Try 12 focused CFP® Cases case questions on Tax Planning, with explanations, then continue with Securities Prep.
Try 12 focused CFP® Cases case questions on Tax Planning, with explanations, then continue with Securities Prep.
| Field | Detail |
|---|---|
| Exam route | CFP® Cases |
| Topic area | Tax Planning |
| Blueprint weight | 14% |
| Page purpose | Focused case questions before returning to mixed practice |
These cases are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.
Topic: Tax Planning
Rina Kapoor, 41, is an engineering project manager. She and her spouse, Andre, have two children and have asked their CFP professional for a tax projection before deciding on RRSP contributions and cash-flow planning. Rina is not asking the planner to prepare her tax return, but she wants the assumptions to be close enough to guide decisions.
During the prior year, Rina worked in Toronto until March 31. On April 1, she began a 14-month assignment in the United Arab Emirates. Her employer stopped Canadian payroll withholding and told her she was probably non-resident. Rina rented a furnished apartment overseas, but kept her Ontario driver’s licence, health coverage, bank accounts, and investment accounts. Andre and the children lived in the jointly owned Ontario home until October 15, when they moved to Calgary for Andre’s new job and signed a one-year apartment lease. The Ontario home was listed for sale but remained unsold on December 31. Rina spent December 18 to January 8 with Andre and the children in Calgary, but says they may return to Ontario if her overseas role is not renewed.
Rina and Andre also describe their relationship differently. Rina says they separated emotionally in June after a serious dispute and kept separate bank accounts while she was overseas. Andre says they reconciled before year-end and that CRA still shows them as married. No written separation agreement exists.
Rina also owns a Toronto rental condo. She accepted a conditional offer to sell it on December 28, and the sale closed on January 12 of the following year. The planner has the conditional offer but not the closing documents or statement of adjustments.
Before treating Rina as a non-resident for Canadian tax purposes, which fact pattern must the planner verify first?
Best answer: D
What this tests: Tax Planning
Explanation: The planner must verify Rina’s factual Canadian tax residency before applying resident or non-resident tax assumptions. Her spouse, children, home, licences, accounts, temporary assignment, and return intentions are all relevant residential-tie facts.
Canadian tax residency is a factual analysis, especially when a client leaves Canada temporarily for work. Important ties include a dwelling place, spouse or dependants in Canada, personal property, provincial health coverage, licences, financial accounts, and the client’s intention to return. Rina has competing indicators: a UAE apartment and foreign assignment on one side, but significant Canadian family and personal ties on the other. Employer payroll withholding may reflect an administrative assumption, not the legal tax result. The key takeaway is that residency must be verified before modelling worldwide income, departure tax issues, credits, or non-resident withholding.
Residency depends primarily on Rina’s factual ties to Canada and whether her departure was temporary or permanent.
Assuming Rina is a Canadian resident for the year, what provincial fact is most important before estimating her provincial tax?
Best answer: D
What this tests: Tax Planning
Explanation: For an individual resident in Canada, provincial tax usually turns on the province or territory of ordinary residence on December 31. Rina’s Calgary stay, unsold Ontario home, family location, and return uncertainty make this a verification issue, not an assumption.
Provincial tax for a Canadian-resident individual is generally determined by the province or territory where the person is ordinarily resident on December 31, not simply where the person earned income during the year. Rina’s facts are mixed: Andre and the children moved to Calgary before year-end, Rina was physically in Calgary over year-end, the Ontario home remained unsold, and the overseas assignment may be temporary. These facts require verification before choosing Alberta, Ontario, or another provincial assumption in the projection. The closest trap is using the province connected to the job or asset instead of the client’s ordinary residence at year-end.
A resident individual’s provincial tax is generally based on the province or territory where they are ordinarily resident on December 31.
Before advising Rina to change her CRA profile to separated for the prior year, what should the planner verify?
Best answer: A
What this tests: Tax Planning
Explanation: The planner should not rely on labels such as emotionally separated or married in CRA records. The relevant issue is whether Rina and Andre were actually separated because of a relationship breakdown and what their status was at the relevant reporting date.
Canadian individuals file their own tax returns, but marital status affects credits, benefits, spousal income reporting, and some planning assumptions. Physical distance caused by work does not necessarily mean separated for tax purposes, and a CRA profile can be outdated. The planner should verify whether Rina and Andre were living separate and apart because of a relationship breakdown, the timing and duration of that separation, and whether they reconciled before year-end. This protects the analysis from using an incorrect filing context for credits, benefits, and household cash flow.
Marital status for tax and benefit purposes depends on the actual relationship breakdown, timing, and status at the relevant date.
For the Toronto rental condo, what timing fact must be verified before including any capital gain in the prior-year projection?
Best answer: C
What this tests: Tax Planning
Explanation: The planner needs the actual disposition timing before placing the capital gain in a tax year. The conditional offer was accepted before year-end, but the stated closing occurred in the following year, so closing documents are essential.
Capital gain timing depends on when the taxpayer disposed of the property, which for a real estate sale is generally tied to closing and transfer of ownership or beneficial ownership. Rina accepted a conditional offer on December 28, but the sale closed on January 12 of the following year. Without the closing documents and statement of adjustments, the planner should not include the gain in the prior-year projection. The key planning point is to verify transaction timing before modelling income, deductions, credits, or instalment needs.
The taxable disposition generally depends on when the sale closed and ownership or beneficial ownership transferred.
Topic: Tax Planning
Rina and Daniel Chen live in Ontario with their children, Ava, 13, and Maya, 9. Rina earns $168,000 as an engineer and has a marginal tax rate of 46%. She participates in a defined benefit pension and expects her retirement marginal tax rate to be about 31%. Daniel earns variable self-employment income of about $52,000 and has a marginal tax rate of 29%.
They have just received a $36,000 after-tax bonus and can save about $1,500 per month going forward. Their essential expenses are $8,000 per month. They currently keep $12,000 in chequing and want a three-month emergency reserve before funding less flexible goals. They may also need up to $15,000 within 18 months for Maya’s private therapy, which they want to keep accessible.
| Planning fact | Detail |
|---|---|
| Rina registered room | RRSP $44,000; TFSA $18,000 |
| Daniel registered room | RRSP $31,000; TFSA $51,000 |
| RESP | Family RESP balance $28,000; no contributions for two years; new contributions are eligible for usual education grants |
| RDSP | Maya has the Disability Tax Credit approved to age 18; no RDSP exists; matching grants are available, but disability bonds are not due to family income |
| Non-registered | A $22,000 joint GIC, funded entirely from Rina’s past bonuses, matures next month |
Rina likes the immediate tax refund from RRSP contributions. Daniel suggests investing future taxable savings in his name because his tax rate is lower. Their priorities are adequate liquidity, Ava’s education, Maya’s long-term support, and tax-efficient retirement savings.
Using the stated three-month emergency-reserve target, what should be the first allocation from the $36,000 bonus before longer-term plan contributions?
Best answer: B
What this tests: Tax Planning
Explanation: The emergency reserve target is three months of $8,000 expenses, or $24,000. They already have $12,000, so the first $12,000 should remain accessible before they lock money into RRSP, RESP, or RDSP strategies.
Liquidity is the gating constraint before tax optimization. RRSPs can create a tax refund, and RESP/RDSP contributions can attract grants, but those benefits are less useful if the family must withdraw funds soon and trigger tax, lost room, or grant-repayment consequences. A TFSA can be useful for the reserve because withdrawals are tax-free and room is generally restored in the following year, but a high-interest savings account can also satisfy the liquidity need.
The key takeaway is to separate emergency and near-term therapy cash from long-term registered-plan funding.
A three-month reserve is $24,000, so they need about $12,000 more in liquid savings or TFSA cash.
After the reserve is completed and therapy money remains accessible, which account has the strongest tax rationale for Rina’s retirement-only savings?
Best answer: B
What this tests: Tax Planning
Explanation: For retirement-only dollars, Rina’s RRSP has the strongest tax rationale because her current marginal tax rate is materially higher than her expected retirement rate. The deduction is valuable now, and tax-deferred growth is useful when the funds are not needed for short-term flexibility.
The RRSP versus TFSA decision depends heavily on tax-rate timing and access needs. When the contribution deduction is taken at a higher marginal rate than the expected withdrawal rate, an RRSP can produce a tax advantage beyond simple tax deferral. Rina’s facts support this for retirement-only money: current marginal rate of 46%, expected retirement marginal rate of 31%, and available RRSP room. The RRSP is less suitable for emergency or therapy funds because withdrawals are taxable and contribution room is generally not restored.
The key distinction is retirement-only savings versus flexible family cash.
Rina can deduct contributions at 46% and is expected to withdraw at a lower retirement marginal tax rate.
For Maya, which recommendation best balances available disability-related incentives with the family’s need to keep therapy funds accessible?
Best answer: B
What this tests: Tax Planning
Explanation: Maya’s Disability Tax Credit eligibility supports opening an RDSP, and matching grants make long-term contributions attractive. However, the family’s near-term therapy need should stay outside the RDSP because withdrawals can affect grants and flexibility.
An RDSP is intended for long-term financial security for a person eligible for the Disability Tax Credit. Contributions are not deductible, but investment growth is tax-deferred and government grants can materially improve the outcome. The trade-off is flexibility: government assistance may have repayment rules if withdrawals occur too soon, and taxable portions are taxed to the beneficiary when paid. Given the Chens’ potential $15,000 therapy cost within 18 months, that amount should remain in liquid savings or a TFSA rather than being committed to the RDSP.
The RESP remains relevant for education, but it is not a substitute for Maya’s long-term disability planning.
Maya’s DTC eligibility allows an RDSP, but only long-term support money should be committed.
Daniel wants to invest Rina-funded surplus in his name after the registered education and disability decisions. Which use of Daniel’s room best preserves flexibility without current non-registered attribution concerns?
Best answer: C
What this tests: Tax Planning
Explanation: Using Daniel’s TFSA room is a flexible way to shelter growth when Rina provides the funds. A non-registered account in Daniel’s name would not automatically shift taxable investment income away from Rina because attribution rules may apply.
Spousal attribution rules can apply when one spouse transfers or lends money to the other for non-registered investing. The result is that income, and in some cases gains, may be taxed back to the transferor rather than the lower-income spouse. A TFSA avoids current taxable investment income while the funds remain inside the plan, and withdrawals are tax-free, making Daniel’s large TFSA room valuable for flexible family savings. This does not create an RRSP deduction for Rina, but it improves tax efficiency without sacrificing access.
The practical planning point is that account registration alone does not override attribution rules.
Funds invested inside Daniel’s TFSA grow tax-free and avoid current non-registered income attribution while inside the plan.
Topic: Tax Planning
Nadia Mercer — year-end tax discovery meeting
Nadia, 44, lives in Ontario and separated from her spouse in January under a temporary agreement. Her 9-year-old son Evan lives with her most school weeks; her 18-year-old daughter Zoe started college in September and lives on campus. Nadia receives child support only. Her former spouse pays support and has alternating weekends, and he has told Nadia he wants to claim some child-related tax credits.
In July, Nadia moved from London to Kingston for a permanent employment role. Her new home is more than 40 km closer to the new workplace. Her employer paid $5,000 of relocation support, but Nadia does not yet know whether it will appear as taxable income or which costs it reimbursed.
Tax file excerpts and current-year items
| Item | Nadia’s notes |
|---|---|
| Prior-year CRA Notice of Assessment | RRSP deduction limit $31,000; unused RRSP contributions $7,500; net capital loss carryforward $11,200 |
| Employment income | $108,000 from new job; $18,000 severance from former employer |
| Non-registered account | Sold bank shares for a $14,000 capital gain; sold crypto at a $6,000 loss, supported only by screenshots |
| Child-related costs | $8,400 licensed day camp and after-school care for Evan while Nadia worked |
| Health and education | $3,700 for Evan’s psychoeducational assessment and tutoring; some may be reimbursed by benefits |
| Zoe’s college costs | Zoe expects a T2202 but has not received it; she may transfer unused current-year tuition credits to Nadia |
Nadia wants the planner to identify which deductions, credits, losses, and carryforwards are relevant before recommending whether to make an RRSP contribution or use cash to reduce debt.
Before modelling Nadia’s RRSP deduction and capital-loss use, which source should the planner rely on first to verify her carryforward balances?
Best answer: D
What this tests: Tax Planning
Explanation: The planner should verify carryforward balances with CRA-sourced information before modelling tax strategies. Nadia’s prior NOA and CRA My Account are the best sources for her RRSP deduction limit, unused RRSP contributions, and net capital loss carryforward.
Carryforwards and registered-plan deduction limits are not reliably confirmed by client memory or investment statements. For planning purposes, CRA’s most recent Notice of Assessment and online account data should be used to verify RRSP deduction room, unused contributions, and loss carryforwards. Current-year brokerage reports can then be layered in to estimate realized gains and losses.
The key takeaway is to separate verified CRA balances from current-year transaction evidence.
CRA records are the authoritative source for verified RRSP limits, unused contributions, and loss carryforwards.
How is Nadia’s prior-year net capital loss carryforward most relevant to her current-year planning?
Best answer: B
What this tests: Tax Planning
Explanation: A net capital loss carryforward is relevant because Nadia has a current-year capital gain from the sale of bank shares. It should be considered only in relation to taxable capital gains, not her employment income or severance.
The core concept is income character: capital losses are matched to capital gains. Nadia’s verified net capital loss carryforward may reduce taxable capital gains from her non-registered account, subject to the CRA-confirmed balance and proper current-year gain or loss calculations. It does not reduce employment income, severance, or RRSP contribution limits.
Because her crypto loss is supported only by screenshots, the planner should also request proper adjusted cost base and disposition records before relying on it.
Net capital losses carried forward generally apply against taxable capital gains, such as Nadia’s bank-share gain.
Which unresolved fact is most important before recommending that Nadia claim a moving-expense deduction for her relocation?
Best answer: A
What this tests: Tax Planning
Explanation: Nadia appears to meet the distance and employment-purpose facts, but the employer’s $5,000 relocation support is unresolved. The planner must verify how it is reported and which costs it reimbursed before estimating any deductible moving expenses.
Moving expenses are a deduction, but the amount depends on eligibility, the type of expense, reimbursements, and income from the new work location. In Nadia’s case, the move was for employment and the distance test is stated, so the most important missing fact is the treatment of the employer payment. If a cost was reimbursed or the allowance was non-taxable, the deductible amount may be reduced.
The planning point is that eligibility is not enough; the deductible amount must be verified with slips and receipts.
Reimbursed or non-taxable relocation amounts can reduce or eliminate deductible moving expenses.
Which additional information is most important before including an eligible dependant amount for Evan in Nadia’s tax projection?
Best answer: A
What this tests: Tax Planning
Explanation: The eligible dependant amount is a credit that depends on family status, support arrangements, and whether another person can claim the same child. Nadia’s temporary separation agreement and her former spouse’s competing intention make the final custody and support terms the key missing information.
Credits involving dependants require careful discovery because family facts can control eligibility. Nadia is separated and Evan lives mostly with her, but the agreement is temporary and her former spouse pays support and wants to claim child-related credits. The planner should verify the written custody and support terms and coordinate with a tax professional if the filing position is unclear.
The key distinction is that child care receipts support a deduction, while eligible dependant eligibility depends on family and support facts.
Custody, support obligations, and competing claims determine whether Nadia can claim the eligible dependant amount.
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