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CISI Investment Funds in Canada (IFC) Exam Sample Questions (Q271-Q276):

NEW QUESTION # 271
With respect to the tax treatment of dividends received from a taxable Canadian corporation, which of the following statements is CORRECT?

A. Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment.
B. Dividends are taxed the same way interest income is taxed.
C. Only 50% of dividend income is subject to tax.
D. Dividends from non-resident corporations receive preferential tax treatment.

Answer: A

Explanation:
Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment because they are eligible for the dividend tax credit. This credit reduces the amount of tax payable on dividend income by accounting for the tax that the corporation has already paid on its earnings. Dividends from non-resident corporations do not qualify for this credit and are taxed at the same rate as interest income.
Only 50% of capital gains, not dividend income, are subject to tax. References: The Dividend Tax Rate in Canada: What You Need to Know Now - Hardbacon, How are Dividends Taxed in Canada? Exploring the Canadian Dividend Tax Credit

NEW QUESTION # 272
Last year Peter's earned income from employment was $50,000.
Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000.

Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).

A. $9,953.30
B. $9,113.53
C. $9,193.69
D. $9,696.15

Answer: C

Explanation:
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 tothis 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 tothis 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)

NEW QUESTION # 273
Martine is working with Ishmail, her financial advisor, to develop her client investor profile. In her overall risk profiling, it was determined that Martine could tolerate an asset allocation of up to 70% of her portfolio.
She currently has a goal of saving for a down payment for her first home, saving for her young children's education and retirement. Ishmail uses a one-fund strategy for all his client accounts - Martine would be allocated the "growth" fund to all her investments and savings under his management. What should be Martine's most significant risk in using this strategy at this stage?

A. Unsuitable allocation given to multiple goals
B. Tax implications
C. Fund management
D. Overall cost-benefit of managed products for short-term goal funding

Answer: A

Explanation:
Martine has multiple financial goals (short-term home purchase, medium-term education, long-term retirement). Using a single growth fund for all goals is inappropriate because growth funds are designed for long-term objectives and involve higher volatility.
This results in unsuitable allocation across her short-, medium-, and long-term needs.

NEW QUESTION # 274
Based on the financial planning pyramid, what security would be appropriate for a very aggressive investor?

A. Over the Counter (OTC) Securities
B. Foreign stocks
C. Tax shelters
D. Commodities

Answer: A

Explanation:
Comprehensive and Detailed Explanation From Exact Extract:
The financial planning pyramid illustrates the risk-return spectrum of investments. For a very aggressive investor, high-risk securities like OTC securities are suitable. The feedback from the document states:
"As a visual aid, the planning pyramid helps you show clients how mutual funds fit into the investment universe. A very aggressive investor could consider investments such as OTC Securities." Reference:Chapter 4 - Getting to know the clientLearning Domain:The Know Your Client Communication Process

NEW QUESTION # 275
Which statement best describes key differences between dividend funds and standard equity funds?

A. Standard equity funds' objectives do not include capital preservation
B. Standard equity funds' objectives do not include current dividend income
C. Standard equity funds' objectives are based on a belief in market efficiency
D. Standard equity funds cannot invest in preferred shares

Answer: A

Explanation:
Standard equity funds focus on capital gains and may include dividend income, but unlike dividend funds, they do not prioritize capital preservation. The feedback from the document states:
"A standard equity fund seeks to earn some combination of dividend income and capital gains from investment in Canadian common stocks. This objective appears to be similar to that of a preferred dividend fund. The difference between the two is that an equity fund usually has a much stronger capital gains focus.
Note as well that equity funds make no specific attempt to preserve capital; in other words, equity funds are willing to put capital at substantially greater risk than preferred dividend funds." Reference: Chapter 12 - Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds

NEW QUESTION # 276
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CISI Investment Funds in Canada (IFC) Exam Sample Questions (Q271-Q276):

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