Income Tax Planning (FIN 4018 Sample Quiz 1 - Questions) Winter 2024

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George Brown College Canada *

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2016

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Finance

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Feb 20, 2024

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Income Tax Planning Sample Quiz 1 - Questions Question 1 Sole proprietorship business losses incurred in the current year can be utilized in the current or future years at the discretion of the taxpayer. a) True b) False Question 2 The federal tax rates below are an example of what type of system? Federal Tax Rates  $0 - $45,282 = 15%  $45,283 - $90,563 = 20.5%  $90,564 - $140,388 = 26%  $140,389 - $200,000 = 29%  $200,000 + = 33% a) Regressive tax system b) Transfer tax system c ) Progressive tax system d) Inflation tax system Question 3 Steve Jones has taxable income for 2016 of $895,000 , of which $172,000 is spent on goods and services that are subject to Harmonized Sales Tax (HST) at a rate of 13 percent . His brother, Pierre Jones, is a part-time student living in the same province and has taxable income of $18,000 . During the current year, as a result of using some of his savings, Pierre spends $27,500 on goods and services that are all subject to HST ( 13% ). Calculate Steve and Pierre Jones' federal tax liability based on the following 2016 federal tax brackets below? First $45,282 = 15% $45,283 - $90,563 = 20.5% $90,564 - $140,388 = 26% $140,389 - $200,000 = 29% $200,000 and over = 33% Steve's federal tax liability is ______$275,666.89 _____________. First $45,282 x 15% = $6,792.30 $45,281 x 20.5% = $9,282.61 $49,825 x 26% = $12,954.50 1

$59,612 x 29% = $17,287.48 $695,000 x 33% = $229,350.00 TOTAL = $275,666.89 Pierre's federal tax liability is ______$2 ,700 ________________. $18,000 * 15% = $2,700 Question 4 Pierre has income this year from the following sources: $25,000 from his full-time job , $10,000 from a part-time job , $ 2,000 in interest on a GIC , $2,500 in dividends from a taxable Canadian corporation, and a capital gain of $50,000 on the sale of his cottage . What amounts must be included in the calculation of Pierre's employment income? a) $25,000 b) $35,000 c) $39,000 d) $89,000 In addition to salaries, wages, and commissions, all of which are reported on an employee's T4 slip, employment income includes:  any tips, gratuities, or director's fees not reported on a T4  royalties from work or invention  amounts received under a supplementary unemployment benefit plan  amounts allocated under a profit-sharing plan  net research grants  taxable benefits from a wage-loss replacement plan  Certain goods and services tax rebates Employment income does not include interest, dividends, or capital gains. So, Pierre's employment income is $35,000, calculated as (income from full-time job + income from part-time job) or ($25,000 + $10,000). Question 5 Tobias expects a large increase in his salary this year. Consequently, he expects his tax bill to rise substantially, so he would like to purchase an investment to help minimize his tax bill. A tax-advantaged investment would allow him to: a) The opportunity to postpone income taxes b) The opportunity to move income from a high tax bracket to a lower bracket c) The opportunity to avoid tax on investment income d) Any of the above A good investment is one that provides an investor with a good prospect for economic gain. A tax-advantaged investment enables the investor to avoid, convert and/or defer taxable income. (Choice D) Therefore, a tax-advantaged investment is one that would allow Tobias 2

to postpone income taxes, move income to a lower tax bracket, or avoid tax on investment income. Question 6 If Bill was to die on November 17, 2024, when would his estate have to file his tax return? a) April 30, 2024 b) April 30, 2025 c) May 17, 2025 d) June 15, 2025 If an individual dies after October, the due date of the return for the year of death is extended to 6 months after the date of death. Question 7 Non-capital losses can be carried forward for 10 years? a) True b) False Except for business investment losses, non-capital losses can only be carried forward for 20 years. Question 8 Unused allowable non-capital losses can be: a) Carried back 3 years and forward 20 years b) Carried back 3 years and forward 10 years c) Carried back 5 years and forward 20 years d) Carried back 3 years and forward indefinitely Question 9 The basic goals of tax planning can be summarized as the following below with the exception of the? a) Tax avoidance b) Tax deferral c) Income splitting d ) Tax evasion 3

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