LLQP practice exams

Why should an agent suggest that an employee pay their own disability premiums with after-tax money rather than have the employer pay them, if tax-free benefits are important?

• AEmployee-paid benefits are taxed at a lower rate than employer-paid ones
• BBenefits are taxable whenever the employer pays premiums not taxed to the employee
• CThe elimination period is shorter when the employee pays the premium
• DThe employer would otherwise have to pay a higher premium for the same coverage

Think about the link between the premium and the benefit.

Rosalie's $650,000 estate includes a $200,000 segregated fund payable to her estate. Her agent suggests naming her daughter as the beneficiary instead. Using the Ontario Estate Administration Tax of nil on the first $50,000 and $15 per $1,000 above, how much tax does the change save?

• A$0, since the tax applies to all assets whatever the beneficiary
• B$2,250
• C$6,000
• D$3,000

A named beneficiary passes the asset outside the will.

Chloé has $8,000 of pre-tax income and a 35% marginal rate now and in retirement. Both an RRSP and a TFSA would grow 1.8 times. Which statement is correct?

• AThe RRSP leaves $3,120 more
• BThe TFSA leaves $9,360 and the RRSP $14,400
• CBoth leave $9,360 after tax
• DThe TFSA leaves $5,040 more

Remember that the TFSA is funded with after-tax dollars.

Same case, but Paul waits and withdraws the $4,000 in 2029. Sarah made no spousal RRSP contribution in 2027, 2028 or 2029. Who is taxed on the withdrawal?

• ASarah, because the plan is still a spousal plan
• BSarah, because she made the original contribution
• CPaul, but only 50% of the amount is taxable
• DPaul, at his own marginal rate

Check whether a contribution falls within the current or two previous years.

What is the purpose of the gross-up and dividend tax credit on Canadian dividends?

• AThey exempt dividends paid by public companies from personal tax once the shares are held a year
• BThey convert dividends into capital gains at the 50% inclusion rate
• CThey approximate the corporate tax already paid on the profits distributed
• DThey let shareholders deduct the dividend from other income

Think about who paid tax on the profits before the dividend.

Beatrice's universal life policy has a cash surrender value of $100,000 and an ACB of $40,000. She withdraws $20,000. One year later the cash surrender value is $90,000 and she withdraws another $18,000. What is the policy gain on the second withdrawal?

• A$6,400
• B$11,600
• C$18,000
• D$10,000

Update the ACB after the first withdrawal before prorating the second.

Four equal shareholders want a cross-purchase buy-sell agreement in which each shareholder owns a policy on every other shareholder. How many policies are required?

• A6
• B12
• C4
• D16

Each shareholder insures each of the other shareholders.

Marcel, a widower in Ontario, dies owning a cottage bought for $150,000 and now worth $650,000; it is not his principal residence. His children inherit it. At a 48% marginal rate on his final return and a 50% inclusion rate, what tax arises on the cottage?

• A$240,000
• B$250,000
• C$120,000
• D$60,000

Find the deemed gain, then the taxable half, then the tax.

Why does a $5,000 RRSP deduction save a client in the 45% bracket more tax than a client in the 20% bracket?

• AThe higher bracket client is allowed a larger RRSP deduction limit
• BA deduction reduces taxable income, so it is worth the client's marginal rate
• CA deduction is multiplied by a credit rate that rises with income
• DA deduction reduces tax payable directly, dollar for dollar, at the same value for every client

Think about what a deduction reduces first.

Why can a corporate-owned policy be a tax-efficient way to fund a share redemption at the death of a shareholder?

• AThe shareholder's estate avoids the capital gain on the shares it holds
• BThe proceeds are taxed at the lower corporate rate only, never personally
• CThe corporation deducts the premiums, so the death benefit is also deductible to it
• DThe CDA credit lets the corporation pay out most proceeds as a tax-free dividend

Consider what the corporation can do with the death benefit.

Hana, a part-time student, owes $1,000 of tax before credits and has non-refundable credits worth $2,500. What is the result?

• ANo tax payable, and the $1,500 balance is refunded the following year
• BNo tax payable, and the unused $1,500 of credits is not refunded
• CTax of $1,000 remains, since credits only reduce taxable income
• DA refund of $1,500, because the credits exceed the tax owed

Think about what "non-refundable" means.

Which statement about the attribution rules for a gift to a spouse is correct?

• AOnly interest is attributed to the giver, while capital gains are taxed to the spouse
• BAttribution ends once the gift has been held for 12 months by the spouse
• COnly capital gains from the gifted property are attributed back to the giver
• DBoth income and capital gains from the gifted property are taxed to the giver

Think about what a spouse gift keeps for the giver.

Which statement about a life annuity bought with non-registered savings is correct?

• AThe payments are taxed only as capital gains, at the 50% inclusion rate
• BEach payment is fully taxable as interest income
• CEach payment mixes a taxable interest portion and a tax-free return of capital
• DEach payment is a tax-free return of capital until the principal is exhausted

Think about what the annuity buyer paid with after-tax money.

Étienne has $18,000 of RRSP room and contributes $23,000. What is the monthly penalty tax, given the $2,000 cumulative cushion?

• A$230
• B$180
• C$50
• D$30

Remove the cushion from the excess first.

Walter's 71st birthday is March 3, 2027. He wants to keep his RRSP in place as long as possible. By what date must it mature?

• ADecember 31, 2027
• BMarch 3, 2027
• CDecember 31, 2026
• DMarch 3, 2028

The deadline is tied to the calendar year, not the birthday.

Which statement about income replacement benefits received during a disability is correct?

• AEI sickness and workers' compensation benefits are taxable; CPP disability is not
• BNone of the three is taxable, as they are government benefits
• CCPP disability and EI sickness benefits are taxable; workers' compensation is not
• DAll three are taxable, as they replace employment income

Recall which of these public benefits are included in income.

Sarah contributes $10,000 to a spousal RRSP for her husband Paul in 2026, and no other amount afterward. In 2028, Paul withdraws $4,000. Who reports the $4,000?

• APaul, but Sarah must reimburse the tax at her own marginal rate
• BPaul, because the plan belongs to him and he made the withdrawal himself
• CSarah, because the withdrawal falls within two calendar years after the contribution
• DSarah, but only if the withdrawal exceeds the 2026 contribution

Count calendar years starting from the year of the contribution.

Gérard, 68, receives $60,000 from his RRIF; his wife Lise, 66, has almost no income. Gérard's marginal rate is 40% and Lise's is 20%. If they elect to split the maximum allowed 50% of eligible pension income, how much total tax do they save?

• A$9,000
• B$12,000
• C$6,000
• D$3,000

Find the amount transferred, then the rate difference.

Zoran, in Ontario, has $200,000 of group life coverage at a total cost of $0.50 per $1,000 per month. He pays 40% of the premium himself and his employer pays 60%. Ignoring sales tax, what is his taxable benefit for the year?

• A$480
• B$1,200
• C$720
• D$60

Only the employer-paid share is a benefit.

What does a corporation's capital dividend account (CDA) track?

• AAmounts payable to shareholders as tax-free capital dividends
• BThe taxable dividends paid in the current year
• CThe cash value of all policies owned by the corporation
• DThe corporation's retained earnings after tax

Recall what the account is used for.