This is the Only Original Test Bank for 2025-2026 Edition,

Test Bank Volume 1 (Chapter 1-10) Gary Donell Byrd & Chen’s Canadian Tax Principles 2025-26 Edition Gary Donell This is the Only Original Test Bank for 2025-2026 Edition, Volume 1 (Chapter 1-10). All other Files in the Market are Fake/Old/Wrong Edition.All Chapters are Arranged Reverse: Chapter 10-1 1 / 4

Byrd and Chen's Canadian Tax Principles, 2025-2026 (Donell) Chapter 10 Retirement Savings and Other Special Income Arrangements 10.1 Quick Review 1) There are no items in this section.

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10.2 Self-Study Problems 1) There are no items in this section.

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10.3 Practical Case 1) There are no items in this section.

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10.4 Online Exercises 1) What are the income tax advantages associated with making contributions to an RPP or an RRSP?Answer: The major advantages can be described as follows: • Eligible contributions are fully deductible and, as a result, provide an immediate reduction in income tax payable.• While the contributions are invested in the RPP or RRSP, earnings on the investments accumulate without any income tax since both types of plans are trusts which are exempt from tax under Part I.• When distributions are made, the individual may be in a lower income tax bracket than when the contributions were made. When this is the case, there is a permanent income tax savings equal to the difference in income tax between the contribution marginal income tax rate and the income tax rate in effect at the time of the withdrawal.• The payments from an RPP and RRSP may be eligible for both the pension income tax credit and for pension income splitting.• An additional advantage for RRSPs is that funds can be temporarily withdrawn without the imposition of income tax where the withdrawals qualify for the home buyers plan or the lifelong learning plan.

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Topic: Registered savings plans - RPPs vs. RRSPs

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2) In almost all cases, making contributions to an RRSP will provide for the deferral of income tax. In some cases, making such contributions may result in avoidance of income tax. Explain these statements.Answer: With respect to the first statement, making contributions to an RRSP results in deferral as the contributions reduce income when made, but will only be required to be included in income when withdrawn. As the withdrawal will usually be in a later taxation year, the payment of income tax is effectively deferred from the year of contribution to the year of withdrawal.In some cases, an individual may be subject to the same income tax rate in the year of withdrawal as the year of contribution. However, if the income tax rate is lower in the year of withdrawal, either because of the individual's income level or because income tax rates have changed, the amount of income tax on withdrawal will be less than the income tax savings attributable to the contribution in the year in which it was made. This results in a permanent overall reduction in income tax which is acceptable income tax avoidance.

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Topic: RRSPs - general concepts

3) Tax advisors generally recommend making RRSP contributions as early as possible in the year in which the deduction will be claimed. Why is that the case?Answer: The reason tax advisors make these recommendations is to extend the period of tax free compounding within the RRSP. A contribution made on January 1 will benefit from a full extra year of tax free earnings, as compared to a contribution made on December 31 of that same year or as late as the end of February of the following calendar year.

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Topic: RRSPs - general concepts

4) Describe the difference between a defined benefit pension plan and a defined contribution or money purchase pension plan.Answer: In defined benefit plans, the plan sponsor (typically the employer) undertakes to provide a specified benefit, usually expressed as a percentage of earnings, for each year of qualifying employment service. In promising this benefit, the employer has effectively agreed to make whatever amount of contribution is required to ensure that these benefits can be provided.In contrast, in a defined contribution or money purchase plan, the employer agrees to make specified contributions for each plan participant. In this case, the employer has no responsibility beyond making the required contributions. The benefit amount that will be received by the employee will depend upon the amounts accumulated within the plan and the investment return on those funds. As a result a defined benefit plan effectively promises a fixed amount while a defined contribution plan provides a pension which is not fixed but will vary with the level of earnings within the pension plan.

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Topic: RPPs - general concepts

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5) An individual owns shares that have declined in value since they were purchased several years ago.The individual is short of cash and would like to contribute the shares to the individual's RRSP. As his tax advisor, would you support this decision?Answer: Such a contribution would not be a good idea. ITA 40(2)(g)(iv) does not allow the recognition of a loss when an individual contributes property to an RRSP and the individual, their spouse or their common-law partner is an annuitant of the RRSP. This means that there would be no loss allowed to the individual. If the individual is short of cash, the better alternative would be to sell the shares in a non- arm's length transaction (or non-affiliated person transaction), realize the loss and use the proceeds from the sale to make the RRSP contribution.

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Topic: RRSP contributions - calculating the deduction

6) In many cases, investors typically have investments that they own personally as well as an interest in an RRSP which also owns various types of investments. When this is the case, tax advisors are inclined to suggest that share investments (equity securities) be owned personally while investments that earn interest (debt securities) be owned by the RRSP. What is the basis for this advice?Answer: The income earned by equity securities generally consists of dividends and capital gains, both of which receive favourable income tax treatment with lower overall income tax rates to individuals. Debt securities however generally result in interest income which is taxed much more heavily. As a general rule since an RRSP is a Part I exempt trust it is preferable that the trust own investments which produce income that is subject to the same high rates of income tax that would apply to individuals.Another reason for the advice is that if an RRSP realizes capital gains and dividend income the favourable income tax treatment that benefits individuals lose that status since 100% of amounts withdrawn from an RRSP are required to be included in the income of an individual annuitant. In other words the fact that the withdrawals technically include capital gains and taxable dividends would have no bearing on the fact that the individual annuitant must fully include all RRSP withdrawals in income.

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Topic: RRSPs - general concepts

7) The RRSP Deduction Limit, as defined in ITA 146(1), is not a limit on contributions that can be made to an RRSP in a given year. Explain this statement.Answer: The RRSP Deduction Limit, as the name implies, is a limit on the amount of contributions that can be deducted in a particular year. Contributions made in earlier years that were not deducted in those years plus contributions made in the current year plus contributions made in the first 60 days of the following year, can be deducted under the RRSP Deduction Limit for the current year within the limitations imposed by the RRSP deduction limit. In addition an individual may over-contribute to an RRSP however over-contributions in excess of $2,000 are subject to a penalty tax.

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Topic: RRSP contributions - calculating the deduction

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