Chapter 14

Top of Form

1
Which of the following does not represent a basic reorganization technique?

A)
Amalgamation.

B)
Wind-up.

C)
Disbursement of excess cash via inter-corporate dividends.

D)
Sale or transfer of assets from one corporation to another.

2
Which of the following does not correctly describe the rules for an asset sale/transfer?

A)
There must be an established selling price.

B) The amount of payment for the assets must equal the fair market value (FMV) of the
assets being sold.

C)The sale/transfer price of each asset for tax purposes can be set to either fair market
value (FMV) or an elected, lesser value.

D)The taxpayer must be consistent in applying the sale/transfer price - either FMV or
undepreciated capital cost (UCC) must be used for all assets.

3
For an amalgamation to be completed on a tax-free basis…

A) All corporations must be Canadian; All assets and liabilities must become assets and
liabilities of the new corporation; new treasury shares must be issued for the new
corporation.

B) More than 50% of the corporations must be Canadian; All assets and liabilities must
become assets and liabilities of the new corporation; the controlling shareholders must
be Canadian.
 C)All corporations must be Canadian; All assets and liabilities must become assets and
liabilities of the new corporation; the controlling shareholders must be Canadian.

D)All corporations must be Canadian; All assets and liabilities must become assets and
liabilities of the new corporation; all of the shareholders of the old corporations must
become shareholders of the new corporation.

4
In what way is a wind-up of a 100% owned subsidiary by a parent corporation not the same
as an amalgamation of the two corporations?

A)
On a wind-up, the assets are considered sold at their current value.

B)
On a wind-up, the subsidiary ceases to exist and the parent corporation continues.

C)
The shareholders of the parent corporation must be Canadian.

D)
Carry forward losses of the subsidiary are no longer available to the parent corporation.

5
On the wind-up of a 90% or more owned subsidiary...

A)
Assets of the subsidiary are transferred at fair market value (FMV).

B)
Assets of the subsidiary are transferred at the tax costs of each individual asset.

C)
The parent corporation can elect the transfer price of subsidiary assets.

D)The minority shareholders of the subsidiary must be bought out to achieve a tax-free
reorganization.

6
If shareholders wish to change the nature of their investment in a corporation, but retain
the amount of capital they have invested, they should consider...

A)
Reorganizing the share capital.
 B)
Establishing a holding corporation to hold their investment.

C)
A vertical amalgamation.

D)
A horizontal amalgamation.

7
The primary purpose of a holding corporation is to...

A)
Provide a temporary investment vehicle pending a wind-up or amalgamation.

B)
Take advantage of the capital gain deduction (CGD) for individuals.

C)
Own shares of other corporations.

D)
Manage the affairs of subsidiary corporations.

8
The primary benefit to an existing shareholder of establishing a holding corporation is to
allow...

A)
New shareholders to invest in the group of companies.

B) The shareholder, now being the holding company, to receive tax-free dividends from the
operating company, for reinvestment.

C)The shareholders to receive tax-free dividends from the operating company, for
disbursement.

D)One shareholder to obtain control of the operating companies without buying more than
50% ownership of each one.

9
Mr. Pitt (45% marginal tax bracket) intends to acquire all the shares of Opco for
$1,100,000. He would borrow the funds from his sibling on an interest-free basis. Opco is a
CCPC and earns $100,000 annually on which it pays tax at 15%. If all of Opco's after-tax
earnings are distributed as dividends to Mr. Pitt and he uses these funds to pay back the
 loan, how long would it take before the loan is paid off? Assume perfect integration of
dividend taxation.

A)
11 years

B)
12.9 years

C)
20 years

D)23.5 years

100,000*.85%=85,000 85,000

10
Using the same facts as the previous question, if Mr. Pitt decides to create a holding
corporation (Holdco) and Holdco borrows the funds to purchase the shares, what would
be the pay-back period on the loan?

A)
11 years

B)
12.9 years

C)
20 years

D)
23.5 years

100,000*.85%=85,000 1,100,000/85,000=12.9 yearsBottom of Form

Chapter 15

Which of the following is not a fundamental area of concern in a partnership agreement?

A) Each partner's required contributions to the partnership.

B) Whether corporations can be partners or only individuals.

C) The format and rules for decision making and management of the partnership's
business.

D) How the profits and losses are to be shared among the partners.

It is important for a partner to understand their liability exposure, as a member of a partnership,

because...

A) A partnership offers the same liability protection as a corporation.

B) Partners may be forced by Canada Revenue Agency (CRA) to pay the personal tax
liability of any other partner.

C) Corporate partners are often required to pay the debts of unincorporated partners.

D) All obligations and debts incurred by the partnership are the full responsibility of
each partner – joint and several liability.

A partnership earns $50,000 net income in its first year of business. How much of this net income is
taxable to the partners?

A) Only the portion that is distributed to the partners.

B) All of it, no matter how much is distributed to the partners.

C) Each partner can decide how much to withdraw, which is then taxable. The amount
remaining in the partnership accounts is not taxed until withdrawn.

D) None of it, as a partnership is the taxable entity.

4

Which of the following types of income is not taxable when earned by a partnership?

A) Employment income.

B) Business income.

C) Property income.

D) Net taxable capital gains.

When past profits of a partnership are distributed to the partners, the profits are...

A) Added to each partner's equity or capital account.

B) Taxed in the hands of the partners.

C) Not subject to tax.

D) Taxed to the partners like dividends, since the distributions represent after-tax
profits.

Which of the following is not a normal way for a partner to leave the partnership?

A) Selling their partnership interest to a new partner.

B) Selling their partnership interest to an existing partner.

C) Contributing cash to the partnership to buy their way out.

D) Withdrawing all their partnership capital.

Which of the following would not cause a decrease in the value of a partner's partnership interest?

A) The distribution of accumulated profits of the partnership.

B) The accumulation of operating losses in the partnership.

C) A sale of partnership assets at fair market value (FMV).

D) A decrease in the fair market value (FMV) of the partnership's assets.

8

If a partner sells/transfers property she owns to a partnership of which she is a member…

A) The partner would realize neither a capital gain nor a capital loss on the transfer, as
the partnership is not like a corporation.

B) The partner would report a capital gain or loss, based on the partnership interest not
held by her, as this is the portion she has effectively sold.

C) Any capital gains or losses to the partner would be deferred until the partnership
sells the property.

D) The sale would be deemed to occur at the fair market value (FMV) of the property.

Alpha Corp. and Beta Corp., two unrelated corporations, both have December 31 year-ends. They
formed a new partnership on October 1, 2019 with a fiscal year-end of September 30. The
partnership earned $120,000 in its first year ended September 30, 2020, and $70,000 for the period
October 1 to December 31, 2020. The partnership income is split 60% to Alpha and 40% to Beta.
What is the amount of partnership income Beta would report for its December 31, 2020 year-end?

A) $48,000

B) $60,000

C) $64,000

D) $76,000

10

Assume the income numbers are the same as the previous question but the partnership income is
shared 95% to Alpha and 5% to Beta. What is the amount of partnership income Alpha would report
for its December 31, 2020 year-end?

A) $114,000.

B) $142,500

C) $152,000

D) $180,500
Chapter 17

A trust is created by…

A) Registration under the relevant provincial Trust Act.

B) The entering into a legal agreement between the settlor and the beneficiaries.

C) The writing of the trust document detailing the trustee(s), the beneficiaries, the
property to be transferred to the trust and the obligations of the trustee(s).

D) The death of a taxpayer.

Income earned by the trust is...

A) Taxed first by the trust and then again when it is distributed to the beneficiaries.

B) Not taxed in the trust but taxed to the beneficiaries in the year the income is
allocated to them by the trust.

C) Taxed to the beneficiaries when it is distributed to them by the trust.

D) Taxed in the trust unless it is allocated in the year it is earned to the beneficiaries.

Which of the following is not a type of trust?

A) Inter vivos trust

B) Testamentary trust

C) Personal trust

D) Corporate trust

At the time a trust is terminated, property of the trust…

A) Is transferred to the beneficiaries at the tax cost to the trust.

B) Is deemed sold by the trust at fair market value, resulting in tax to the trust.

C) Is distributed to the trustee(s) of the trust to allocate among the beneficiaries.

D) Reverts to the original settlor of the trust.

5

When trust property is transferred to a beneficiary who has only an income interest, the trust is
deemed to have disposed of the property at…

A) Fair market value.

B) The tax cost to the trust.

C) At an amount between the cost to the trust and the fair market of the property, as
designated by the trustee.

D) The tax cost to the settlor who originally contributed the property to the trust.

When trust property is transferred to a beneficiary, who has both an income interest and a capital
interest, the trust is deemed to have disposed of the property at…

A) Fair market value.

B) The tax cost to the trust.

C) At an amount between the cost to the trust and the fair market of the property, as
designated by the trustee.

D) The tax cost to the settlor who originally contributed the property to the trust.

The most common use of a spousal trust is to allow the spouse of the settlor…

A) To continue to receive income from the trust property or dispose of the trust
property as the spouse sees fit.

B) To continue to receive income from the trust property and to provide for the eventual
disposition of the trust property in the spouse's will.

C) To receive the income from the trust, and to provide for the eventual distribution of
the trust property to the settlor's children.

D) To continue to receive income from the trust property for 21 years, following which
the trust property must be sold.

Beneficiaries of an estate can be any of the following except…

A) Individuals

B) Testamentary trusts

C) Spousal trusts

D) Inter vivos trusts

9

An inter-vivos trust...

A) Can avoid the tax implications of the 21-year rule by transferring its property to
another trust.

B) Can avoid the tax implications of the 21-year rule by transferring its property to
beneficiaries.

C) Can avoid the tax implications of the 21-year rule by transferring its property back to
the settlor.

D) Cannot avoid the application of the 21-year rule.

10

A testamentary trust…

A) Must have a December 31 year-end unless it qualifies as a Graduated Rate Estate.

B) Must apply the highest rate of personal federal tax to all its income.

C) Applies the personal tax rates on all its net income for each year of its existence.

D) Is not required to pay tax instalments.

11

Which of the following administrative advantages are not usually associated with trusts?

A) A trust provides a means to manage property for persons unable to do so

themselves.

B) A trust provides for the intergenerational management of assets.

C) A trust may be used to provide for children not yet born when the trust is created.

D) A trust may be used to prevent challenges to the settlor's last will and testament.