40 Questions
What percentage of a capital gain is taxable in Canada?
50%
How are net allowable capital losses treated in Canada?
Can be carried back three years or carried forward indefinitely
What is the formula to calculate taxable capital gain?
$5,000 - $3,000
In Canada, can allowable capital losses be applied to reduce other sources of income?
No, only applicable to taxable capital gains
What happens if taxable capital gains are less than allowable capital losses in a given year?
Excess losses can be carried forward indefinitely
What is the purpose of re-balancing a non-registered portfolio?
Take advantage of unrealized gains or losses
In the given scenario, how much is Terry's taxable capital gain from selling the Prime Canadian Equity Fund?
$1,000
What is the net allowable capital loss Terry has for the year after utilizing her allowable capital loss to reduce her taxable capital gain?
$2,000
How can Terry use her net allowable capital loss of $2,000?
Both reduce previous year's taxable capital gains and carry forward to future years
What happens to capital losses in an investor's year of death or terminal return according to the text?
They may be deducted from capital gains realized in the year
If a mutual fund has more capital losses than capital gains, what can be done with the remaining net capital losses?
Carried forward indefinitely
In the scenario provided, what was the net capital loss of the Equinox Canadian Equity Fund?
$5,000
What is the tax treatment of an investor's portion of a distributed net capital gain?
Taxable
If a mutual fund distributes all income, dividends, and net capital gains every year, what happens to its capital losses?
They are carried forward indefinitely
What is the term used to describe a capital loss that can be used to offset capital gains for tax purposes?
Allowable capital loss
What happens to the capital gain when a return of capital has been paid?
It increases because the adjusted cost base is reduced.
How does a return of capital impact the adjusted cost base of an investment?
It decreases the adjusted cost base.
In the scenario provided, what was the total distribution amount Nikos received for his investment in the High Peaks Fund?
$1.00
What is the potential tax liability for a client who purchases a mutual fund just before the ex-dividend date?
They will incur a tax liability for that year.
How does receiving a distribution before selling impact a mutual fund investor's tax situation?
It increases their tax liability for the year.
What is the main difference between a capital gain and a capital loss?
A capital gain occurs when an asset is sold for more than its cost, while a capital loss occurs when an asset is sold for less than its cost.
In the context of the text, what is the significance of an unrealized capital gain or loss?
It indicates that the capital assets have not been sold and no actual gain or loss has been realized.
What conditions must be met for a capital gain to occur according to the text?
When an asset is sold for more than its cost.
How does the Adjusted Cost Base (ACB) affect the determination of a capital gain or loss?
The ACB is subtracted from the market price to determine if a capital gain or loss has occurred.
What is an allowable capital loss in the context of taxation involving Uday and Oksana?
$1,000
What happens to net capital losses for the year of death and the preceding year?
They may be used to reduce income
In what scenario are there no restrictions on using net capital losses from a year before death?
If there is a carry forward of net capital losses to the year of death
What can be done with capital losses in mutual funds in the return prior to the terminal return?
They may be deducted
How are capital gains derived from redemptions and those distributed by mutual fund trusts distinguished?
Redemption gains are considered capital gains, while distributed gains are not
What is the treatment of net allowable capital loss in the context of taxation?
It can only offset taxable capital gains
Which step should be followed first to calculate tax payable?
Calculate total income
What is an example of a legal tax avoidance approach mentioned in the text?
Splitting income with family members
In tax calculations, what is the purpose of applying federal and provincial tax rates?
To find the tax payable before tax credits
What is the significance of continuously familiarizing yourself with changes in tax rules?
To advise clients with the most effective investment recommendations
Which type of investment provides a better after-tax rate of return according to the text?
Investments with tax advantages
What is an example of a legal tax avoidance approach related to medical expenses mentioned in the text?
Including eligible prescription drugs on income tax
Why is postponing the receipt of income considered a legal tax avoidance approach?
To defer taxes to future years
What does 'full utilization of allowable deductions' refer to in the context of tax avoidance?
Take advantage of all possible deductions within legal limits
How does splitting income with family members aid in legal tax avoidance?
By reducing the overall taxable income for each family member
In calculating tax payable, why is it important to know about changes in tax rules?
To ensure accurate calculations and recommendations
Learn how to calculate capital gains and losses for individuals like Uday and Oksana, and understand the taxation rules in Canada where only 50% of gains are taxable and losses are allowable to reduce tax liabilities.
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