is a Canadian controlled private corporation.
Brian Mills, one of SBM's employees, was granted stock options on January 15, 2020
for 10,000 shares at $3 per share. The fair market value on January 15, 2020 was $4
per share.
Brian exercised the stock options on September 30, 2020, when the fair market value
was $6 per share. In June, 2023, Brian purchased a new home and sold the shares for
$7 each.
What is the effect of these facts on Brian's Taxable Income?
A) An increase of $15,000 in 2018
B) An increase of $15,000 in 2021
C) An increase of $30,000 in 2018
D) An increase of $20,000 in 2021
E) None of the above. -ANSD) An increase of $20,000 in 2021
Jessie mows lawns during the summer. In 2023 she was paid directly by homeowners
for her work, in some case on the basis of the completed job, in other cases at an hourly
rate. Her friend Jimmy does the same work. However, he is paid at an hourly rate by a
lawn maintenance company.
Which of the following statements is correct?
A) Jessie earns business income and Jimmy earns employment income. Their
deductible expenses will be the same.
B) Jessie and Jimmy both earn employment income.
C) Jessie earns business income and Jimmy earns employment income. Jessie will be
able to deduct more expenses than Jimmy.
, D) Jessie and Jimmy both earn business income. -ANSC) Jessie earns business
income and Jimmy earns employment income. Jessie will be able to deduct more
expenses than Jimmy.
Indicate which of the following benefits provided by an employer is considered part of
employment income.
A) Subsidized meals provided in employer facilities.
B) Low rent housing.
C) Premiums under private health services plans.
D) Uniforms and special clothing. -ANSB) Low rent housing.
In which one of the following lists are ALL items relevant when computing net
employment income?
A) Employee contributions to a registered pension plan; signing bonus on accepting
employment; use of an employer-owned automobile.
B) Monthly automobile allowance; dental plan paid for by the employer; promotional
cost incurred in selling the employer's products.
C) Subsidized meals in employer's facilities; life insurance paid by the employer; legal
fees incurred to collect unpaid salary.
D) Tips and gratuities; dental insurance paid by the employer; exercise of options to
purchase shares of the publicly traded employer. -ANSA) Employee contributions to a
registered pension plan; signing bonus on accepting employment; use of an employer-
owned automobile.
John secured employment as a commissioned salesman in July, 2023. In 2023, he
received a base salary of $60,000, and $5,000 of commissions. A further $6,000 of
commissions earned in December was paid to him in January, 2024.
John worked away from the office negotiating sales contracts, and he is required to pay
his own vehicle and promotional expenses. His employer has signed a Form T2200
certifying that requirement, and certifying that no reimbursements are paid for any
expenses John incurs to earn commissions. John incurred the following costs from July
through December 2023:
Meals and entertainment for potential customers $14,000
Driving costs (90% of driving was for employment purposes):
Fuel 4,000
Insurance 750
Repairs 2,250
Total Leasing costs (@$500 per month) 3,000
What is the maximum deduction John may claim for employment expenses in 2023?
