Income Tax MCQs

Which of the following is not a category of tax planning opportunities?

Converting income to another type.
Moving income to another jurisdiction.
Shifting income to another time period.
Transferring income to another entity.

When analyzing alternative courses of action with future cash flows, which of the following factors would have the highest degree of certainty.

Future tax rates or income levels that will cause those rates.
Appropriate discount rate for time value of money.
Discretionary opportunities within the tax system.
Expected growth rates of asset values.

Which of the following is not a skill in implementing tax planning activities?

Ability to understand fundamentals of the tax system.
Ability to anticipate entire cycle of an investment from beginning to end.
Ability to recognize tax implications along with common sense and good business judgment.
Ability to recognize the correct method in achieving a particular goal.

Which of the following is not a factor in reviewing cash flows?

Who was it received from.
How much is coming in.
How much is going out.
When is it coming in.

Which of the following statements correctly describes the anti-avoidance rules included in the Income Tax Act?

The key to understanding the anti-avoidance rules lies in establishing whether a transaction results in a tax benefit.
In order for a transaction to be considered an avoidance transaction, its primary objective must be other than to obtain a tax benefit.
A transaction will not be an avoidance transaction if the taxpayer establishes that it is undertaken primarily for bona fide tax purposes.
When person is involved in an avoidance transaction, tax will be adjusted to deny the tax benefit that would have resulted from the transaction(s).

Which of the following would be one of the factors considered in determining the residency of an individual?

Present address of the individual.
Citizenship of the individual.
Time regularly spent in Canada.
Employerâ€™s present address.

Which of the following statements describes the tax status of a Canadian corporation that carries on a business in Canada and also operates a major br...

Income earned in Canada and branch income net of withholding tax are taxable in Canada.
All income of the corporation is taxable in Canada.
Income earned in Canada and branch income before expenses are taxable in Canada.
Only income earned in Canada is taxable in Canada.

Which of the following types of income is often referred to as passive income?

Employment
Business
Property
Capital gains

Which of the following statements correctly describes the treatment of losses in the aggregating formula?

All losses are deductible against any income.
All losses are included in segment D.
Losses in segment D are deductible against all sources of income.
Losses in segment B are deductible against all sources of income.

An individual had business income of $75,000, capital loss of $75,000, property loss of $50,000 and capital gain of $50,000. What is the individualâ�...

$(25,000)
$0
$25,000
Donâ€™t have enough information.

Which of the following entities is taxed directly on its profits?

Proprietorship
Partnership
Joint venture
Corporation

Which of the following sources of income of a non-resident would be subject to withholding tax?

Income from employment earned in Canada.
Income from rents earned in Canada.
Income from a business carried on in Canada.
Income on the disposition of certain Canadian properties.

An individual had received employment income of $50,000 during 2001. She was also sole shareholder of a corporation that earned $100,000 after paying ...

$50,000
$62,000
$162,000
Depends on the year end of the corporation.

An individual had received employment income of $50,000 during 2001. He had a 50% interest in a partnership that lost $120,000 for the year ended Marc...

The net capital loss of $5,000.
The partnership loss of $60,000.
The net capital loss of $5,000 and the partnership loss of $60,000.
The net capital loss of $5,000 and a partnership loss of $10,000.

A Canadian corporation has a branch office in Great Britain that earns CDN$1,000,000 and pays 50% in taxes to the government of Great Britain. The Can...

The Canadian government only taxes Canadian income of Canadian corporations.
The government of Great Britain would be responsible for remitting Canadaâ€™s share of taxes.
The Canadian government would collect taxes only if the Canadian tax rate exceeded the foreign tax rate.
The Canadian government would be expecting taxes withheld by the corporationâ€™s clients in Great Britain.

Under which of the following circumstances would it be beneficial for an employee to defer receipt of remuneration?

When the individualâ€™s taxable income will be increasing next year.
When the individualâ€™s tax rate will be increasing next year.
When the individualâ€™s tax rate will be decreasing next year.
When there is an agreement with the employer to defer the receipt of remuneration.

Which of the following is a taxable benefit?

The employerâ€™s payment of premiums for private health service plans that provide extended medical coverage beyond public plans.
The employerâ€™s payment of premiums for provincial hospitalization and medical care plans that provide basic medical coverage.
The employerâ€™s payment of premiums for group sickness or accident plans that protect an employeeâ€™s income who is unable to work due to illness or injury.
The employerâ€™s payment of premiums for supplementary unemployment insurance that protect employees in the event of job loss.

Which of the following correctly describes an aspect of taxable allowances?

It is the repayment of a specific expenditure.
The amount paid will vary from period to period.
It is paid on an irregular basis over and above a normal salary.
Details of how the money was spent are not required.

Which of the following is not a criteria for travel related expenses to be deductible from employment income?

The employee is ordinarily required to carry on employment duties away from the employerâ€™s place of business.
The employee is required to pay travel costs per the employment contract.
All travel costs were incurred away from the metropolitan area of the employer.
The employee has not received a non-taxable allowance designed to cover travel costs.

An individual received a salary in 2001, a bonus in 2001 based on performance in 2000, a commission in 2002 based on sales made in 2001, and a directo...

A salary in 2001.
A bonus in 2001 based on performance in 2000.
A commission in 2002 based on sales made in 2001.
A directorâ€™s fee in 2001.

A single-parent employee received fringe benefits as: premiums under provincial hospitalization plans ($300); tuition fees for software used at work (...

$5,300
$7,000
$7,300
$7,800

A manager was provided with a company car. After four years, the unamortized cost of the car was $7,200 of the original cost of $30,000. Of the 2,000 ...

$8,720
$8,880
$9,000
$10,464

An employee qualifies to claim travel expenses. He travels by leased vehicle for $900/month. While travelling he incurs costs for gas ($2,000), repair...

$7,620
$7,740
$8,240
$8,460

An employee, who is not a salesperson, qualifies to claim 15% of her home as work space in the home. Home related expenses are mortgage interest ($7,0...

$375
$495
$795
$1,845

Which of the following is not a general principle to be used in determining profit for income tax purposes.

The determination of profit is a question of law.
The profit is determined by matching expenses paid to revenues earned for the same taxation year.
The goal in computing profit is to obtain an accurate picture of the profit for a taxation year.
The taxpayer is free to adopt any method provided that it is consistent with the Income Tax Act.

Which of the following is considered the primary test for the deductibility of expenses in arriving at business income?

Personal expense test
Reasonableness test
Capital test
Income earning purpose test

Which of the following items would not be considered an outlay on capital account?

Legal expenses to register the ownership of a building.
Legal expenses to execute a business takeover.
Legal expenses to deal with a dispute with a customer.
Legal expenses to incorporate a business.

Which of the following interest expenses would be denied and added to the related capital item?

Loan interest to purchase office equipment?
Loan interest to purchase an automobile?
Mortgage interest related to work space in a home.
Mortgage interest on land to be developed and resold.

Which of the following expenses can be deducted on an accrual basis?

Interest costs
Landscaping costs
Representation fees
Site investigation fees

Which of the following would be treated as part of a business activity?

A house constructed for use as a principal residence by its owner.
Land and buildings acquired for use in a business by a manager.
Office equipment acquired for use in a home office by an entrepreneur.
An automobile acquired for resale by a car dealer.

A small business deducted the future estimated cost of honouring coupons that were distributed in a local flyer. Which of the following tests would no...

Reasonableness test
Reserve test
Capital test
Income earning purpose test

A small business deducted the expense of extending the cargo area of its delivery truck. Which of the following tests would not be satisfied by this e...

Reasonableness test
Exempt income test
Capital test
Income earning purpose test

A business suffered fire damage to equipment. Repairs were $10,000 and insurance proceeds were $13,000. How should the insurance proceeds be treated f...

The $13,000 should be included in business income.
The $13,000 should reduce the related repairs to nil and the remainder as a disposition of depreciable property.
The $13,000 should reduce the related depreciable property to nil and the remainder as a reduction of repair expense.
The $13,000 should be used to reduce the capital cost of the related asset.

A business entertained clients at a golf club and incurred the following expenses: annual dues $2,500, green fees $1,200, meals $1,000 and re-gripping...

$500
$600
$1,200
$3,700

Which of the following type of interest income would be treated as business income?

Interest on overdue accounts receivable
Interest on notes receivable
Interest earned by a financial institution
Interest earned on short term investments

Which of the following methods of recognizing interest income must be used by corporations?

Cash method
Receivable method
Daily accrual method
Annual accrual method

Which of the following correctly describes the treatment of dividends?

Corporations can reduce net income by the amount of dividends received from other taxable Canadian corporations.
Corporations can reduce net income by the amount of dividends received from any foreign corporation.
Individuals can reduce net income by the amount of dividends received from taxable Canadian corporations.
Stock dividends are not taxable to individuals since there is no distribution of income.

Which of the following does not correctly describe the CCA rules for rental properties?

CCA on rental properties can only be deducted if it does not create or increase a net loss from all rental properties combined.
The rule that limits the amount of CCA applies to corporations whose principal business is the leasing of real property owned by it.
The furnishings that are part of the rented premises can be pooled in one CCA class in the usual manner.
Each rental building having a cost of $50,000 or more must be held in a separate CCA class.

The after-tax yields on different basic investments can vary considerably. Which of the following could result in delaying the timing of tax the most?...

Interest income earned by an individual
Dividend income earned by an individual
Net rental income earned by an individual
Profit on rental property sold by an individual

An individual purchases a $10,000, 3-year, 7% bond on March 31, 20X1 which compounds annually and payable in full at the end of 3 years. How much inte...

$173
$198
$700
$801

A corporation with a December 31 year end purchases a $50,000, 3-year, 8% bond on April 30, 20X1 which compounds annually and payable in full at the e...

$4,000
$4,105
$4,215
$4,320

An individual provided mortgage financing in 20X1 to an entrepreneur. He borrowed $25,000 @ 5% annual interest and incurred mortgage appraisal and reg...

$1,250
$1,400
$4,250
$4,400

Corporation X paid $10,000 in dividends to Corporation Y. What amount of dividends should be included in Corporation Yâ€™s net income?

$0
$10,000
$12,500
$15,000

A corporation, whose sole line of business was the rental of residential properties, had one class 1 building with a UCC of $100,000. Rental revenue, ...

$(4,000)
$(160)
$(80)
$920

Which of the following types of losses can be carried forward indefinitely?

All non-capital losses
All business investment losses
All farm losses
All restricted farm losses

What is the maximum carry-over period for farming losses?

Farming losses can be carried back three years and forward five years.
Farming losses can be carried back three years and forward seven years.
Farming losses can be carried back three years and forward ten years.
Farming losses can be carried back three years and forward fifteen years.

Which of the following would be a valid means of reducing expenses in order to utilize losses that may expire?

Choose not to accrue expenses payable at year end.
Choose not to record prepaid expenses at year end.
Choose not record ending inventory at year end.
Choose not to claim capital cost allowance.

Which of the following does not correctly describe a condition of the capital gain deduction?

The gain realized on the disposition of any small business corporation shares qualifies for this deduction.
The maximum deduction for gains realized on qualifying property is one-half of $500,000 or $250,000.
This deduction is discretionary and, thus, it can be deferred to a future year when the tax rate may be higher.
The cumulative net investment loss is a limit on the ability to claim this deduction.

Which of the following is included in the first category of federal tax credits?

Dividend tax credit
Foreign tax credit
Labour-sponsored fund credit
Political contributions

An individual with only employment income in 20X1 of $50,000 had loss carryovers of net capital losses ($20,000), non-capital losses ($20,000), and fa...

$20,000
$40,000
$50,000
$60,000

In 20X5, an individual had employment income of $80,000 and a net capital loss of $7,500. He also had a 75% interest in a partnership with a $50,000 o...

$25,000
$32,500
$35,000
$42,500

An individual earned a $550,000 gain from the disposal of qualifying farm property. He also had unused farm loss carryovers of $10,000 and accumulated...

$190,000
$200,000
$215,000
$225,000

An individual earned $65,000 in salary during 20X1. The following deductions were made from her salary: RPP contribution of $5,000, CPP & EI contribut...

$9,606
$9,658
$10,844
$11,503

A retired individual supported himself and a spouse in 20X1 on his pension and investment income. Pension income was $30,000 from a pension fund and i...

$4,044
$4,204
$4,210
$5,051

The after-tax cost of a cash flow is equal to:

the amount of the taxable cash flow times one minus the tax rate.
the amount of the taxable cash flow times one plus the tax rate.
the amount of the taxable cash flow times the tax rate.
the amount of the net taxable cash flow times the tax rate.

The tax savings from the capital cost allowance tax shield is equal to:

the amount of the capital cost allowance with no adjustment for taxes.
the amount of the capital cost allowance times one minus the tax rate.
the amount of the capital cost allowance times the tax rate.
zero, since capital cost allowance is not relevant to the calculation of net present value.

The calculation of capital cost allowance is based on:

applying a prescribed percentage to the original capital cost of an asset.
the units of production method.
the straight-line method.
the declining-balance method.

When computing capital cost allowance under the income tax regulations, taxpayers must:

use the half-year convention under which taxpayers are allowed to take only a half yearâ€™s amortization in the first year of an assetâ€™s life.
use the half-year convention under which taxpayers are allowed to take only a half yearâ€™s amortization in the last year of an assetâ€™s life.
use the half-year convention under which taxpayers are allowed to take only a half yearâ€™s amortization in the first and last years of an assetâ€™s life.
calculate amortization for partial periods using the exact number of days if the asset is acquired at some time other than the beginning or end of the fiscal year.

When an asset is disposed of in a year, the UCC pool is reduced by:

the original cost of the asset.
the proceeds of the asset.
the lower of the proceeds or the original cost.
the higher of the proceeds or the original cost.

Which of the following terms is used to describe a negative balance in the UCC pool after recording the disposal of an asset?

recapture.
capital gain.
terminal loss.
capital cost allowance.

Interim Co. has a Class 8 (20%) UCC balance of $20,000 at the start of the year. Additions in the year are $5,000. The companyâ€™s tax rate is 30...

$5,000
$4,500
$4,000
$3,482.

Interim Co. has a Class 8 (20%) UCC balance of $20,000 at the start of the year. Additions in the year are $5,000. The companyâ€™s tax rate is 30...

$6,030.
$180.
$1,800.
$600

Interim Co. has a Class 8 (20%) UCC balance of $20,000 at the start of the year. Additions in the year are $5,000. The companyâ€™s tax rate is 30...

the project should be rejected.
the project should be accepted.
the internal rate of return was set to high.
the cost of capital should be adjusted.

Data Chips, Inc. had cash sales of $500,000 in 2000. Cash expenses were $270,000 and capital cost allowance was $90,000. The tax rate was 30%. The tax...

$126,000.
$54,000.
$63,000.
$27,000.

Categories

Income Tax MCQs