Jennifer is a CERTIFIED FINANCIAL PLANNERprofessional. Her wealthiest client is Brad with whom she has been working for the past 15 years. Angelina also holds the CFPcredential. Angelina approached Brad at a party for the purpose of luring him away from Jennifer even though Angelina was aware of Brad and Jennifer's long-standing relationship. Angelina assured Brad that she would be able to generate much higher investment returns in his portfolio than Jennifer has to date. Moreover, Angelina made several derogatory comments with respect to Jennifer's ability as a financial planner that had no basis in truth. She also mentioned the names of several high profile clients that she works with and how happy they are with her service. Angelina was so convincing that Brad agreed to terminate his relationship with Jennifer and to transfer all of his assets to Angelina. What principles under the CFP Code of Ethics has Angelina violated?

2. Principle of Integrity
4. Principle of Professionalism
6. Principle of Fairness
8. Principle of Confidentiality
10. Principle of Objectivity

a)

ii and iii

b)

i, ii and iv

c)

iii and v

d)

i, iv and v

In India, Sanjay worked as an accountant. Upon his immigration to Canada, he learned that his accounting designation would not be recognized in this country unless he writes additional exams. Unwilling to do, Sanjay decides to pursue a career in financial planning and to this end, he has obtained his CFP credential. He feels his accounting backgroundeven though it is not recognized in Canadagives him a distinct advantage over other planners and he does not hesitate to advise clients on specific tax issues. What principle under the CFP Code of Ethics is Sanjay breaching?

a)

Principle of Competence

b)

Principle of Integrity

c)

Principle of Objectivity

d)

Principle of Fairness

Ming and Li are married. They have a son, William, who celebrated his seventeenth birthday in August of this year. Under what circumstance will income attribution rules apply?

2. Ming sells a Government of Canada bond to Li and in return, he receives $87,000 from Lithis was the fair market value (FMV) of the asset at the time. The adjusted cost base (ACB) of the bond is $75,000. Following the transaction, Ming files an ITA Section 69 electionwith his income tax return.
4. Earlier this year, Li transferred 500 non-dividend paying common shares of Big Money Corporation to William. At the time of the transfer, the ACB of the shares was $10,000 and the FMV of the shares was $26,350. Today, William disposed of his 500 shares for proceeds of $22,100.
6. Assume earlier this year, problems in their relationship cause Ming and Li to separate. They have been living apart for the past four months. Today, Ming lends Li $50,000 which Li uses to invest in dividend-paying preferred shares. Li will not sell the shares until after her divorce from Ming has been finalized.
8. Next September, Li intends to give William a gift of $5,000. Upon receiving the money, William will use it to buy a compound Canada Savings Bond.

a)

all of the transactions will give rise to income attribution

b)

i and iii only

c)

iii and iv only

d)

none of the transactions will give rise to income attribution

What regulatory body issues securities licenses for participants in the investment industry?

a)

Canadian Securities Administrators (CSA)

b)

Mutual Fund Dealers Association (MFDA)

c)

Investment Industry Regulatory Organization of Canada (IIROC)

d)

provincial securities commissions

Mariah maintains several accounts with the Metropolitan Credit Union, a member of the Canada Deposit Insurance Corporation (CDIC). In her personal chequing account, she has a balance of $15,500. She also has a joint US$ chequing account with her husband that has a balance of $11,800. Exactly five years ago, Mariah deposited $75,000 into a five-year compound GIC with an interest rate of 5.25% per annum. In addition, Mariah has $130,000 in her RRSP, of which $100,000 is invested in mutual funds and $30,000 is invested in treasury bills. If Metropolitan Credit Union became insolvent today, what statement about Mariah's CDIC coverage is true?

a)

Only the portion of Mariah's RRSP assets invested in treasury bills will be eligible for coverage under CDIC.

b)

The maximum CDIC coverage Mariah will receive for all of her holdings at Metropolitan is $100,000.

c)

Mariah's joint US$ chequing account will be insured through CDIC under a separate category from her personal chequing account.

d)

For all of her holdings at Metropolitan, Mariah will receive the following amounts through CDIC: $90,500 for her GIC and her personal chequing account; $11,800 for her joint US$ chequing account and $100,000 for her RRSP.

On December 12^thof this year, Marissa purchased 1,000 shares of the Sure Thing Canadian Equity Fund at a time when its net asset value per share (NAVPS) was $12.75. On December 24^th, the mutual fund paid a capital gains distribution of $1.25 per share. Just prior to the distribution, the NAVPS was $12. Marissa elected to receive the distribution amount in cash. What statement is true?

a)

Immediately following the distribution, the adjusted cost base of Marissa's investment will drop.

b)

Immediately following the distribution, the NAVPS of the fund will be $11.50.

c)

Marissa has a taxable capital gain of $1,250 as a result of the distribution.

d)

Immediately following the distribution, Marissa's investment will be valued at $10,750.

Monique is 65 years old and has just retired. She is single and she does not have any dependents. She has an RRSP valued at $875,000 and a non-registered investment portfolio valued at $460,000. During retirement, Monique will draw a modest income from her registered plan which, in addition to her government and employer-sponsored pensions, will be sufficient to meet her modest lifestyle needs.

Her RRSP assets are invested in Government of Canada bonds and GICs. Her non-registered investments range from blue chip common stocks (80%) to small cap stocks (20%). Over the years, her investment decisions have resulted in some losses but Monique recognizes that negative returns are a part of investing.

She faithfully reads a variety of business publications and has taken several financial planning courses. Now that Monique is retired, she will have even more time to manage her portfolio.

To take advantage of rising oil prices, Monique wants to invest $50,000 in the shares of a major oil producing company in her non-registered account. If you were Monique's advisor, what would you tell her?

a)

Proceed with the investment in the shares of the oil company.

b)

Do not invest in anything as speculative as oil. Based on her age and the fact she is retired, Monique should only hold income investments.

c)

Do not invest in oil because her investment time horizon is not long enough.

d)

Do not invest in oil because Monique does not have the risk tolerance for such an investment.

Neil is an architect earning $83,000. His wife Amanda is a stay-at-home mother and does not have any source of income. Last year, Neil borrowed $1,300,000 from an inheritance Amanda received. The loan is based on an interest rate of 2%; had he taken out the loan through his bank, he would have been charged 7% interest. At the time of the loan, the prescribed rate set by the Canada Revenue Agency was 4.5%.

Neil used the funds to purchase a 14-unit apartment building. He rents each unit for $1,100 per month however, for the year, Neil was only able to rent out 50% of the units. Neil incurred expenses of $63,000 to do basic maintenance on the property to restore it to its original condition and an expense of $45,000 when he upgraded the building's standard windows to energy efficient windows. Just before the end of the year, he also paid Amanda $26,000 in interest expenses to keep his loan in good standing.

Assuming capital cost allowance is not claimed, what statement is true?

a)

Neil's total income this year for tax purposes is $86,400.

b)

Neil's total income this year for tax purposes is $41,400.

c)

Amanda's total income this year for tax purposes is $3,400.

d)

Amanda's total income this year for tax purposes is $29,400.

The Random Walk Fund tends to have investment returns that fluctuate significantly: substantial positive returns one year are followed by negative returns the next year. The CAPM Fund has never ended the year with a negative return. Its returns tend to be similar to the return of the Toronto stock index. Despite this, the Random Walk Fund and the CAPM Fund both posted 10-year average annual returns of 8.5%. When comparing the two mutual funds, what statement is true?

a)

The consistency of a fund's return over a reasonable period of time is not as important as a fund's return each year.

b)

The CAPM Fund has a higher volatility than the Random Walk Fund.

c)

The Random Walk Fund will have a standard deviation that is higher than the standard deviation of the CAPM Fund.

d)

The CAPM Fund will have a beta factor of approximately 2.

What is the optimal portfolio as per the Markowitz model?

a)

Aportfolioon the lowest indifference curve.

b)

Aportfolio on the top indifference curve.

c)

Aportfolioon an indifference curve below the point of tangency with the efficient frontier.

d)

Aportfolio on the indifference curve at the point of tangency with the efficient frontier.

Five years ago, Huang purchased a term-100 life insurance contract. His coverage includes: a death benefit of $850,000, monthly premiums of $350 payable on the 15^thof each month and a two-year suicide clause. Three years ago in November, financial problems forced Huang to let his policy lapse. However, in August of last year, he resolved his problems and successfully reinstated his policy. This year, Huang once again experienced financial difficulties and he missed the premium payment due in May. If he commits suicide on June 13^thof this year, how much will Huang's beneficiary receive as a death benefit from this contract?

a)

$0

b)

$845,800

c)

$849,650

d)

$850,000

Nguyen, a 42-year old high school teacher, purchased an individual disability insurance contract. If the contract stipulates that Nguyen's disability premiums can only be changed if the premiums for all teachers, as a risk class, are changed, what type of disability coverage does Nguyen own?

a)

renewable

b)

guaranteed renewable

c)

cancellable

d)

guaranteed non-cancellable

Shirley purchased a participating whole life insurance policy. This year, Shirley paid $3,375 in premiums and she received a $495 policy dividend; the net cost of pure insurance is $865. Assume in 15 years, Shirley disposes of the policy for an amount equal to its cash surrender value of $59,115 and at that time, its adjusted cost basis (ACB) is $36,420. What statement is true?

a)

The current ACB of Shirley's policy is $2,510.

b)

The current ACB of Shirley's policy is $3,005.

c)

When Shirley eventually disposes of the policy, she will have taxable income of $22,695.

d)

Tanya is 63 years old and her husband Lars is 64 years old; they have been married for 28 years. The couple has just retired and they are about to start collecting their Canada Pension Plan (CPP) retirement benefits. They both worked for 32 years. Tanya is eligible for CPP benefits of $525 per month; Lars is eligible for a CPP pension of $695 per month. If they apply to assign their CPP pensions, how much will Tanya receive each month?

a)

$571

b)

$599

c)

$610

d)

$621

Michelle is eligible to receive an annual Old Age Security (OAS) benefit of $6,942.36. If the OAS clawback threshold is $74,788, Michelle's net income is $81,963 and her combined marginal tax rate is 42%, how much will Michelle receive in OAS benefits after tax?

a)

$1,076.25

b)

$3,402.34

c)

$4,122.58

d)

$5,866.11

What statement regarding locked-in retirement accounts (LIRAs), life income funds (LIFs), locked-in retirement income funds (LRIFs) and annuities is correct?

a)

An annuitant under a matured RRSP can rollover his or her plan assets to a LIRA on a tax-deferred basis. Following this, minimum annual withdrawals must be made from the LIRA.

b)

LIFs are subject to minimum and maximum withdrawal limits; LRIFs are only subject to minimum withdrawal limits.

c)

When converting the assets in a LIF to an annuity, a married annuitant must do so on a joint and last survivor basis unless the annuitant's spouse signs a waiver.

d)

With a prescribed annuity, annuity payments are periodically adjusted to keep pace with changes in the Consumer Price Index.

Last week, Roger died at age 58; he is survived by his spouse Terri. Roger was a member of his company's registered pension plan which stipulated a normal retirement age of 65. Roger's pension was governed by thePension Benefit Standards Act. Pursuant to that Act, what option will be made available to Terri?

a)

She can transfer the commuted value of Roger's benefits to her own pension plan if permitted by her plan.

b)

She can transfer the commuted value of Roger's benefits to a locked-in retirement account.

c)

She can transfer the commuted value of Roger's benefits to a financial institution to purchase an immediate or deferred annuity.

d)

She would receive an amount that is at least 60% of the reduced early retirement pension that Roger was already eligible to collect

Angelo is employed by the Main Monkey Business Talent Agency and is part of thedeferred profit sharing plan (DPSP) sponsored by the company. Last year his earnings were $66,950; this year his earnings will be $87,400. If the money purchase limit for the year is $26,230, what is theMAXIMUMcontribution that can be made to the DPSP this year on behalf of Angelo?

a)

$12,051

b)

$13,115

c)

$15,732

d)

$26,230

Tyrone has been an employee of Mead Enterprises since January 1, 1984. In January 1988, he joined his employer's registered pension plan. Last week, Mead Enterprises terminated Tyrone's employment and gave him a retiring allowance of $38,000. What is theMAXIMUMamount Tyrone is permitted to rollover into his RRSP and claim an eligible deduction?

a)

$24,000

b)

$28,000

c)

$30,000

d)

$38,000

Francesca, who was self-employed, died on August 17^thof this year. With regards to her terminal tax return, on what day next year will Francesca's balance-due date fall?

a)

February 17^th

b)

April 30^th

c)

June 15^th

d)

June 30^th

Two years ago, Miguel and Juanita established a partnership. At that time, Miguel contributed $100,000 to the business; Juanita contributed $175,000. Their partnership agreement stipulates that Miguel has a 35% interest in the partnership and Juanita's interest is 65%.

Two years ago, the partnership recorded a loss of $21,000 but this year, the company has a profit of $144,000. Last year, Juanita withdrew a lump sum of $12,000 from the partnership. This year, Juanita received a monthly draw of $2,000 for the first six months of the year. If Juanita sells her interest in the partnership this year for $200,000, what is her capital gain or her capital loss?

a)

$15,475 capital loss

b)

$30,950 capital loss

c)

$54,950 capital gain

d)

$71,200 capital gain

Three years ago, Cecilia purchased a commercial property for $212,000 where $70,000 is attributed to the land and $142,000 is attributed to the building. Over the years, Cecilia has claimed $26,000 in capital cost allowance (CCA) on the building. This property represents the only property in the CCA class. This year, she sold the property for $175,000 with $64,450 attributed to the land and $110,550 attributed to the building. What are the tax implications of Cecilia's transaction?

a)

$5,550 capital loss on the land and $31,450 capital loss on the building

b)

$5,550 capital loss on the land and $5,450 terminal loss on the building

c)

$5,550 capital loss on the land and $5,450 recapture of CCA on the building

d)

$5,550 capital loss on the land and $26,000 recapture of CCA on the building

Answer rating: 100% (QA)

To determine the tax implications of Cecilias transaction lets calculate the adjusted cost base ACB ... View the full answer