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IFSE Institute CIFC Exam Syllabus Topics:
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NEW QUESTION # 117
Last year Peter's earned income from employment was $50,000.
Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000.
Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).
- A. $9,953.30
- B. $9,113.53
- C. $9,696.15
- D. $9,193.69
Answer: D
Explanation:
Explanation
To calculate Peter's net federal tax liability for the year, we need to follow these steps:
Step 1: Calculate Peter's taxable income. This is the amount of income that is subject to federal income tax. It is equal to his earned income from employment plus his net capital gain plus his grossed-up dividend income. A net capital gain is 50% of the capital gain realized from selling an asset. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. According to the image, the dividend gross-up rate is
15.02%. Therefore, Peter's taxable income is:
50000+0.5×15000+(500×2)×(1+0.1502)=68251.00
Step 2: Apply the federal tax rates to Peter's taxable income according to the tax brackets shown in the image. The federal tax rates are progressive, meaning that higher income is taxed at higher rates.
Therefore, Peter's federal tax before credits is:
0.15×(485350)+0.205×(6825148535)=11293.69
Step 3: Subtract the federal tax credits from Peter's federal tax before credits. A tax credit is an amount that reduces the tax payable by a taxpayer. There are two types of federal tax credits: non-refundable and refundable. Non-refundable tax credits can only reduce the tax payable to zero, but not below zero.
Refundable tax credits can reduce the tax payable below zero, resulting in a refund to the taxpayer. In this question, we assume that Peter only has two non-refundable tax credits: the basic personal amount and the dividend tax credit. The basic personal amount is a fixed amount that every taxpayer can claim to reduce their taxable income. According to this site, the basic personal amount for 2021 is $13,808.
The dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. According to this site, the federal dividend tax credit rate for eligible dividends in 2021 is 15.0198%. Therefore, Peter's federal tax credits are:
0.15×13808+0.150198×(500×2)×0.1502=2100
Step 4: Subtract Peter's federal tax credits from his federal tax before credits to get his net federal tax liability. This is the amount of federal income tax that Peter has to pay or has overpaid for the year.
Therefore, Peter's net federal tax liability is:
11293.692100=9193.69
Hence, option B is correct. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Federal Income Tax Rates for Canada - TurboTax Canada Tips, Capital Gains Tax in Canada | Wealthsimple, Dividend Tax Credit | TurboTax Canada Tips, Basic Personal Amount (BPA)
NEW QUESTION # 118
Anthony purchased 500 units of XYZ Fund at a price of $12.00 per unit. Near the end of the year, the mutual fund made a distribution of $1.50 per unit. The net asset value per unit (NAVPU) immediately before the distribution was $16.50. Anthony immediately reinvested his distribution at the new NAVPU. How many new units did Anthony purchase when his distribution was reinvested?
- A. 52.60
- B. 50.00
- C. 45.50
- D. 55.40
Answer: B
Explanation:
Explanation
When a mutual fund makes a distribution, its net asset value per unit (NAVPU) decreases by the amount of the distribution. Therefore, the new NAVPU of XYZ Fund after the distribution was $$(16.50 - 1.50 = 15.00)
NEW QUESTION # 119
Reginald is a Dealing Representative, who feels pressure from management at the beginning of every calendar year, to open new registered retirement savings plans (RRSPs) and generate RRSP contributions. It is the end of February, and Reginald is close to reaching his personal sales objectives. He just finished an appointment with a prospective new client, Orel. Orel wants to open a tax-free savings account (TFSA) to build emergency savings. However, Reginald recommended to Orel that he should first contribute to an RRSP, and then use the tax savings for a TFSA contribution. With regards to account suitability, what can be said about Reginald's advice?
- A. By convincing Orel to contribute to an RRSP, instead of a TFSA, Reginald has put his client's interest first.
- B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
- C. Reginald is putting the client's interest first by informing Orel why he should change his investment strategy.
- D. Recommending an investment solution that addresses two needs, is putting Reginald's client's interest first.
Answer: B
Explanation:
Explanation
Orel's goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.
References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1:
Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2
1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf 2:
https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf
NEW QUESTION # 120
Francis wants to redeem his US Asset Allocation Fund as he needs the money for a down payment for a home purchase. The current proceeds from the redemption are USD $27,859, and the current CAD/USD exchange rate is 0.7353.
How much will Francis receive in Canadian dollars when he redeems the Funds? Please round your answer to the nearest dollar.
- A. $36,698
- B. $35,859
- C. $37,888
- D. $42,861
Answer: C
Explanation:
Explanation
A is correct because Francis will receive $37,888 in Canadian dollars when he redeems the Funds. This is calculated by dividing the current proceeds from the redemption in US dollars by the current CAD/USD exchange rate and rounding to the nearest dollar. That is,
NEW QUESTION # 121
Dakota is a Dealing Representative with Harvest Wealth Inc., a mutual fund dealer. Dakota starts a marketing campaign to contact prospective new clients and increase sales with existing clients. Which of the following CORRECTLY describes activities that Dakota can engage in under her marketing campaign?
- A. Dakota can make telemarketing calls to clients who are listed on the National Do Not Call List
- B. Dakota can send promotional emails to clients who have opted into Harvest Wealth's Do Not Call List
- C. Dakota can make telemarketing calls to clients who have opted in to receive commercial electronic messages (CEMs).
- D. Dakota can send promotional emails to clients who have opted in to receive commercial electronic messages (CEMs).
Answer: D
Explanation:
Explanation
Dakota can send promotional emails to clients who have opted in to receive commercial electronic messages (CEMs). A CEM is any electronic message that encourages participation in a commercial activity, such as an email, a text message, or a social media message. Under Canada's anti-spam legislation (CASL), Dakota must obtain consent from the recipients before sending CEMs, either explicitly (e.g., by asking them to sign up for a newsletter) or implicitly (e.g., by having an existing business relationship with them). Dakota must also identify himself and his dealer, provide contact information, and include an unsubscribe mechanism in every CEM. The other statements are incorrect. Dakota cannot make telemarketing calls to clients who are listed on the National Do Not Call List (DNCL). The DNCL is a list of telephone numbers of consumers who do not want to receive unsolicited telemarketing calls. Under the Telecommunications Act, Dakota must register with the National DNCL operator, subscribe to the National DNCL, and avoid calling any number on the list, unless he has express consent from the consumer or an exemption applies. Dakota cannot send promotional emails to clients who have opted into Harvest Wealth's Do Not Call List. A Do Not Call List is a list of telephone numbers of consumers who do not want to receive telemarketing calls from a specific organization.
Under the Telecommunications Act, Dakota must maintain an internal Do Not Call List for his dealer and respect the requests of consumers who ask not to be called by his dealer. However, this does not mean that he can send promotional emails to those consumers, as that would violate CASL. Dakota cannot make telemarketing calls to clients who have opted in to receive commercial electronic messages (CEMs). Opting in to receive CEMs does not imply consent to receive telemarketing calls, as they are different forms of communication governed by different laws . Dakota must obtain separate consent from the clients before making telemarketing calls to them, either explicitly or implicitly. References: [Canada's anti-spam legislation], [National Do Not Call List]
NEW QUESTION # 122
Leira has a marginal tax rate of 45% and may deduct $5,000 in registered retirement savings plan (RRSP) contributions on her income tax return. If she decides to use her available deduction and assuming this does not reduce her taxable income to a lower tax bracket, by how much will it reduce her tax payable?
- A. $0
- B. $2,250
- C. $5,000
- D. $4,500
Answer: B
Explanation:
Explanation
A registered retirement savings plan (RRSP) is a type of tax-deferred account that allows individuals to save for retirement. Contributions to an RRSP are deductible from taxable income, which means that they reduce the amount of income tax payable for the year. The amount of tax savings from an RRSP contribution depends on the individual's marginal tax rate, which is the tax rate applied to the next dollar earned. Leira has a marginal tax rate of 45% and may deduct $5,000 in RRSP contributions on her income tax return. If she decides to use her available deduction and assuming this does not reduce her taxable income to a lower tax bracket, by how much will it reduce her tax payable? To answer this question, we can use the following formula: $$(Tax savings = RRSP contribution \times Marginal tax rate)
NEW QUESTION # 123
Justin and Yvonne both open a Registered Education Savings Plan (RESP) for their daughter Grace. They plan to regularly contribute $1,000 per year until Grace reaches the age of 17.
Which of the following statements relating to RESP is CORRECT?
- A. RESPs are attractive to Justin and Yvonne because they are tax-free investment plans.
- B. There is an annual contribution limit of $2,500 that Justin and Yvonne can contribute to an RESP.
- C. Contributions made by Justin and Yvonne are eligible for a tax deduction in the year they are contributed.
- D. Justin and Yvonne may contribute a combined lifetime maximum of $50,000 for Grace.
Answer: D
Explanation:
Explanation
A Registered Education Savings Plan (RESP) is a tax-advantaged savings plan that helps parents and family members save for a child's post-secondary education. The government also contributes to the plan through the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), depending on the family income and the amount of contributions. However, there are some rules and limits that apply to RESP contributions and government grants. One of them is the lifetime contribution limit, which is the maximum amount that can be contributed to an RESP for a beneficiary from all sources. The lifetime contribution limit is
$50,000 per beneficiary, regardless of how many RESPs are opened for them or who contributes to them.
Therefore, statement A is correct. Justin and Yvonne may contribute a combined lifetime maximum of
$50,000 for Grace to their RESP.
The other statements are incorrect for the following reasons:
Statement B: RESPs are not tax-free investment plans. They are tax-deferred plans, meaning that the contributions are made with after-tax dollars and the investment income earned in the plan is not taxed until it is withdrawn as an educational assistance payment (EAP) for the beneficiary. The EAPs are taxed in the hands of the beneficiary, who usually has little or no income and pays little or no tax.
Statement C: There is no annual contribution limit for RESP contributions. However, there is an annual limit for the CESG, which is 20% of the first $2,500 contributed per beneficiary per year, up to a maximum of $500 per year. The CESG also has a lifetime limit of $7,200 per beneficiary.
Statement D: Contributions made to an RESP are not eligible for a tax deduction in the year they are contributed. They are made with after-tax dollars and do not reduce the contributor's taxable income.
References: Canadian Investment Funds Course, Unit 9, Section 9.1
NEW QUESTION # 124
Which of the following statements are CORRECT about labour sponsored investment funds (LSIFs)?
- A. Investors will forfeit their tax credits if they redeem their LSIF investment before 8 years have elapsed.
- B. All provinces offer some sort of additional tax credit for investors.
- C. LSIFs are appropriate for investors with a short-term time horizon.
- D. LSIFs are suitable for investors with a low risk tolerance.
Answer: A
Explanation:
Explanation
LSIFs are a type of investment fund that provide venture capital to small and medium-sized Canadian businesses, while offering tax benefits to investors. However, LSIFs are also considered high-risk and illiquid investments, as they invest in private companies that may not have a proven track record or marketability.
Therefore, LSIFs are not suitable for investors with a short-term time horizon or a low risk tolerance. Investors who buy LSIFs receive a 15% federal tax credit and may also receive an additional provincial tax credit, depending on the province where they reside. However, these tax credits are conditional on holding the LSIF investment for at least 8 years. If investors redeem their LSIF investment before the 8-year period, they will have to repay the tax credits they received.
References: Canadian Investment Funds Course, Chapter 4: Types of Investments1
NEW QUESTION # 125
Every February, Reginald, a Dealing Representative, feels pressured by his Manager to generate new registered retirement savings plans (RRSP) and contributions to assist the branch in meeting broader business targets. Reginald is nearing the end of February, and he has a meeting with a new client, Orel. Orel wants to open a tax-free savings account (TFSA) to develop emergency savings because he does not want to worry about his withdrawals being taxed. Reginald suggests that if Orel were to contribute to an RRSP first, then the resulting tax savings could be used to fund a new emergency account.
In relation to account suitability, what can be said about Reginald's advice?
- A. Recommending an investment solution that addresses two needs is putting Reginald's client's interest first
- B. By convincing Orel to contribute an RRSP, instead of a TFSA, Reginald has put his client's interest first.
- C. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
- D. Reginald is putting the client's interest first by informing Orel why he should change his purpose for investing.
Answer: C
NEW QUESTION # 126
Xerxes, 45 years old, is a successful architect, having an annual income of $185,000. He has around $10,000 in his non-registered account, which he is looking to invest in a tax-efficient manner.
From the following options, which would be the most tax-efficient?
- A. target date fund
- B. asset allocation fund
- C. bond fund
- D. Canadian equity index fund
Answer: D
NEW QUESTION # 127
Taylor is chatting with other parents in the park when the conversation turns to registered education savings plans (RESPs). Taylor thinks that most of what they are saying is incorrect. Which of the following statements about self-directed RESPs is TRUE?
- A. Only one beneficiary may be named per RESP.
- B. Educational Assistance Payments (EAPs) withdrawn from the plan are not taxable.
- C. Educational Assistance Payments (EAPs) may only be used for tuition for a post-secondary program.
- D. The government contributes an additional grant for low income families who qualify.
Answer: D
Explanation:
Explanation
A self-directed RESP is a type of RESP where the subscriber (the person who opens the plan) has the freedom to choose and manage the investments within the plan, such as stocks, bonds, mutual funds, etc. A self-directed RESP can have one or more beneficiaries (the children who will use the funds for their education) and can be individual or family plans. A self-directed RESP is eligible for the Canada Education Savings Grant (CESG), which is a 20% matching grant on the first $2,500 of annual contributions per beneficiary, up to a lifetime limit of $7,200. Additionally, low income families who qualify may receive an extra 10% or 20% on the first $500 of annual contributions per beneficiary, depending on their net family income. This is called the Additional CESG. Educational Assistance Payments (EAPs) are the payments made from the RESP to the beneficiary when they enroll in a qualifying post-secondary program. EAPs consist of the CESG, the Additional CESG, and any income or growth earned within the plan. EAPs may be used for any education-related expenses, such as tuition, books, transportation, accommodation, etc. EAPs are taxable in the hands of the beneficiary, who usually has a lower tax rate than the subscriber.
References: Canadian Investment Funds Course, Chapter 5: Registered Plans1
NEW QUESTION # 128
Which of the following is typical for a normal yield curve?
- A. short term rates are lower than long term rates
- B. short and long term rates are the same
- C. yields decline as term to maturity increases
- D. long term rates are lower than short term rates
Answer: A
Explanation:
Explanation
A yield curve is a graphical representation of the relationship between the interest rates (or yields) and the term to maturity of different fixed income securities, such as bonds or debentures. A normal yield curve is upward sloping, meaning that the interest rates increase as the term to maturity increases. This is because investors typically demand higher compensation for lending their money for longer periods of time, as they face more uncertainty and risk. Therefore, a normal yield curve implies that short term rates are lower than long term rates.
References: Canadian Investment Funds Course, Unit 5, Section 5.2
NEW QUESTION # 129
For what reason do different entities have securities created and sold?
- A. Government debt is reduced due to the capital that is received from investors when their securities are purchased.
- B. The issuance of securities is a method used by corporations to redistribute their wealth to investors to lower taxes.
- C. When common shares are initially sold, the capital raised will increase the issuing corporation's retained earnings.
- D. Governments can address financial needs and support initiatives when securities are first sold.
Answer: D
Explanation:
Explanation
One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12 References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1:
Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities")12
3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf
NEW QUESTION # 130
Sujay contributes 3% of his $60,000 salary to his employer's defined contribution pension plan. His employer contributes the same amount to the plan. How will this affect his registered retirement savings plan (RRSP) contribution room for the year?
- A. It will reduce Suiay's contribution room by $3,600.
- B. It will have no effect. RRSP contribution room is based on earned income only.
- C. It will reduce Suiay's contribution room by
- D. It will reduce Suiay's contribution room by 51,800.
Answer: C
NEW QUESTION # 131
Josephine is a Dealing Representative with Sunshine Mutual Funds Inc. for over 10 years. Her brother Jonathan has an account with Sunshine Mutual Funds Inc., too. Jonathan wants Josephine to manage his portfolio and make investment decisions on his behalf. Jonathan trusts his sister to make better investment choices than he can. He also wants to give Power of Attorney (POA) to Josephine so she can have full authority over his account.
How can Josephine respond to her brother's request?
- A. Josephine can accept a limited POA.
- B. Josephine can accept the POA as it is an exception that is permitted under the MFDA rules.
- C. Josephine should accept the POA after making a full disclosure to her dealer about the POA.
- D. Josephine cannot accept the POA as she is not the immediate family.
Answer: A
Explanation:
Explanation
According to the MFDA rules, a Member or an Approved Person cannot accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person, unless the client is a spouse, parent, or child of the Approved Person and certain conditions are met. However, a Member or an Approved Person can accept a limited trading authorization from a client, which allows the Member or Approved Person to execute trades on behalf of the client, but not to engage in any discretionary trading.
Therefore, Josephine can accept a limited POA from her brother, as long as she does not make any investment decisions without his consent.
References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="power of attorney and mutual fund dealers association rules")23
1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf
NEW QUESTION # 132
Jehona is a Dealing Representative with Vista Wealth Investments Inc., a mutual fund dealer in Ontario and Nova Scotia. Jehona has reviewed her client Sokol's account and wants to adjust the holdings and re-balance the portfolio. Which of the following statements about Jehona's permitted activities is CORRECT?
- A. If Jehona wants to execute the trades without Sokol's pre-approval, Sokol must first appoint Jehona as his Power of Attorney.
- B. If Sokol has given Jehona discretionary trading authority, Jehona can process trades in the account without Sokol's pre-approval.
- C. If Jehona wants to execute trades for Sokol's account, Sokol must provide his specific authorization before the trades are entered.
- D. If Sokol has signed a Limited Authorization Form, Jehona can process the trades in the account without Sokol's pre-approval.
Answer: C
Explanation:
Explanation
The statement that is correct about Jehona's permitted activities is option B. According to Section 13.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI
31-103), registered individuals must not engage in discretionary trading, meaning that they must not execute a transaction for a client's account without the specific authorization of the client before the transaction.
Therefore, if Jehona wants to execute trades for Sokol's account, Sokol must provide his specific authorization before the trades are entered. The other statements are not correct about Jehona's permitted activities. Option A is false because a Limited Authorization Form does not allow Jehona to process trades in the account without Sokol's pre-approval; rather, it allows Jehona to accept instructions from a third party authorized by Sokol, such as a spouse or a lawyer. Option C is false because Sokol cannot give Jehona discretionary trading authority, as it is prohibited by NI 31-103 for mutual fund dealers and their representatives. Option D is false because appointing Jehona as his Power of Attorney does not allow Jehona to execute trades without Sokol's pre-approval; rather, it allows Jehona to act on behalf of Sokol in legal and financial matters, subject to certain conditions and limitations. References: [Registration Requirements, Exemptions and Ongoing Registrant Obligations], [Discretionary Trading | GetSmarterAboutMoney.ca], [Limited Authorization Form | IFIC],
[Power of Attorney | GetSmarterAboutMoney.ca]
NEW QUESTION # 133
Darryl has a diversified investment portfolio of mutual funds in a non-registered account with Investwell Mutual Funds, a mutual fund dealer. Darryl's diversified portfolio is composed of 3 mutual funds. Each mutual fund is currently worth about $100,000. The ABC Canadian Equity Fund has a total return of 6%, the DEF Bond Fund has a total return of 8% and GHI Global Equity Fund has a total return of 10%. Darryl wants to make an in-kind contribution to his registered retirement savings plan (RRSP) account. He has unused RRSP contribution room of $60,000.
From a tax-efficient viewpoint, which funds contribute in-kind to his RRSP account?
- A. Move $20,000 from each of the three funds to the RRSP.
- B. Move the ABC Canadian Equity Fund to the RRSP.
- C. Move the GHI Global Equity Fund to the RRSP
- D. Move the DEF Bond Fund to the RRSP.
Answer: D
NEW QUESTION # 134
What purpose does it serve for non-money market mutual funds to hold money market instruments?
- A. They ensure that the fair market value of a mutual fund will not drop below a minimal market value.
- B. They are purchased by non-money market funds to satisfy the regulatory requirement of fund diversification.
- C. If the portfolio manager has an immediate need for cash, money market instruments are relatively easy to liquidate.
- D. Money market instruments primarily generate investment income that provides investors with preferential tax treatment.
Answer: C
Explanation:
Explanation
The purpose of holding money market instruments for non-money market mutual funds is to provide liquidity for the fund. If the portfolio manager has an immediate need for cash, such as to pay expenses or meet redemption requests, money market instruments are relatively easy to liquidate because they have short maturities and low credit risk. Money market instruments do not primarily generate investment income that provides investors with preferential tax treatment, as interest income from money market instruments is fully taxable at the investor's marginal tax rate. Money market instruments are not purchased by non-money market funds to satisfy the regulatory requirement of fund diversification, as there is no such requirement for mutual funds. Money market instruments do not ensure that the fair market value of a mutual fund will not drop below a minimal market value, as money market instruments can also fluctuate in value depending on interest rate changes and supply and demand factors. References: Money Market Instruments
NEW QUESTION # 135
Your clients, Philip and Helen, have a disabled son, Alex, age 22. They want to set up a registered disability savings plan (RDSP) for Alex and have asked you for some information.
Which statement is TRUE?
- A. Alex must quality for the disability tax credit.
- B. Philip and Helen's contributions are refundable to them.
- C. There is no annual or lifetime maximum limit on contributions.
- D. Philip and Helen's contributions are tax-deductible.
Answer: A
Explanation:
Explanation
A registered disability savings plan (RDSP) is a savings plan intended to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit (DTC). The DTC is a non-refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay. To be eligible for the DTC, a person must have a severe and prolonged impairment in physical or mental functions, as defined by the Income Tax Act and as certified by a medical practitioner. Therefore, Alex must qualify for the DTC in order to be eligible for an RDSP. References: What is a registered disability savings plan (RDSP) - Canada.ca, Disability tax credit - Canada.ca
NEW QUESTION # 136
Which of the following best describes implied needs of your clients?
- A. They are statements made by clients expressing the desire for lower commissions.
- B. They are needs reflected by statements made by clients regarding problems and dissatisfactions.
- C. They are statements of wants and needs made by clients.
- D. They are statements made by you showing readiness to solve a client's problem.
Answer: B
NEW QUESTION # 137
Which statement about a net capital loss incurred by a mutual fund trust is CORRECT?
- A. A net capital loss is passed on to the unit holders by the mutual fund in the year it occurs.
- B. A net capital loss is permitted to be carried forward indefinitely by the mutual fund.
- C. A net capital loss is permitted to be carried back indefinitely by the mutual fund.
- D. A net capital loss is permitted to be carried forward by the mutual fund for up to 3 years.
Answer: B
Explanation:
Explanation
A net capital loss is the excess of allowable capital losses over taxable capital gains in a taxation year. A mutual fund trust is a type of investment fund that is structured as a trust and distributes its income and capital gains to its unit holders. A mutual fund trust cannot pass on its net capital losses to its unit holders, as it can only distribute its net income and net realized capital gains. However, a mutual fund trust can carry forward its net capital losses indefinitely and use them to offset its taxable capital gains in future years. This reduces the amount of tax payable by the mutual fund trust and increases the amount of distributions available to its unit holders. A mutual fund trust cannot carry back its net capital losses to previous years, as this option is only available to corporations12. References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-103
* Capital Losses and Deductions - Canada.ca1
* Mutual Fund Trusts - Canada.ca2
NEW QUESTION # 138
Portia is a Dealing Representative with Highview Wealth Inc., a mutual fund dealer. Portia recommends the Stature Growth Fund to her client Clive. Which of the following CORRECTLY describes what Portia must do in order to satisfy her obligations under the Client Relationship Model (CRM) and Client Focused Reforms (CFR)?
- A. Portia must provide Clive with the pre-trade disclosure to address any material conflicts of interest with the trade.
- B. Portia must disclose the costs, expenses, and ongoing fees associated with the investment prior to the trade.
- C. Portia must mark the trade as ^unsolicited" if Clive wants to proceed with the trade and it is not suitable for him.
- D. Portia must calculate the net asset value per unit (NAVPU) and report it to Give in the trade confirmation.
Answer: B
Explanation:
Explanation
The Client Relationship Model (CRM) and Client Focused Reforms (CFR) are regulatory initiatives that aim to enhance the relationship between registered firms and their clients by imposing higher standards of conduct and disclosure. One of the obligations under CRM and CFR is to provide clients with information about the costs, expenses, and ongoing fees associated with an investment prior to executing a trade. This includes disclosing the management expense ratio (MER), sales charges, deferred sales charges (DSC), switch fees, short-term trading fees, and trailer fees of a mutual fund. This information helps clients understand the impact of fees on their returns and compare different investment options. Therefore, option C is correct regarding what Portia must do in order to satisfy her obligations under CRM and CFR. The other options are not correct.
Option A is false because Portia does not need to calculate the net asset value per unit (NAVPU) and report it to Clive in the trade confirmation; rather, the NAVPU is determined by the mutual fund manager and reported by the mutual fund dealer in the trade confirmation. Option B is false because Portia must not mark the trade as unsolicited if Clive wants to proceed with the trade and it is not suitable for him; rather, Portia must act in Clive's best interest and advise him against making an unsuitable trade or decline to execute it. Option D is false because Portia does not need to provide Clive with the pre-trade disclosure to address any material conflicts of interest with the trade; rather, Portia must disclose any material conflicts of interest with the client relationship as part of the relationship disclosure information (RDI) that is provided at account opening and updated as necessary. References: [Client Relationship Model - Phase 2 (CRM2) | GetSmarterAboutMoney.ca], [Client Focused Reforms | GetSmarterAboutMoney.ca], [Client Focused Reforms - FAQs | IFIC]
NEW QUESTION # 139
Robin is preparing for a client meeting. She is gathering information about a mutual fund that she would like to recommend to her client. Which of the following documents would be considered sales communication?
- A. fund facts
- B. annual information form
- C. the prospectus
- D. marketing brochure
Answer: D
Explanation:
Explanation
Sales communication is any written or electronic communication that is intended to promote the sale of a mutual fund, or to influence a person to buy or sell a mutual fund. Sales communication includes any advertisement, brochure, report, newsletter, or other material that is distributed to existing or potential clients.
A marketing brochure is an example of sales communication, as it is designed to inform and persuade clients about the features and benefits of a mutual fund. A prospectus, a fund facts, and an annual information form are not considered sales communication, as they are legal documents that provide essential information about a mutual fund, such as its investment objectives, strategies, risks, fees, and performance. These documents are required by securities regulators and must be delivered to investors before or after they purchase a mutual fund.
References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 2: Sales Communication, Section 7.2.1: Definition and Scope of Sales Communication1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.2.1 2
NEW QUESTION # 140
Your client has very limited investment knowledge and is confused about what is meant by "marginal tax rate". What do you tell him?
- A. It is the tax rate applied to the next dollar earned.
- B. It is the tax rate used in calculating taxable capital gains.
- C. It is the number used to gross-up Canadian dividend income.
- D. It is an amount resulting from dividing your total tax liability by your taxable income for the year.
Answer: A
Explanation:
Explanation
The marginal tax rate is the percentage of tax that an individual pays on the last dollar of income earned in a given year. It is also the tax rate that applies to any additional income earned in that year. The marginal tax rate varies depending on the individual's income level and tax bracket. For example, if an individual's taxable income for the year is $50,000 and the tax rate for that income bracket is 20%, then the marginal tax rate is
20%. This means that the individual pays 20% tax on the last dollar of income earned, as well as on any additional income earned above $50,000.
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 6: Taxation, Section
5.6.1: Income Tax 1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.6.1 2
NEW QUESTION # 141
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