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NEW QUESTION # 48
An employee chose a particular contractor to repair their roof based on an employer's recommendation. The employer hinted that the employee may receive a higher future bonus if they hire the recommended contractor. How would you describe the employer's actions?
Answer: B
Explanation:
The employer's conduct is best characterized as undue influence. The employer occupies a position of power relative to the employee and is using that relationship to influence the employee's independent decision about entering into a contract with a particular contractor.
Undue influence focuses on whether one party's free and informed consent has been improperly affected through a relationship involving dominance, dependency, confidence, or significant influence. The Supreme Court of Canada has described the analysis as beginning with the nature of the relationship and whether it creates the potential for one person to dominate another's decision-making. The Court has also expressly recognized that an employer may occupy a position of power and influence relative to an employee depending on the circumstances.
The promise or suggestion of a larger future bonus creates pressure through the employment relationship but does not amount to classic duress, which ordinarily involves coercive threats or illegitimate pressure depriving a person of meaningful choice.
There is also no false factual representation concerning the contractor, so misrepresentation does not apply.
Nor does recommending a contractor make the object of the roofing contract illegal.
FPII reference/topic: Financial Planning Practice - contract validity; undue influence; duress; misrepresentation; relationships of power and dependency.
NEW QUESTION # 49
Roy gifted his nephew Charles, age 16, shares for his birthday. The managed portfolio will generate both dividends, and capital gains and losses. What will be Roy's future tax implications, with respect to this transfer, until Charles reaches the age of majority?
Answer: A
Explanation:
Because Charles is a related minor, the attribution rules apply to income generated from property transferred to him by Roy. Dividend income earned on the gifted shares is therefore attributed back to Roy and included in Roy's taxable income while Charles remains a minor.
The important distinction is between income from property and capital gains or losses. CRA's interpretation of subsection 74.1(2) confirms that income or loss from transferred property is generally attributed to the transferor where property is transferred to a related minor. This captures investment income such as dividends and interest.
Capital gains and capital losses receive different treatment. The same CRA guidance states that subsection
74.1(2) does not ordinarily attribute a subsequent taxable capital gain or allowable capital loss arising from disposition of transferred property back to the transferor. Those gains or losses generally remain with the minor, subject to specialized exceptions not indicated in this scenario.
Therefore, an equity portfolio producing capital appreciation may have different attribution consequences from one producing substantial current dividend or interest income.
FPII reference/topic: Investment and Tax Planning - attribution rules; transfers to related minors; property income versus capital gains.
NEW QUESTION # 50
Fiona and Stanley have provided the following data in order for their advisor to proceed with a capital needs analysis:
Fiona ($)
Assets
Stanley ($)
5,000
Cash
3,000
150,000
Life insurance
125,000
30,000
Investments
30,000
Fiona ($)
Estate obligations
Stanley ($)
15,000
Last expenses
15,000
10,000
Car loans
5,000
75,000
Mortgage outstanding
75,000
Assuming their required net monthly income is $3,000, and the discount rate is 6%, how much additional life insurance should Fiona and Stanley obtain respectively?
Answer: A
Explanation:
The capital-needs approach first determines how much capital is required to generate the desired survivor income.
Required annual income is:
$3,000 × 12 = $36,000
At a 6% capitalization rate:
$36,000 ÷ 0.06 = $600,000
For Fiona, estate obligations total:
$15,000 + $10,000 + $75,000 = $100,000
Total capital requirement:
$600,000 + $100,000 = $700,000
Available assets are:
$5,000 + $150,000 + $30,000 = $185,000
Additional insurance required:
$700,000 # $185,000 = $515,000
For Stanley, obligations are:
$15,000 + $5,000 + $75,000 = $95,000
Total requirement:
$600,000 + $95,000 = $695,000
Available resources:
$3,000 + $125,000 + $30,000 = $158,000
Additional insurance required:
$695,000 # $158,000 = $537,000
Thus, Fiona requires $515,000 and Stanley requires $537,000 of additional insurance.
The capital-needs method integrates immediate estate obligations, survivor-income requirements, existing insurance, and other available capital to establish the insurance shortfall.
FPII reference/topic: Insurance Planning - capital needs analysis; income replacement; estate obligations; existing financial resources.
NEW QUESTION # 51
What tax consideration should employers take into account when setting up a supplemental executive retirement plan (SERP)?
Answer: A
Explanation:
A Supplemental Executive Retirement Plan is generally an unregistered deferred compensation arrangement designed to provide highly compensated employees with retirement benefits beyond limits available through registered retirement arrangements.
Where the SERP is structured as an unfunded or notional arrangement, the employer normally records the promised benefit as an obligation rather than receiving an immediate deduction for a funded registered-plan contribution. The employer's deduction generally arises when the benefit is ultimately paid and becomes taxable compensation to the executive. Canadian SERP structures commonly use this deferred-deduction treatment.
This is an important distinction from a registered pension plan. A SERP is not simply registered with CRA so that unrestricted deductible contributions may be made. Its principal purpose is precisely to supplement benefits limited by the tax rules governing registered retirement arrangements.
A funded SERP can also involve a Retirement Compensation Arrangement, which brings a separate tax regime, including refundable tax on contributions to the RCA custodian. Therefore, the precise tax consequences depend on funding structure.
For the examination scenario, option C describes the core tax consideration associated with a conventional unfunded SERP: the employer's tax deduction is deferred until the retirement benefit is paid.
FPII reference/topic: Retirement Planning - SERPs; executive compensation; deferred compensation; registered versus non-registered retirement arrangements.
NEW QUESTION # 52
Which resource will affect a pensioner's Guaranteed Income Supplement entitlement?
Answer: D
Explanation:
The Guaranteed Income Supplement is income-tested rather than asset-tested. Consequently, the relevant item is dividend income.
For GIS purposes, taxable investment income-including taxable Canadian dividends-forms part of the income used to determine entitlement. As income rises, GIS benefits may be reduced or eliminated depending on the recipient's marital status and applicable income threshold. Service Canada specifically includes interest, investment income, capital gains, and taxable Canadian dividends among the income sources relevant to income-tested OAS benefits.
By contrast, merely owning a cottage or holding investment assets does not directly reduce GIS because there is no general GIS asset test. Those assets become relevant when they generate reportable income-for example, rental income, interest, dividends, or realized taxable capital gains.
Old Age Security itself is specifically excluded when determining income for GIS purposes. Therefore, receiving the basic OAS pension is not treated in the same way as taxable investment income when calculating GIS entitlement.
This distinction is important in retirement planning because two clients with identical net worth can have very different GIS outcomes depending on the type, timing, and tax characterization of their retirement income.
FPII reference/topic: Retirement Planning - Old Age Security; Guaranteed Income Supplement; income testing; retirement-income taxation.
NEW QUESTION # 53
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