CISI IFC Based on Real Exam Environment

Sabrina’s RRSP contribution room for Year 3 is $24,270. This is because the maximum contribution limit for Year 3 is $24,270 and Sabrina has always maximized her RRSP contributions, so she has no carry-forward room available.

Canadian Investment Funds Course, Chapter 5: Registered Plans

Money market funds invest in short-term securities that generate interest income, and their unit value remains constant (typically $10), preventing capital gains. The feedback from the document states:

" All returns earned on money market funds are considered interest earnings and are taxed as interest income. Since money market funds invest only in money market securities that pay interest, no other type of income can be earned. Because the value of the units of a money market fund is constant ($10), no capital gains can be made on the sale of units of the fund. "

To calculate Peter’s net federal tax liability for the year, we need to follow these steps:

Step 1: Calculate Peter’s taxable income. This is the amount of income that is subject to federal income tax. It is equal to his earned income from employment plus his net capital gain plus his grossed-up dividend income. A net capital gain is 50% of the capital gain realized from selling an asset. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. According to the image, the dividend gross-up rate is 15.02%. Therefore, Peter’s taxable income is:

50000+0.5×15000+(500×2)×(1+0.1502)=68251.00

Step 2: Apply the federal tax rates to Peter’s taxable income according to the tax brackets shown in the image. The federal tax rates are progressive, meaning that higher income is taxed at higher rates. Therefore, Peter’s federal tax before credits is:

0.15×(48535−0)+0.205×(68251−48535)=11293.69

Step 3: Subtract the federal tax credits from Peter’s federal tax before credits. A tax credit is an amount that reduces the tax payable by a taxpayer. There are two types of federal tax credits: non-refundable and refundable. Non-refundable tax credits can only reduce the tax payable to zero, but not below zero. Refundable tax credits can reduce the tax payable below zero, resulting in a refund to the taxpayer. In this question, we assume that Peter only has two non-refundable tax credits: the basic personal amount and the dividend tax credit. The basic personal amount is a fixed amount that every taxpayer can claim to reduce their taxable income. According to this site, the basic personal amount for 2021 is $13,808. The dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. According to this site, the federal dividend tax credit rate for eligible dividends in 2021 is 15.0198%. Therefore, Peter’s federal tax credits are:

0.15×13808+0.150198×(500×2)×0.1502=2100

Step 4: Subtract Peter’s federal tax credits from his federal tax before credits to get his net federal tax liability. This is the amount of federal income tax that Peter has to pay or has overpaid for the year. Therefore, Peter’s net federal tax liability is:

11293.69−2100=9193.69

Hence, option B is correct. References: Federal Income Tax Rates for Canada - TurboTax Canada Tips, Capital Gains Tax in Canada | Wealthsimple, Dividend Tax Credit | TurboTax Canada Tips, Basic Personal Amount (BPA)

The amount that the client will be eligible to receive from the IPC is $950,000. The IPC is a not-for-profit corporation that provides coverage to eligible clients of insolvent members of the Mutual Fund Dealers Association of Canada (MFDA). The IPC covers up to $1 million per account type per client for losses of securities, cash, and other property held by the insolvent member. The account types include RRSPs, RRIFs, TFSAs, RESPs, and non-registered accounts. Therefore, the client will be eligible for coverage of $950,000 for his RRSP account, which is the value of his securities and cash held by Tradewell Mutual Funds in his RRSP account. The client will not be eligible for any coverage for his non-registered account, as it is held in nominee name, meaning that the securities and cash are registered in the name of Tradewell Mutual Funds on behalf of the client. Nominee name accounts are not covered by the IPC, as they are not considered to be at risk in the event of insolvency. Therefore, option B is correct regarding the amount that the client will be eligible to receive from the IPC. The other options are not correct regarding the amount that the client will be eligible to receive from the IPC. Option A is false because the client will be eligible for some coverage, as his RRSP account is covered by the IPC. Option C is false because the client will not be eligible for coverage of $1.5 million, as his non-registered account is not covered by the IPC. Option D is false because the client will not be eligible for coverage of $550,000, as his non-registered account is not covered by the IPC. References: [IPC Coverage | IFIC], [IPC - Home] , [IPC - Coverage]