Tax Deferral Plans Quiz https://elearning.csi.ca/shared/webct_components/learning_activities/CS...

Tax Deferral Plans Quiz

Question 1
Last year, John had employment income of $100,000, a pension adjustment of $10,000
and unused RRSP contribution room of $22,000. His wife, Betty, had employment
income of $45,000, a pension adjustment of $8,000 and an RRSP carry-forward
contribution room of $2,000. John's combined marginal tax rate is 46.41% and Betty's
is 31.15%. The provincial dividend tax credit is 6.5%.

How much can John contribute to a spousal RRSP for Betty in the current year?

a. $18,000
b. $19,800
c. $30,000
d. $33,100

Answer
John can contribute $30,000 to a spousal RRSP.

John's RRSP contribution room is:

$100,000 × 18% = $18,000 ($18,000 is less than the current

maximum RRSP contribution limit)

$18,000 – $10,000 PA = $8,000

$8,000 + $22,000 = $30,000

carry-forward

John can use his contribution room to fund a personal RRSP and/or a spousal RRSP
for Betty.

Question 2
If Betty's RPP is a defined contribution plan, how much could she contribute to an
RRSP in the current year?

(Review John and Betty's background under the View Resources tab in the bottom-left
corner of this window.)

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a. $2,000
b. $2,100
c. $8,100
d. $10,100

Answer
Betty can contribute $2,100.

Betty's RRSP contribution room will be:

$45,000 × 18% = $ 8,100 ($8,100 is less than the current maximum

RRSP contribution limit)

$8,100 – $8,000 PA = $100

$100 + $2,000 carry- = $2,100

forward

Betty can use her contribution room to fund a personal RRSP or a spousal RRSP for
John.

Question 3
For his previous year's tax return, John contributed $8,000 to his RRSP and $30,000 to
a spousal RRSP for Betty on January 31 of the current year. If he becomes aware of
the status of his contributions in June of the current year, when he receives his tax
assessment and immediately addresses any issues, what will be the tax
consequences?

(Review John and Betty's background under the View Resources tab in the bottom-left
corner of this window.)

a. None. John has sufficient contribution.

b. None. John will only have to remove any excess contribution.
c. John will have to pay a penalty tax of $360.
d. Betty will have to pay a penalty tax of $240.

Answer
John will have to pay $360.00.

The government imposes a penalty tax of 1% per month (or any part of a month) on
RRSP contributions that exceed an over-contribution allowance of $2,000.

$38,000 contribution ($8,000 + $30,000)

– $30,000 contribution room
= $8,000 over contribution
– $2,000 over-contribution allowance
= $6,000 on which 1% per month penalty tax will be applied

John made the RRSP contribution in January of the current year. Any part of a month

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counts in applying the over-contribution penalty tax.

January + February + March + April + May + June = six months

$6,000 × 1% × 6 months = $360.00

Question 4
In which of the following plans are contributions not tax deductible from income by the
contributor?

a. MPP
b. DBP
c. RRSP
d. RESP

Answer
The RESP does not allow contributions to be deducted from the contributor's income.

All of the plans offer the benefits of tax sheltering and tax deferral.

The MPP, DBP and RRSP allow the deduction of contributions from taxable income.

Question 5
Which of the following is not a maturity option for an RRSP?

a. Purchase of a life annuity

b. Purchase of a self-directed RRSP with minimum withdrawal options
c. Cashing out the RRSP
d. Conversion to a RRIF

Answer
Purchase of a self-directed RRSP with minimum withdrawal options is not a maturity
option on RRSPs.

An RRSP may be deregistered in whole or part at any time by taking funds in cash;
however, all money coming out of a registered plan is fully taxed to the plan holder as
received.

The rules governing RRSPs require them to be matured by the end of the year in which
the holder turns 71 years of age. Maturing an RRSP can be achieved by:

Terminating the RRSP

Taking full proceeds in cash

Converting the RRSP

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To a fixed-term annuity with benefits to a specified age

To a life annuity with a guaranteed term
To a RRIF

Or some combination of these four options.

Question 6
John and Betty have one child, aged 22. They have contributed $2,000 per year for 15
years to an RESP for their son; however, he has decided not to attend university.

Which of the following statements about this scenario is correct?

(Review John and Betty's background under the View Resources tab in the bottom-left
corner of this window.)

a. The CESG must be returned to the government.

b. John and Betty can reclaim their invested capital less a specified penalty
payment.
c. John and Betty can transfer up to $25,000 into an RRSP.
d. They have no claim on the invested capital.

Answer
The CESG must be returned to the government.

If an RESP has been in existence for 10 years or more and no named beneficiary has
enrolled in a qualifying post-secondary program by age 21, the value of the RESP can
be claimed by the subscriber.

The CESG must be returned to the government. Only the actual amount of
total CESG must be returned, not the return it earned.
The subscriber's original capital is returned free of tax.
Any current and unused RRSP contribution room can be used by
transferring funds free of tax from the RESP (up to a maximum of $50,000).
Any deferred income from the RESP taken as cash or in kind will be taxed at
the subscriber's marginal tax rate for the year with an additional penalty tax
of 20%.

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