TEST CIFC ANSWERS & CIFC CERT

Test CIFC Answers & CIFC Cert

Test CIFC Answers & CIFC Cert

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Tags: Test CIFC Answers, CIFC Cert, New CIFC Practice Questions, Free CIFC Practice Exams, CIFC Certification Practice

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IFSE Institute CIFC Cert & New CIFC Practice Questions

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IFSE Institute Canadian Investment Funds Course Exam Sample Questions (Q31-Q36):

NEW QUESTION # 31
Bernadette has a high-paying job and is in the top tax bracket. She recently received a payment of $5 million upon the settlement of her uncle's estate. Bernadette would like to invest her inheritance in financial products that would not only grow her money but is also income tax friendly.
Which of the following would provide the most favourable tax treatment?

  • A. Capital gains from stock investments.
  • B. Dividends from a large public Canadian corporation.
  • C. Dividends received from a large foreign corporation.
  • D. Coupon payments from Government of copyright bonds.

Answer: B

Explanation:
Explanation
Dividends from a large public Canadian corporation are eligible for the dividend tax credit, which reduces the amount of tax payable on this type of income. The dividend tax credit is a non-refundable tax credit that recognizes that dividends are paid out of income that has already been taxed at the corporate level, and therefore should not be taxed again at the personal level. The dividend tax credit applies to both federal and provincial taxes, and the rates vary depending on the province or territory of residence12 References = Canadian Investment Funds Course (CIFC) - Module 4: Taxation - Section 4.1: Taxation of Investment Income3 and web search results from search_web(query="tax treatment of different types of investment income in copyright")12
3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-4.pdf


NEW QUESTION # 32
Sean purchases 500 units of Penn Canadian Equity Fund when the net asset value per unit (NAVPU) is
$16.70. On December 15, the mutual fund's NAVPU is $21. On December 16, the mutual fund declares a distribution of $1.25 per unit. Sean's distribution is immediately reinvested and he purchases additional units of the mutual fund.
Which of the following statements about the effect of the distribution is correct?

  • A. The total value of Sean's mutual fund holdings after the distribution and reinvestment is §9,875.
  • B. After the distribution. Sean will have J&625 in cash and JB8.350 worth of the Penn Canadian Equity Fund.
  • C. The NAVPU of the mutual fund does not change after the distribution since Sean reinvests his distribution and purchases additional units.
  • D. Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units.

Answer: D

Explanation:
Explanation
Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units.
When a mutual fund declares a distribution, it reduces its NAVPU by the amount of the distribution per unit.
In this case, the NAVPU drops from $21 to $19.75 after the distribution of $1.25 per unit. Sean's distribution is $625 ($1.25 x 500 units), which he reinvests in the mutual fund at the new NAVPU of $19.75. He receives

additional units. The total value of Sean's mutual fund holdings after the distribution and reinvestment is (500+31.65)×19.75=$10,500
, not $9,875. The NAVPU of the mutual fund does change after the distribution, regardless of whether Sean reinvests his distribution or not. References: [Unit 7: Mutual Funds Administration]


NEW QUESTION # 33
Davis invested in a tactical asset allocation fund in his non-registered investment account. Distributions from the mutual fund are paid directly to Davis and not reinvested. Assuming a federal marginal tax rate of 26%, dividend gross-up rate of 38% and federal dividend tax credit rate of 15%, which type of distribution would result in the lowest amount of tax payable?

  • A. Interest
  • B. Capital Gain
  • C. Capital Dividend
  • D. Eligible Dividend

Answer: D

Explanation:
Explanation
An eligible dividend is a type of dividend that is paid by a Canadian corporation that meets certain criteria and is eligible for the enhanced dividend tax credit. The dividend tax credit reduces the amount of tax payable on dividends by providing a credit against the tax liability. An eligible dividend has a higher gross-up rate and a higher dividend tax credit rate than a non-eligible dividend, which means that it results in a lower effective tax rate. A capital dividend is a type of dividend that is paid from the capital gains realized by a corporation and is tax-free to the shareholder. However, a tactical asset allocation fund is unlikely to pay capital dividends, as they are usually reserved for private corporations. A capital gain is the profit from selling an asset at a higher price than its purchase price. Only 50% of the capital gain is taxable, which means that it has a lower effective tax rate than interest income, which is fully taxable. However, a capital gain distribution from a mutual fund is not the same as a capital gain from selling the mutual fund units. A capital gain distribution is paid when the fund realizes a capital gain from selling its underlying assets, and it is taxable in the year it is received, regardless of whether the shareholder sells the fund units or not. Therefore, it does not benefit from the deferral of tax that occurs when the shareholder sells the fund units at a later date. An interest distribution is paid when the fund earns interest income from its underlying assets, such as bonds or money market instruments. Interest income is fully taxable at the marginal tax rate, which means that it has the highest effective tax rate among the four types of distributions.
To compare the amount of tax payable for each type of distribution, we can use the following formula:
Tax=(Distribution*Grossup)*MarginalTaxRate(Distribution*Grossup)*DividendTaxCreditRate For simplicity, we assume that Davis receives $100 of each type of distribution and that he does not have any other income or deductions. We also ignore any provincial taxes or credits. Using the formula, we can calculate the tax payable for each type of distribution as follows:
* Capital Dividend: Tax=(100*0)*0.26(100*0)*0=0
* Capital Gain: Tax=(100*0.5)*0.26(100*0.5)*0=13
* Eligible Dividend: Tax=(100*1.38)*0.26(100*1.38)*0.15=10.14
* Interest: Tax=(100*1)*0.26(100*1)*0=26
Therefore, an eligible dividend would result in the lowest amount of tax payable, followed by a capital gain, a capital dividend, and an interest distribution.
References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-41
* Eligible Dividends Definition - Investopedia2
* Capital Dividend Definition - Investopedia3
* Capital Gain Distribution Definition - Investopedia4


NEW QUESTION # 34
Your client, Helen, just received her non-registered account statement which states that one of her mutual funds made an interest income distribution during the year. She asks you how she will be taxed on the distribution. What do you tell Helen?

  • A. She will pay taxes at her average tax rate.
  • B. She will pay taxes on the grossed-up amount of the income.
  • C. She will pay taxes at her top marginal tax rate.
  • D. She will pay taxes on 50% of the distribution.

Answer: C


NEW QUESTION # 35
Your clients, Jessica and Ken, want to buy a house next year. You recommend a money market fund. How do you think a money market fund will help Jessica and Ken reach their goal?

  • A. Money market funds provide high returns without risking the capital invested.
  • B. Money market funds pay income weekly which can be automatically reinvested.
  • C. Money market funds are safe investments because their net asset value per unit does not usually fluctuate.
  • D. Money market funds provide investors a guaranteed fixed rate of return.

Answer: C


NEW QUESTION # 36
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