Important CSI IFC Exam Questions

Answer: B

Answer: C

Explanation:

An eligible dividend is a type of dividend that is paid by a Canadian corporation that meets certain criteria and is eligible for the enhanced dividend tax credit. The dividend tax credit reduces the amount of tax payable on dividends by providing a credit against the tax liability. An eligible dividend has a higher gross-up rate and a higher dividend tax credit rate than a non-eligible dividend, which means that it results in a lower effective tax rate. A capital dividend is a type of dividend that is paid from the capital gains realized by a corporation and is tax-free to the shareholder. However, a tactical asset allocation fund is unlikely to pay capital dividends, as they are usually reserved for private corporations. A capital gain is the profit from selling an asset at a higher price than its purchase price. Only 50% of the capital gain is taxable, which means that it has a lower effective tax rate than interest income, which is fully taxable. However, a capital gain distribution from a mutual fund is not the same as a capital gain from selling the mutual fund units. A capital gain distribution is paid when the fund realizes a capital gain from selling its underlying assets, and it is taxable in the year it is received, regardless of whether the shareholder sells the fund units or not. Therefore, it does not benefit from the deferral of tax that occurs when the shareholder sells the fund units at a later date. An interest distribution is paid when the fund earns interest income from its underlying assets, such as bonds or money market instruments. Interest income is fully taxable at the marginal tax rate, which means that it has the highest effective tax rate among the four types of distributions.

To compare the amount of tax payable for each type of distribution, we can use the following formula:

Tax=(DistributionGrossup)MarginalTaxRate(DistributionGrossup)DividendTaxCreditRate

For simplicity, we assume that Davis receives $100 of each type of distribution and that he does not have any other income or deductions. We also ignore any provincial taxes or credits. Using the formula, we can calculate the tax payable for each type of distribution as follows:

Capital Dividend: Tax=(1000)0.26(1000)0=0

Capital Gain: Tax=(1000.5)0.26(1000.5)0=13

Eligible Dividend: Tax=(1001.38)0.26(1001.38)0.15=10.14

Interest: Tax=(1001)0.26(1001)0=26

Therefore, an eligible dividend would result in the lowest amount of tax payable, followed by a capital gain, a capital dividend, and an interest distribution.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-41

Eligible Dividends Definition - Investopedia2

Capital Dividend Definition - Investopedia3

Capital Gain Distribution Definition - Investopedia4

Answer: B

Answer: C

Explanation:

For non-registered accounts, the mandatory personal information includes the client's full legal name and permanent address, while date of birth and social insurance number are recommended but not required. The feedback from the document states:

'The first step as a dealing representative is to obtain a client's personal data including full legal name, permanent and mailing address, social insurance number and date of birth. While a permanent address is mandatory, providing a different mailing address is optional. Neither the social insurance number nor date of birth are mandatory for non-registered accounts, but both are highly recommended.'

Answer: D

Explanation:

Contributed funds grow tax-free within the plan3.This means that any income or capital gains earned by the investments in an RESP are not taxed until they are withdrawn3.This allows the plan to grow faster than a taxable account with the same investments and contributions3. The other statements are incorrect.Contributions to RESPs are not tax deductible3.This means that you cannot deduct the amount you contribute to an RESP from your taxable income3.However, you do not have to pay tax on the contributions when they are withdrawn from the plan3.There is no yearly contribution limit per beneficiary, but there is a lifetime contribution limit of $50,000 per beneficiary3.This means that you can contribute any amount to an RESP in any given year, as long as you do not exceed the lifetime limit for each beneficiary3.RESPs must be collapsed by the end of the 35th year of its starting date3.This means that you have up to 35 years to use the funds in an RESP for educational purposes or transfer them to another plan3.If you do not use or transfer the funds by then, you have to close the plan and pay tax on the accumulated income portion3. Reference:Unit 8: Retirement