1.Kurt and Magda are married and are the joint owners of KB Manufacturing Inc., a Canadian-controlled private corporation (CCPC). Kurt and Magda each hold 10,000 shares in KB Manufacturing; the cumulative unrealized capital gain on these shares is $3 million. The couple has two adult children. What statement is true?

a)Since the company is a CCPC, Kurt and Magda will not be able to claim a capital gains exemption if they dispose of their KB shares.

b)In the event either Kurt or Magda should die, the KB shares of the deceased spouse could rollover to the surviving spouse without triggering an immediate tax liability.

c)As a CCPC, Kurt and Magda can claim the small business deduction (SMABUD) on any investment income generated by KB Manufacturing.

d)If Kurt and Magda elect to transfer their KB shares to their children as of today, the couple will not incur an immediate tax liability.

2.What statement regarding trusts is true?

a)Income earned and retained in a testamentary trust is taxed at the top federal tax rate effective the first year of the trust.

b) The individual that ultimately receives the capital property that was transferred to the trust is known as the life interest.

c)Income attribution rules do not apply to property transferred to an inter vivos trust.

d)If income from a spousal trust is paid out to anyone other than the spouse beneficiary during the lifetime of the spouse beneficiary, the trust will be deemed to be tainted.

3.Through her will, Amelia bequeathed her rental property to a testamentary trust with her husband, Charles, named as the income beneficiary for the duration of his lifetime. She also named her children, Miranda and Matthew, as capital beneficiaries of the property upon Charles' death. What statement isFALSE?

a)Charles is entitled to receive all of the income generated by the rental property.

b)After Charles dies, Miranda and Matthew will receive the income generated by the rental property.

c)Upon the death of Charles, ownership of the rental property can be passed directly to Miranda and Matthew.

d)Charles can sell the rental property and share the proceeds with Miranda and Matthew.

4.Carl is a 45-year old divorced father of two minor children. He owns a house that he shares with his common-law spouse. If Carl dies intestate, what statement is true?

a)Since Carl is in a common-law relationship and is not legally married, the courts will automatically appoint a Public Trustee/Public Guardian as the administrator of his estate.

b)Since Carl and his ex-wife have children together, his ex-wife will be able to apply for a preferential share of Carl's estate on behalf of their children.

c)Depending on the province of residence, the provincial intestacy law may not recognize Carl's common-law spouse in the distribution of his estate.

d)As per intestacy legislation, the assets of the deceased automatically flow in their entirety to the deceased's current spouse or current common-law partner.

5.What is considered a leading economic indicator?

a)stock prices

b)percentage change in the Consumer Price Index

c)gross domestic product

d)unemployment rate

6.Gabriel recently purchased 500 shares of Chromeworks Inc. for $31.10 per share. The company expects its net earnings for the upcoming year to be $2.69 per share. For the past five years, the price-to-earnings (P/E) ratio on the company's stock has been 13.55. What can youREASONABLYconclude about Gabriel's investment?

a)Gabriel overpaid for his Chromeworks shares.

b)The company's shares do not represent a good investment since the P/E ratio is less than the current price of the stock.

c)Gabriel made a good decision in buying his Chromeworks shares.

d)Gabriel will receive a dividend of $2.69 per share next year.

7.Yvonne is 57 years old; she plans to retire at age 65. She expects to have $750,000 in her RRSP at that time. If her life expectancy is to age 85, the investment return in her RRSP is a constant 7% and her combined marginal tax rate remains at 34%, how much will Yvonne receive at the beginning of each month during retirement on an after-tax basis?

a)$3,815

b)$3,838

c)$4,775

d)$5,781

8.What income splitting scenario would beDISALLOWEDby the Canada Revenue Agency?

a)Janice, who has been a nurse for 10 years, makes a contribution to her husband Maurice's spousal RRSP. Maurice has not had earned income in the past three years.

b)Claudio and Monica are married. They apply for an assignment of their CPP retirement pension benefits. Both Claudio and Monica are 70 years old.

c)Robert, a sole proprietor, employs his 15-year old daughter to work in his business. Robert pays her a reasonable salary.

d)Liam has a 100% ownership interest in a cottage. Following the disposition of the property, he reports 50% of the taxable capital gain on his income tax return and the remaining 50% of the taxable capital gain on the income tax return of his wife.

9.In which situation would Keith beUNABLEto deduct the interest expense he incurred?

1. Last year, Keith paid $12,800 in interest on the mortgage on his principal residence. The house is not used for any other purpose other than for Keith's personal use.
2. Keith borrowed $35,000 from his home equity line of credit which carries an 8% interest rate. He invested the money in the publicly traded common shares of a Canadian company that has never before paid dividends to shareholders. However, this year, due to a surplus of cash, the company announced a dividend will be paid.
3. Keith owns a condominium which he uses as a rental property. He incurred interest expenses of $19,500 on the mortgage on the property.
4. Keith borrowed $15,000 from his personal line of credit and used the funds to establish a part-time home renovation business.
5. Last year, Keith's parents gave him a $50,000 interest-free loan and told him to repay the money whenever he could. Today, Keith repaid his parents the $50,000. Even though it was not part of the arrangement, Keith also paid them an additional $5,000 which he figures is a reasonable interest payment on the borrowed funds.

a) 1 and 5

b)2 and 3

c)1, 2, and 4

d) 3, 4, and 5