Personal Tax Final Exam Review
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 - ✔✔ correct answer B) 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. - ✔✔ correct answer A) 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. - ✔✔ correct answer C) 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:
,Personal Tax Final Exam Review
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident - ✔✔ correct answer D) 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. - ✔✔ correct answer C) 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. - ✔✔ correct answer D)
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. - ✔✔ correct answer B) A
progressive rate system provides greater stability in the context of changing economic conditions.
,Personal Tax Final Exam Review
"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. - ✔✔ correct answer A) 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. - ✔✔ correct answer 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.
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. - ✔✔ correct answer C) Travel
allowances provided by an employer are never included in an employee's income.
, Personal Tax Final Exam Review
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. - ✔✔ correct answer D) 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. - ✔✔ correct answer C) 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.
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 - ✔✔ correct answer B) 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. - ✔✔ correct answer A) 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. - ✔✔ correct answer C) 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:
,Personal Tax Final Exam Review
A) non-resident
B) resident by virtue of common law
C) deemed resident
D) part-year resident - ✔✔ correct answer D) 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. - ✔✔ correct answer C) 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. - ✔✔ correct answer D)
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. - ✔✔ correct answer B) A
progressive rate system provides greater stability in the context of changing economic conditions.
,Personal Tax Final Exam Review
"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. - ✔✔ correct answer A) 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. - ✔✔ correct answer 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.
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. - ✔✔ correct answer C) Travel
allowances provided by an employer are never included in an employee's income.
, Personal Tax Final Exam Review
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. - ✔✔ correct answer D) 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. - ✔✔ correct answer C) 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.
