Capital Gains and Losses Calculation and Taxation in Canada
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Questions and Answers

What percentage of a capital gain is taxable in Canada?

  • 100%
  • 75%
  • 50% (correct)
  • 25%

    • How are net allowable capital losses treated in Canada?

  • Lost and cannot be utilized
  • Used to increase taxable income
  • Can only reduce current year's taxes
  • Can be carried back three years or carried forward indefinitely (correct)

    • What is the formula to calculate taxable capital gain?

  • $6,000 - $10,000
  • $4,000 - $10,000
  • $5,000 - $3,000 (correct)
  • $2,000 - $5,000

    • In Canada, can allowable capital losses be applied to reduce other sources of income?

    <p>No, only applicable to taxable capital gains</p> Signup and view all the answers

    What happens if taxable capital gains are less than allowable capital losses in a given year?

    <p>Excess losses can be carried forward indefinitely</p> Signup and view all the answers

    What is the purpose of re-balancing a non-registered portfolio?

    <p>Take advantage of unrealized gains or losses</p> Signup and view all the answers

    In the given scenario, how much is Terry's taxable capital gain from selling the Prime Canadian Equity Fund?

    <p>$1,000</p> Signup and view all the answers

    What is the net allowable capital loss Terry has for the year after utilizing her allowable capital loss to reduce her taxable capital gain?

    <p>$2,000</p> Signup and view all the answers

    How can Terry use her net allowable capital loss of $2,000?

    <p>Both reduce previous year's taxable capital gains and carry forward to future years</p> Signup and view all the answers

    What happens to capital losses in an investor's year of death or terminal return according to the text?

    <p>They may be deducted from capital gains realized in the year</p> Signup and view all the answers

    If a mutual fund has more capital losses than capital gains, what can be done with the remaining net capital losses?

    <p>Carried forward indefinitely</p> Signup and view all the answers

    In the scenario provided, what was the net capital loss of the Equinox Canadian Equity Fund?

    <p>$5,000</p> Signup and view all the answers

    What is the tax treatment of an investor's portion of a distributed net capital gain?

    <p>Taxable</p> Signup and view all the answers

    If a mutual fund distributes all income, dividends, and net capital gains every year, what happens to its capital losses?

    <p>They are carried forward indefinitely</p> Signup and view all the answers

    What is the term used to describe a capital loss that can be used to offset capital gains for tax purposes?

    <p>Allowable capital loss</p> Signup and view all the answers

    What happens to the capital gain when a return of capital has been paid?

    <p>It increases because the adjusted cost base is reduced.</p> Signup and view all the answers

    How does a return of capital impact the adjusted cost base of an investment?

    <p>It decreases the adjusted cost base.</p> Signup and view all the answers

    In the scenario provided, what was the total distribution amount Nikos received for his investment in the High Peaks Fund?

    <p>$1.00</p> Signup and view all the answers

    What is the potential tax liability for a client who purchases a mutual fund just before the ex-dividend date?

    <p>They will incur a tax liability for that year.</p> Signup and view all the answers

    How does receiving a distribution before selling impact a mutual fund investor's tax situation?

    <p>It increases their tax liability for the year.</p> Signup and view all the answers

    What is the main difference between a capital gain and a capital loss?

    <p>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.</p> Signup and view all the answers

    In the context of the text, what is the significance of an unrealized capital gain or loss?

    <p>It indicates that the capital assets have not been sold and no actual gain or loss has been realized.</p> Signup and view all the answers

    What conditions must be met for a capital gain to occur according to the text?

    <p>When an asset is sold for more than its cost.</p> Signup and view all the answers

    How does the Adjusted Cost Base (ACB) affect the determination of a capital gain or loss?

    <p>The ACB is subtracted from the market price to determine if a capital gain or loss has occurred.</p> Signup and view all the answers

    What is an allowable capital loss in the context of taxation involving Uday and Oksana?

    <p>$1,000</p> Signup and view all the answers

    What happens to net capital losses for the year of death and the preceding year?

    <p>They may be used to reduce income</p> Signup and view all the answers

    In what scenario are there no restrictions on using net capital losses from a year before death?

    <p>If there is a carry forward of net capital losses to the year of death</p> Signup and view all the answers

    What can be done with capital losses in mutual funds in the return prior to the terminal return?

    <p>They may be deducted</p> Signup and view all the answers

    How are capital gains derived from redemptions and those distributed by mutual fund trusts distinguished?

    <p>Redemption gains are considered capital gains, while distributed gains are not</p> Signup and view all the answers

    What is the treatment of net allowable capital loss in the context of taxation?

    <p>It can only offset taxable capital gains</p> Signup and view all the answers

    Which step should be followed first to calculate tax payable?

    <p>Calculate total income</p> Signup and view all the answers

    What is an example of a legal tax avoidance approach mentioned in the text?

    <p>Splitting income with family members</p> Signup and view all the answers

    In tax calculations, what is the purpose of applying federal and provincial tax rates?

    <p>To find the tax payable before tax credits</p> Signup and view all the answers

    What is the significance of continuously familiarizing yourself with changes in tax rules?

    <p>To advise clients with the most effective investment recommendations</p> Signup and view all the answers

    Which type of investment provides a better after-tax rate of return according to the text?

    <p>Investments with tax advantages</p> Signup and view all the answers

    What is an example of a legal tax avoidance approach related to medical expenses mentioned in the text?

    <p>Including eligible prescription drugs on income tax</p> Signup and view all the answers

    Why is postponing the receipt of income considered a legal tax avoidance approach?

    <p>To defer taxes to future years</p> Signup and view all the answers

    What does 'full utilization of allowable deductions' refer to in the context of tax avoidance?

    <p>Take advantage of all possible deductions within legal limits</p> Signup and view all the answers

    How does splitting income with family members aid in legal tax avoidance?

    <p>By reducing the overall taxable income for each family member</p> Signup and view all the answers

    In calculating tax payable, why is it important to know about changes in tax rules?

    <p>To ensure accurate calculations and recommendations</p> Signup and view all the answers

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