CIFC Sample Questions Answers

According to the MFDA rules, a Member or an Approved Person cannot accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person, unless the client is a spouse, parent, or child of the Approved Person and certain conditions are met. However, a Member or an Approved Person can accept a limited trading authorization from a client, which allows the Member or Approved Person to execute trades on behalf of the client, but not to engage in any discretionary trading. Therefore, Josephine can accept a limited POA from her brother, as long as she does not make any investment decisions without his consent.

References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="power of attorney and mutual fund dealers association rules")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf

Money market funds are safe investments because their net asset value per unit does not usually fluctuate. Money market funds invest in highly liquid instruments like high-interest savings accounts, term deposits, short-term debt securities, cash equivalents, and other low-risk, short-term investments3. These funds aim to preserve capital and provide liquidity while generating some income3. Money market funds typically have a stable net asset value per unit (NAVPU) that does not change much over time3. The other statements are false. Money market funds do not provide high returns without risking the capital invested. Money market funds offer low returns that may not keep up with inflation or meet long-term investment goals3. Money market funds also have some risks, such as credit risk, interest rate risk, and liquidity risk3. Money market funds do not pay income weekly which can be automatically reinvested. Money market funds may pay income monthly, quarterly, semi-annually, or annually, depending on the fund’s distribution policy3. Investors can choose to receive cash distributions or reinvest them in more units of the fund3. Money market funds do not provide investors a guaranteed fixed rate of return. Money market funds do not guarantee any return or principal amount3. The return of money market funds depends on the interest rates and yields of the underlying investments, which may vary over time3. References: 7 Best Money Market ETFs in Canada 2023: Cash And HISA ETFs, Best Money Market Funds in Canada | WOWA.ca, 3 Best Canadian Money Market Funds (2023) - PiggyBank

ETFs can be purchased continuously throughout the trading day while index funds can only be bought or sold at the end of the day. This is because ETFs are traded on a stock exchange like stocks, while index funds are traded directly with the fund company like mutual funds. This difference gives ETFs more liquidity and flexibility than index funds, as investors can buy and sell ETFs at any time during market hours at the prevailing market price. Index funds, on the other hand, are priced only once a day at the end of the day based on the net asset value per unit (NAVPU) of the fund. Both ETFs and index funds are prone to tracking errors (A), which are the differences between the performance of the fund and the performance of the underlying index. Tracking errors can be caused by various factors, such as fees, expenses, dividends, rebalancing, and market conditions. The market price of ETFs does not always match the underlying basket of securities ©, as it is determined by supply and demand in the market. There can be a discrepancy between the market price and the NAVPU of an ETF, which is called the premium or discount. Index funds, on the other hand, are priced based on the NAVPU of the fund, which reflects the value of the underlying securities. Both ETFs and index funds have management fees (D), as they are both types of mutual funds that incur costs for managing and operating the fund. However, ETFs usually have lower management fees than index funds, as they are more passive and have lower turnover and distribution costs. References: Canadian Investment Funds Course (CIFC) | IFSE Institute

The information that is typically included in the Letter of Engagement is the client’s responsibilities. A Letter of Engagement is a document that formalizes the relationship between a registered firm and its client by specifying the duties, responsibilities, and level of service that both parties agree to. It also outlines the fees and charges that apply to the client’s account, the scope and frequency of reporting and communication, and the process for resolving disputes or terminating the relationship. The client’s responsibilities may include providing accurate and complete information, reviewing statements and reports, informing of any changes in circumstances or objectives, and complying with applicable laws and regulations. Therefore, option A is correct regarding what information is typically included in the Letter of Engagement. The other options are not correct or relevant to the Letter of Engagement. Option B is false because the process for complaints is not typically included in the Letter of Engagement; rather, it is part of the Relationship Disclosure Information (RDI) that is provided to clients at account opening and updated as necessary. Option C is false because the investment objective is not typically included in the Letter of Engagement; rather, it is part of the Know Your Client (KYC) information that is collected from clients at account opening and updated as necessary. Option D is false because the payee for deposits is not typically included in the Letter of Engagement; rather, it is part of the account documentation that specifies how clients can deposit or withdraw funds from their accounts. References: [Letter of Engagement | IFIC], [Relationship Disclosure Information | IFIC], [Know Your Client (KYC) | IFIC]

The statement that is true about Marta’s situation is option D. A registered retirement income fund (RRIF) is a type of registered account that provides income in retirement by converting savings from an RRSP or other sources. A RRIF holder must withdraw a minimum amount from their RRIF each year, starting from the year after they open their RRIF. The minimum amount is calculated based on a percentage factor set by the Canada Revenue Agency (CRA) and the value of the RRIF at the beginning of each year. However, due to the COVID-19 pandemic, the CRA has reduced the required minimum withdrawals from RRIFs by 25% for 2020 and 2021. Therefore, Marta does not have to withdraw the minimum amount this year if she chooses to take advantage of this temporary measure. Therefore, option D is true about Marta’s situation. The other statements are not true about Marta’s situation. Option A is false because she will not be able to continue contributing to her RRIF and be subject to the same annual limits as her RRSP; rather, she will not be able to make any further contributions to her RRIF once she converts her RRSP to a RRIF. Option B is false because she will not incur a tax liability when she converts her RRSP to a RRIF; rather, she will only pay tax on the amount that she withdraws from her RRIF each year. Option C is false because she will not be subject to annual maximum withdrawal limits; rather, she will be able to withdraw any amount from her RRIF as long as she meets the minimum withdrawal requirement. References: [Registered Retirement Income Fund (RRIF) | GetSmarterAboutMoney.ca], [Making RRIF withdrawals | GetSmarterAboutMoney.ca], [RRIF minimum withdrawal factors], [RRIFs: Temporary 25% reduction in minimum withdrawals for 2020 and 2021]

A custodian in mutual fund is a trust company, bank, or similar financial institution that is responsible for holding and safeguarding the securities owned within a mutual fund. The custodian also records and reports all transactions to the fund manager. The custodian does not oversee the general administration, construct and manage the portfolio, or calculate the NAVPU of the mutual fund. These are the roles of other entities such as the fund administrator, the fund manager, and the fund accountant.

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds1 and web search results from search_web(query="role of a custodian in mutual funds")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

Jabir will be eligible to open new client accounts and sell investments only after he receives formal confirmation from the securities regulator that he is registered as a Dealing Representative. This is because registration is a legal requirement for anyone who trades securities or advises clients on securities in Canada, unless an exemption applies. Registration helps protect investors by ensuring that only qualified and competent individuals and firms can conduct securities related business. Jabir must also meet the proficiency, solvency, and suitability requirements for registration, as well as comply with the ongoing obligations of a registrant. Passing the proficiency course and being employed by the dealer are necessary but not sufficient conditions for registration. The dealer must apply for registration on behalf of Jabir and wait for the regulator’s approval.

References: Canadian Investment Funds Course, Unit 1, Section 1.2

According to the Canadian Investment Funds Course, inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less in the future than it can today. Inflation also affects the returns of fixed income investments, such as bonds, which pay a fixed amount of interest and principal. If inflation is higher than expected, the real rate of return (the nominal rate minus inflation) of a bond will be lower than anticipated.

In this case, Pippa purchased a 15-year bond with a 7% coupon rate at the time of issuance. The bond is due to mature later this year. The general interest rate climate remained stable for the first 13 years of the bond’s term. However, especially over the past 18 months, both inflation and general interest rates have increased more than expected. This means that Pippa will receive less purchasing power from her bond’s interest and principal payments than she expected when she bought the bond. She will not experience a capital loss, as she will receive the full face value of $5,000 at maturity. She will also not benefit from a higher real rate of return, as inflation erodes the value of her fixed payments. She will not receive any capital appreciation, as the bond’s price does not change once it is held to maturity.

Therefore, the correct answer is C. The return of investment capital will have lower purchasing power than prior to investing.

References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 4: Fixed Income Securities)

One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1: Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities")12

3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

Segregated funds offer some protection of the capital invested but there is an added cost for the protection. Segregated funds are contracts issued by life insurance companies that invest in underlying funds, similar to mutual funds. Segregated funds have a maturity guarantee and a death benefit guarantee, which ensure that the investor or their beneficiary will receive a certain percentage of their initial investment, regardless of market fluctuations. However, these guarantees come at a cost, which is reflected in higher management fees and insurance fees than mutual funds. Segregated funds do not have high returns, as they depend on the performance of the underlying funds. Segregated funds can be redeemed before the maturity date of the contract, but they may be subject to early redemption fees or market value adjustments. Segregated funds do not flow through capital losses to investors, as they are not considered owners of the underlying fund. Segregated funds are subject to insurance regulation, not securities regulation, because they are distributed by life insurance agents. References: Segregated Funds

A self-directed RESP is a type of RESP where the subscriber (the person who opens the plan) has the freedom to choose and manage the investments within the plan, such as stocks, bonds, mutual funds, etc. A self-directed RESP can have one or more beneficiaries (the children who will use the funds for their education) and can be individual or family plans. A self-directed RESP is eligible for the Canada Education Savings Grant (CESG), which is a 20% matching grant on the first $2,500 of annual contributions per beneficiary, up to a lifetime limit of $7,200. Additionally, low income families who qualify may receive an extra 10% or 20% on the first $500 of annual contributions per beneficiary, depending on their net family income. This is called the Additional CESG. Educational Assistance Payments (EAPs) are the payments made from the RESP to the beneficiary when they enroll in a qualifying post-secondary program. EAPs consist of the CESG, the Additional CESG, and any income or growth earned within the plan. EAPs may be used for any education-related expenses, such as tuition, books, transportation, accommodation, etc. EAPs are taxable in the hands of the beneficiary, who usually has a lower tax rate than the subscriber.

References: Canadian Investment Funds Course, Chapter 5: Registered Plans1

A business cycle is a cycle of fluctuations in the aggregate economic activity of a nation around its long-term natural growth rate. It consists of four phases: expansion, peak, contraction, and trough. A period of economic expansion is followed by a period of economic contraction, which is also called a recession. A recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales1. The other statements are not true about the movement of business cycles in the Canadian economy. The length of each phase and cycle varies depending on various factors, such as fiscal and monetary policies, external shocks, consumer confidence, and technological changes. There is no fixed rule that a period of economic expansion or contraction must last for a certain number of months or quarters. A period of at least 3 consecutive months of contraction is not sufficient to define a recession; it must also be significant and widespread across the economy. References: Business Cycle: What It Is, How to Measure It, the 4 Phases, Business Cycle - Definition, How to Measure and 6 Different Stages, Business Cycle - Definition, Phases, Graphs, Economics Examples

A passively managed fund is a type of investment fund that follows a predetermined strategy or rule to track the performance of a market index, such as the S&P 500, or a specific sector, such as technology or health care. A passively managed fund does not involve active decision-making by the fund manager, who simply replicates the composition and weighting of the index or sector. A passively managed fund aims to match the return and risk of the index or sector, rather than outperform it. A passively managed fund typically has lower fees and expenses than an actively managed fund, as it requires less research, trading, and oversight.

An exchange traded fund (ETF) is a type of passively managed fund that trades on a stock exchange like a common stock. An ETF holds a basket of securities that mirrors an index or sector, and its price fluctuates throughout the day based on supply and demand. An ETF allows investors to gain exposure to a diversified portfolio of securities with low costs, high liquidity, and tax efficiency.

A commodity pool is a type of investment fund that invests in futures contracts or options on commodities, such as oil, gold, or wheat. A commodity pool is usually actively managed by a commodity trading advisor (CTA), who uses various strategies to generate returns from the price movements of commodities.

A hedge fund is a type of investment fund that employs sophisticated and often aggressive strategies to achieve high returns and reduce risk. A hedge fund is usually actively managed by a hedge fund manager, who has wide discretion and flexibility to use various instruments, such as derivatives, leverage, short selling, arbitrage, etc. A hedge fund is typically available only to accredited investors who meet certain income and net worth criteria.

A labour-sponsored investment fund (LSIF) is a type of investment fund that provides venture capital to small and medium-sized Canadian businesses, while offering tax benefits to investors. An LSIF is usually actively managed by a labour union or an organization affiliated with a labour union, who selects the companies to invest in based on their potential for growth and job creation.

References: Canadian Investment Funds Course, Chapter 4: Types of Investments1

 An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. ETFs have lower management expense ratios (MERs) compared to mutual funds because they are passively managed and do not incur high costs for research, analysis, and portfolio rebalancing. Therefore, this statement is true about ETFs. References: Exchange-Traded Fund (ETF) Explanation With Pros and Cons - Investopedia, The Best ETFs - Exchange Traded Funds Rankings | US News Investing

The client mobility exemption is a provision in the National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations that allows a registered individual to continue dealing with a client who moves to another jurisdiction without having to register in that jurisdiction, subject to certain conditions. One of the conditions is that the individual must not have more than five clients in each of the other jurisdictions where they are not registered. Therefore, the client mobility exemption would apply to Lori’s situation, as she has five or fewer clients in Alberta, where she is not registered. The client mobility exemption would not apply to the other situations, as they do not meet the conditions for the exemption. For example, Olaf’s mutual fund dealer is not registered in New Brunswick, which is a requirement for the exemption. Sigrid’s brother-in-law is not an existing client who moved to another jurisdiction, but a new client who resides in a different jurisdiction. Karl has more than five clients in British Columbia, where he is not registered, which exceeds the limit for the exemption.

References: Canadian Investment Funds Course, Chapter 1: The Canadian Financial Services Industry1

Orel’s goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1: Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf 2: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

According to the Personal Information Protection and Electronic Documents Act (PIPEDA), personal information is any factual or subjective information, recorded or not, about an identifiable individual. This includes information in any form, such as age, name, ID numbers, income, ethnic origin, or blood type. However, PIPEDA also specifies some exceptions to the definition of personal information, such as business contact information. Business contact information is any information that is used for the purpose of communicating or facilitating communication with an individual in relation to their employment, business or profession. This includes the employee’s name, position name or title, work address, work telephone number, work fax number or work electronic address. Therefore, an employee’s business address and business telephone number are not considered personal information under PIPEDA. An employee’s name could be considered personal information if it is not used for business purposes, but it is not clear from the question whether that is the case. An employee’s credit record is clearly personal information under PIPEDA, as it reveals sensitive information about the individual’s financial situation and history.

References: 1: PIPEDA in brief - Office of the Privacy Commissioner of Canada 2

Loretta is looking for a well diversified equity fund that invests both within and outside Canada. She also wants a fund that invests in quality companies, which implies that she prefers lower risk and higher stability. A global equity fund would meet her criteria, as it can invest in any country, including Canada, and diversify across different regions and markets. A global equity fund that focuses on large, established companies, also known as blue chip stocks, would also suit her preference for quality and stability, as these companies tend to have strong financial performance, competitive advantages, and consistent dividends. Therefore, the Polar Global Blue Chip Equity Fund would be the best choice for Loretta among the given options.

References: Canadian Investment Funds Course, Unit 6, Section 6.2

A Trusted Contact Person (TCP) is someone who the client authorizes their financial advisor to contact in limited circumstances, such as when the client is vulnerable, has a health issue, or cannot be reached. A TCP should be someone who the client trusts and who is mature and can handle difficult conversations about the client’s personal situation. Often, a TCP is someone who is involved with providing care for the client who requires personal assistance, such as a family member, a friend, or a caregiver. A TCP does not have a financial interest in the client’s account or assets, does not have the authority to make financial decisions on behalf of the client, and does not need to simplify financial concepts for the client

A Canadian equity index fund would be the most tax-efficient option for Xerxes. A Canadian equity index fund is a type of mutual fund that invests in a portfolio of Canadian stocks that track a specific market index, such as the S&P/TSX Composite Index. A Canadian equity index fund would be tax-efficient for Xerxes because it would generate mostly capital gains and eligible dividends, which are taxed at lower rates than interest income or foreign dividends. A Canadian equity index fund would also have low turnover and minimal distributions, which would defer taxes until Xerxes sells his units. The other options are less tax-efficient than a Canadian equity index fund. A target date fund is a type of mutual fund that adjusts its asset allocation over time based on a predetermined retirement date. A target date fund would be less tax-efficient than a Canadian equity index fund because it would have higher turnover and more distributions, which would trigger taxes every year. A target date fund would also invest in a mix of asset classes, such as bonds and foreign equities, which would generate interest income and foreign dividends that are taxed at higher rates than capital gains and eligible dividends. A bond fund is a type of mutual fund that invests in a portfolio of fixed-income securities, such as government bonds, corporate bonds, and mortgage-backed securities. A bond fund would be less tax-efficient than a Canadian equity index fund because it would generate mostly interest income, which is taxed at the highest rate among different types of investment income. A bond fund would also have regular distributions, which would trigger taxes every year. An asset allocation fund is a type of mutual fund that invests in a portfolio of other mutual funds that cover different asset classes, such as stocks, bonds, and cash equivalents. An asset allocation fund would be less tax-efficient than a Canadian equity index fund because it would have higher fees and more distributions, which would reduce the net returns and trigger taxes every year. An asset allocation fund would also invest in a mix of asset classes, some of which would generate interest income and foreign dividends that are taxed at higher rates than capital gains and eligible dividends. References: [Canadian Equity Index Funds], [Tax-Efficient Investing], [Target Date Funds], [Bond Funds], [Asset Allocation Funds]

A group RRSP is a retirement savings plan sponsored by an employer that allows employees to contribute through regular payroll deductions and benefit from tax advantages and possible employer matching. The employer is responsible for choosing the plan provider, which is the financial institution that administers the group RRSP and offers a range of investment options for the employees to choose from. The employer may also negotiate lower fees and better services with the plan provider than what individual RRSPs can offer. Therefore, statement D is correct.

The other statements are incorrect for the following reasons:

• Statement A: A group RRSP is less costly and time consuming to administer than traditional pension plans, as it does not require actuarial valuations, funding requirements, or regulatory filings.
• Statement B: If you leave your employer, your group RRSP does not stay with the employer. You can transfer your group RRSP to an individual RRSP or another registered plan without tax consequences, as long as there are no locked-in provisions.
• Statement C: You do not need to wait until you file your taxes to receive your contribution tax deduction. Your contributions are deducted from your gross income before tax is calculated, so you receive an immediate tax benefit on your paycheque.

References: Canadian Investment Funds Course, Unit 9, Section 9.1

A put option is a contract that gives the buyer the right, but not the obligation, to sell a certain amount of an underlying security at a specified price within a specified time frame. A put option increases in value as the price of the underlying security decreases, and vice versa. Therefore, buying a put option can be used as a hedging strategy to protect against downside risk or loss in the value of the underlying security. In this case, Maxine is using a put option to hedge against the potential drop in the market value of Never2Tacky due to the regulatory changes. If the price of Never2Tacky falls below $95, she can exercise the put option and sell her shares at $95, limiting her loss. If the price of Never2Tacky stays above $95, she can let the put option expire and keep her shares, paying only the premium for the option. Buying a put option is not speculating, as it does not involve taking a high-risk position in anticipation of a favorable outcome. It is also not related to modern portfolio theory or passive management, which are different concepts in investment analysis. References: Put Option: What It Is, How It Works, and How to Trade Them, Put Options: What They Are and How They Work, Put: What It Is and How It Works in Investing, With Examples

To convert the proceeds from USD to CAD, Frederic needs to divide the amount in USD by the exchange rate. The exchange rate is $1 CAD for $0.99 USD, which means that $0.99 USD is equivalent to $1 CAD. Therefore, Frederic will receive

CAD in Canadian dollars. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 8, Lesson 2

To calculate Firmansyah’s federal tax liability from the investment income, we need to follow these steps:

• Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question. The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD. Therefore, Firmansyah’s foreign dividend in CAD is:

500×1.3605=680.25

• Step 2: Calculate Firmansyah’s grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%. Therefore, Firmansyah’s grossed-up dividend income from both sources is:

(1800+680.25)×(1+0.38)=3426.35

• Step 3: Apply Firmansyah’s federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah’s federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah’s federal tax before credits is:

0.29×3426.35=993.64

• Step 4: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%, while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah’s federal dividend tax credit from both sources is:

(1800+680.25)×0.38×0.15=297.88

• Step 5: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah’s net federal tax liability from the investment income is:

993.64−297.88=695.76

Hence, option C is correct. References: [Canadian Investment Funds Course (CIFC) | IFSE Institute], [Dividend Tax Credit | TurboTax Canada Tips], [Federal Income Tax Rates for Canada - TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]

This answer is correct because according to FINRA Rule 3270, a registered representative must notify their firm in writing of any outside business activity (OBA) that involves compensation or the reasonable expectation of compensation from another person, or that may be viewed by customers or the public as part of the member’s business. However, if the OBA does not involve any of these factors, then the notification is not required. In this case, Reagan’s role as the Chief Revenue Officer of a charitable organization may not involve any compensation or any connection to her securities business, especially if none of her colleagues from the charity become clients. Therefore, she is not required to inform her dealer of this outside activity.

References = Outside Business Activities and Private Securities Transactions, Selling Away in Securities: Understanding FINRA Rule 3270

A company’s retained earnings statement is a financial statement that shows how the company’s net income is distributed between dividends paid to shareholders and retained earnings, which are the amount of profit that is reinvested in the company. Retained earnings are part of the company’s equity, and they reflect the accumulated earnings that the company has generated over its history, minus any dividends or distributions. Retained earnings can be used by the company for various purposes, such as expanding its operations, developing new products, paying off debt, or buying back shares1

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 3: Equity Securities, Section 5.3.4: Financial Statements

A mortgage fund is a type of income fund that invests in mortgages and other debt instruments secured by real estate. It provides a steady stream of income to investors and has a low correlation with other asset classes. A mortgage fund is suitable for Yael because she needs income to pay her monthly expenses and is comfortable with high risk. A global equity fund, a money market fund, and a Canadian equity index fund are not suitable for Yael because they do not meet her income objective and risk tolerance. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 6, Lesson 4

A net capital loss is the excess of allowable capital losses over taxable capital gains in a taxation year. A mutual fund trust is a type of investment fund that is structured as a trust and distributes its income and capital gains to its unit holders. A mutual fund trust cannot pass on its net capital losses to its unit holders, as it can only distribute its net income and net realized capital gains. However, a mutual fund trust can carry forward its net capital losses indefinitely and use them to offset its taxable capital gains in future years. This reduces the amount of tax payable by the mutual fund trust and increases the amount of distributions available to its unit holders. A mutual fund trust cannot carry back its net capital losses to previous years, as this option is only available to corporations12. References:

• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-103
• Capital Losses and Deductions - Canada.ca1
• Mutual Fund Trusts - Canada.ca2

This is because a target date fund is designed to reduce the risk and volatility of the portfolio as the investor gets closer to their retirement or other savings goal. Equities tend to have higher returns but also higher risk than fixed income, so a target date fund gradually reduces the exposure to equities and increases the exposure to fixed income over time. This way, the investor can benefit from the growth potential of equities in the early years and preserve their capital with the stability of fixed income in the later years. 

The current yield on a bond is the annual interest payment divided by the current market price of the bond. In this case, the annual interest payment is 7% of the face value, which is $700. The current market price of the bond is $9,230. Therefore, the current yield is:

9230700​×100%=7.58%

The current yield is different from the coupon rate, which is the annual interest payment divided by the face value of the bond. The coupon rate does not change over the life of the bond, but the current yield changes as the market price of the bond fluctuates. References:

• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.2: Bond Pricing and Yield, page 5-61
• Current Yield Definition - Investopedia2

This question would give you the most information regarding your client’s familiarity with investing because it tests their basic knowledge of one of the fundamental concepts in finance. The relationship between risk and return is the trade-off that investors face when choosing between different investments. Generally, the higher the risk, the higher the expected return, and vice versa. A client who understands this relationship would be able to evaluate the potential outcomes and costs of their investment decisions and choose the ones that match their risk tolerance and return objectives. A client who does not understand this relationship might have unrealistic expectations or make unsuitable choices.

References = Risk-Return Tradeoff Definition - Investopedia, Risk and Return - Corporate Finance Institute, Risk and Return: An Introduction - Morningstar

Disclosure documents are documents that provide information about a mutual fund’s features, risks, performance, fees, and expenses to investors and regulators. Disclosure documents are required by securities laws and must be prepared and filed by the fund manager in accordance with the prescribed rules and standards. Disclosure documents relating to mutual funds include the following:

• Statement of net assets: This is a document that shows the value of the fund’s assets and liabilities as of a specific date. It also shows the net asset value per unit (NAVPU) of the fund, which is the price at which investors can buy or sell units of the fund. The statement of net assets is part of the fund’s financial statements, which are prepared and filed semi-annually and annually.
• Annual information form (AIF): This is a document that provides additional information about the fund that is not included in the simplified prospectus or the fund facts. The AIF includes information such as the fund’s history, organization, management, governance, policies, risks, conflicts of interest, fees, expenses, taxation, and legal matters. The AIF is prepared and filed annually.
• Management reports of fund performance (MRFP): These are documents that provide information about the fund’s financial performance, portfolio composition, risk profile, and management expenses. The MRFPs are prepared by the fund manager and filed semi-annually and annually. The MRFPs include sections such as financial highlights, past performance, summary of investment portfolio, management discussion of fund performance, and financial statements.

References: Canadian Investment Funds Course, Chapter 6: Fund Operations and Regulations1

One of the main reasons for holding bonds in a mutual fund portfolio is to generate regular interest income, which can be distributed to the investors as cash or reinvested in more units of the fund. Bonds are debt securities that pay a fixed or variable rate of interest, called the coupon, to the bondholders until the maturity date, when the principal amount is repaid. The interest income from bonds can provide a steady source of cash flow for the fund and its investors, especially in low-interest-rate environments or when other sources of income, such as dividends or capital gains, are scarce or uncertain

Dakota can send promotional emails to clients who have opted in to receive commercial electronic messages (CEMs). A CEM is any electronic message that encourages participation in a commercial activity, such as an email, a text message, or a social media message. Under Canada’s anti-spam legislation (CASL), Dakota must obtain consent from the recipients before sending CEMs, either explicitly (e.g., by asking them to sign up for a newsletter) or implicitly (e.g., by having an existing business relationship with them). Dakota must also identify himself and his dealer, provide contact information, and include an unsubscribe mechanism in every CEM. The other statements are incorrect. Dakota cannot make telemarketing calls to clients who are listed on the National Do Not Call List (DNCL). The DNCL is a list of telephone numbers of consumers who do not want to receive unsolicited telemarketing calls. Under the Telecommunications Act, Dakota must register with the National DNCL operator, subscribe to the National DNCL, and avoid calling any number on the list, unless he has express consent from the consumer or an exemption applies. Dakota cannot send promotional emails to clients who have opted into Harvest Wealth’s Do Not Call List. A Do Not Call List is a list of telephone numbers of consumers who do not want to receive telemarketing calls from a specific organization. Under the Telecommunications Act, Dakota must maintain an internal Do Not Call List for his dealer and respect the requests of consumers who ask not to be called by his dealer. However, this does not mean that he can send promotional emails to those consumers, as that would violate CASL. Dakota cannot make telemarketing calls to clients who have opted in to receive commercial electronic messages (CEMs). Opting in to receive CEMs does not imply consent to receive telemarketing calls, as they are different forms of communication governed by different laws . Dakota must obtain separate consent from the clients before making telemarketing calls to them, either explicitly or implicitly. References: [Canada’s anti-spam legislation], [National Do Not Call List]

Technical analysis is the method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Xian-Li is using technical analysis to evaluate the companies in her portfolio. References: Canadian Investment Funds Course (CIFC) | IFSE Institute

Guaranteed Income Supplement (GIS) and Allowance for the Survivor are both income-tested benefits that are part of the Old Age Security (OAS) program. They are designed to provide financial assistance to low-income seniors who meet certain eligibility criteria. GIS is a monthly payment that supplements the OAS pension for seniors whose income is below a certain threshold. Allowance for the Survivor is a monthly payment for low-income seniors aged 60 to 64 whose spouse or common-law partner has died and who have not remarried or entered into another common-law relationship. The benefit amounts for both GIS and Allowance for the Survivor depend on the income level of the recipient and are adjusted quarterly based on the Consumer Price Index. The higher the income, the lower the benefit amount, until it reaches zero at a certain income limit. Therefore, eligibility for both GIS and Allowance for the Survivor depends on income level.

References: Canadian Investment Funds Course, Chapter 5: Registered Plans1

Grant’s appointment as Treasurer is considered an outside activity, regardless of whether he is compensated or not. According to the CIFC, Dealing Representatives must obtain their firm’s written approval before engaging in any outside activity that could interfere with their ability to perform their duties or create a conflict of interest with their clients or employer. Grant must disclose the nature and extent of his involvement with the Hockey Association and how it may affect his availability, reputation, or potential for conflicts of interest. The firm may approve, reject, or impose conditions on Grant’s outside activity.

References: Canadian Investment Funds Course, Chapter 8: Suitability and Know Your Client1

 A life income fund (LIF) is a type of registered retirement income fund (RRIF) that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income. A LIF cannot be withdrawn in a lump sum and has minimum and maximum withdrawal amounts each year. A LIF can only be funded by transferring money from a locked-in retirement account (LIRA) or another LIF. Therefore, D is the correct answer. References: Life Income Fund (LIF): Definition and How Withdrawals Work - Investopedia, Retraite Québec - Characteristics of an LIF

D is correct because Sujay’s registered retirement savings plan (RRSP) contribution room for the year will be reduced by $3,600. This is because his employer’s defined contribution pension plan is considered a registered pension plan (RPP), which affects his RRSP contribution room through a pension adjustment (PA). The PA is calculated as 18% of his earned income in the previous year minus his RPP contributions in the current year. In this case, Sujay’s PA for the current year is $3,600, which is 18% of his $60,000 salary minus his 3% contribution ($1,800) and his employer’s 3% contribution ($1,800). The PA reduces his RRSP contribution room for the next year by the same amount. It will have an effect on his RRSP contribution room (A), as it is not based on earned income only, but also on RPP contributions. It will not reduce his contribution room by $51,800 (B), as this is more than his earned income. It will not reduce his contribution room by $10,800 ©, as this is 18% of his earned income without subtracting his RPP contributions. References: Canadian Investment Funds Course (CIFC) | IFSE Institute

Your body language would be the most important to create an impressive first impression on your potential client. Body language is the non-verbal communication that includes your posture, gestures, facial expressions, eye contact, and physical distance. Body language can convey your confidence, enthusiasm, professionalism, and trustworthiness. According to research, body language accounts for 55% of the impact of a first impression, while tone of voice accounts for 38% and words account for only 7%. The other statements are less important than body language. Volume of your voice is part of your tone of voice, which can affect how your words are perceived by your potential client. However, volume alone is not enough to create an impressive first impression; you also need to consider your pitch, pace, and intonation. Your words are what you say to your potential client, which can include your introduction, your value proposition, and your questions. Your words are important to convey your message and establish rapport with your potential client. However, your words have less impact than your body language and tone of voice on your first impression. Tone of your voice is how you say your words, which can include your volume, pitch, pace, and intonation. Your tone of voice can influence how your potential client feels about you and your message. However, your tone of voice has less impact than your body language on your first impression. References: Unit 10: Sales Process, [The Importance Of Body Language In First Impressions]

 The “Know Your Product” obligation requires that Dealing Representatives understand all the products they purchase, sell or recommend for their clients, including their structure, features, risks, costs and suitability. Rehan has fulfilled this obligation by reviewing the features of the Hedge Fund and explaining them to Georgi, who may not be aware of the lock-up period and its implications. The other Dealing Representatives have failed to fulfill their obligation by either not knowing or not disclosing important information about the products they deal with.

References: Canadian Investment Funds Course, Chapter 7: Know Your Product1

Kiri has correctly fulfilled his suitability obligation by matching the risk-return profile of the fund with the personal circumstances of his client. The Conservative Bond Fund is a low-risk, low-return fund that pays regular interest income to investors. Myrtle’s investment objective is “income”, which means she wants to receive steady income from her investments and preserve her capital. Therefore, Kiri’s recommendation is reasonably suitable for Myrtle in all the circumstances. (Canadian Investment Funds Course, Chapter 2, Section 2.3)

References:

• Canadian Investment Funds Course, Chapter 2, Section 2.3: Conflicts of Interest
• IFSE Institute: Suitability Obligations1
• SFC: Frequently Asked Questions on Compliance with Suitability Obligations2

Discretionary trading is a type of trading activity where the advisor makes investment decisions on behalf of the client without obtaining the client’s prior consent for each transaction. Discretionary trading is only allowed if the client has signed a discretionary management agreement with the advisor and the advisor is registered as a portfolio manager. A limited authorization form (LAF) does not grant the advisor the authority to engage in discretionary trading. A LAF only allows the advisor to execute trades that are initiated by the client, such as pre-authorized contributions or withdrawals. Therefore, Khuyen has performed discretionary trading by switching Bao’s funds without consulting him, which is a violation of her registrant responsibilities and ethical standards. References:

• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.4: Ethics and Compliance, page 2-161
• Discretionary Trading Definition - Investopedia2

A Canadian equity index fund is a type of mutual fund that invests in a portfolio of stocks that track the performance of a Canadian stock market index, such as the S&P/TSX Composite Index. This fund would be the most tax-efficient option for Xerxes, because it has low turnover and generates mostly capital gains, which are taxed at a lower rate than interest income or dividends. A bond fund would generate interest income, which is taxed at the highest marginal rate. An asset allocation fund would have a mix of different types of investments, which may not be optimal for Xerxes’ tax situation. A target date fund would adjust its asset mix over time based on a predetermined retirement date, which may not match Xerxes’ goals or risk tolerance. (Canadian Investment Funds Course, Chapter 9, Section 9.2)

References:

• Canadian Investment Funds Course, Chapter 9, Section 9.2: Tax-Efficient Investing
• IFSE Institute: Tax-Efficient Investing1
• Investopedia: Tax-Efficient Investing2

A defined contribution pension plan (DCPP) is a type of retirement savings plan where the employer and/or employee make contributions to an individual account for the employee. The retirement benefits depend on the amount of contributions and the investment returns. Contributions to a DCPP reduce the employee’s available registered retirement savings plan (RRSP) contribution room, which is the maximum amount that can be contributed to an RRSP each year without tax penalties. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 9, Lesson 1

A normal yield curve is a graphical representation of the relationship between the interest rates and the maturities of different fixed income securities. It slopes upward to the right, meaning that longer-term bonds have higher yields than shorter-term bonds. This reflects the fact that investors demand higher compensation for lending money for longer periods of time and taking on more risk. A normal yield curve indicates that investors expect the economy to grow steadily and inflation to remain stable. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 4, Lesson 3

A Canadian equity index fund is a type of mutual fund that invests in stocks that track a Canadian equity market index, such as the S&P/TSX Composite Index or the S&P/TSX 60 Index. These indices measure the performance of the largest and most liquid companies listed on the Toronto Stock Exchange (TSX). A Canadian equity index fund aims to replicate the returns of the index it follows, before fees and expenses. Therefore, this type of fund would be best for Karen, who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She also wants a mutual fund that will closely match what she sees on the TSX. References: CIBC Canadian Equity Index ETF, Top Canadian Index Funds of 2023 | The Motley Fool Canada

According to the MFDA Rules, a Dealing Representative must not accept any purchase orders from a client until the Branch Manager or other designated person has reviewed and approved the New Client Application Form (NCAF) for the client. This is to ensure that the Dealing Representative has obtained and verified all the necessary information about the client, such as identity, investment objectives, risk tolerance, financial situation, and suitability of investments. The review and approval of the NCAF must be completed before any trades are executed for the client, unless there are exceptional circumstances that justify a delay. In this case, Quintin should have waited for Lupita’s approval of the NCAF before placing the purchase order for Reginald.

References: 1: MFDA Rules as at December 31, 2021 - MFDA 2 (Rule 2.2.4)

Know Your Client (KYC) requirements are ongoing obligations that advisors must fulfill to ensure that they provide suitable recommendations and services to their clients. KYC requirements include collecting and documenting information about the client’s personal and financial situation, investment objectives, risk tolerance, and investment knowledge. KYC requirements also include monitoring and updating the client’s information and investment performance on a regular basis. According to the Mutual Fund Dealers Association of Canada (MFDA), advisors must review the KYC information at least once every 36 months, or more frequently if there are any material changes in the client’s circumstances or needs1. Advisors must also monitor the investment performance of the client’s portfolio and compare it with the client’s expectations and goals. If the investment performance is not satisfactory or consistent with the client’s risk tolerance, advisors must take appropriate actions, such as rebalancing the portfolio, switching funds, or revising the investment strategy2. Therefore, Harold’s responsibility moving forward is to monitor the investment performance of Felicia’s lump sum investment and determine if it is on track to satisfy her financial needs for the next 5 years. He must also review her KYC information at least once every 36 months, or sooner if there are any changes in her situation or objectives. References:

• MFDA Bulletin #0756-P - Know-Your-Client and Suitability1
• MFDA Bulletin #0760-P - Monitoring of Investment Performance2

 Hamid is using a bottom-up investment approach, which focuses on the analysis of individual stocks rather than the overall market or industry trends. Hamid is looking for companies that have strong fundamentals and are undervalued by the market, regardless of their sector or macroeconomic factors. References: Investment Strategies to Learn Before Trading

A is correct because mortgage mutual funds typically pay monthly distributions of interest to their investors, as they invest in mortgages that generate regular interest income. If interest rates fall, the mutual fund’s net asset value per unit (NAVPU) will increase (B), not decline, as the value of the existing mortgages in the fund will rise. Mortgage mutual funds are suitable for low to moderate risk investors ©, not only for high risk investors, as they provide stable income and capital preservation. Mortgage mutual funds are not risk-free (D), even if the mortgages are National Housing Act (NHA) insured, as they still face credit risk, interest rate risk, and liquidity risk. References: Investment Funds in Canada (IFC) | Canadian Securities Institute

Kerry’s taxable income would be $98,000 ($100,000 - $2,000). Using the federal tax rates provided in the image, the first $48,535 of her income would be taxed at 15%, the next $48,534 at 20.5%, and the remaining $931 at 26%. This would result in a total federal tax payable of $18,754. You can see the calculation in detail below:

Taxable Income

Marginal Tax Rate

Federal Tax Payable

$0 - $48,535

15%

$7,280.25

$48,536 - $97,069

20.5%

$9,934.47

$97,070 - $98,000

26%

$539.80

Total

$18,754.52

Note: The final answer is rounded to the closest whole dollar.

References: Canadian Investment Funds Course, Unit 8, Section 8.2; [4]

The holding out rule is a regulatory requirement that prohibits registered individuals from using any title or designation other than their registration category when dealing with clients or potential clients. The purpose of this rule is to prevent misleading or confusing representations about the qualifications, roles, and responsibilities of registered individuals. According to Section 4.4 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), individuals who are registered to sell mutual funds must use the title “dealing representative” when holding out to clients or potential clients. Therefore, Ai Fen must prominently note “dealing representative” on her business card to comply with the holding out rule. The other options are not valid registration categories for selling mutual funds. Option B is a generic term that does not specify the type of securities that can be sold. Option C is a registration category for individuals who trade securities on behalf of an investment dealer. Option D is a professional designation that does not indicate registration status. References: [Holding Out Rule], [Registration Categories], [Registration Requirements, Exemptions and Ongoing Registrant Obligations]

Bonds and debentures are both types of debt instruments that can be issued by corporations or governments to raise capital. However, they differ in the way they are secured. Bonds are backed by the specific assets of the issuer, such as property, equipment, or inventory. This means that if the issuer defaults on the bond payments, the bondholders have a claim on those assets and can sell them to recover their money. Debentures, on the other hand, are not secured by any real assets or collateral. They are only backed by the general creditworthiness and reputation of the issuer. This means that if the issuer defaults on the debenture payments, the debenture holders have no recourse to any specific assets and have to rely on the issuer’s ability to pay from its future earnings or liquidation proceeds.

References: Canadian Investment Funds Course, Unit 5, Section 5.1

The value of John’s investment on December 31 of this year can be calculated by multiplying the number of units he holds by the net asset value per unit (NAVPU) on that date. Since John invested $500 on January 3 and $500 on July 1, he holds a total of 125.6 units (62.8 units from the first investment and 62.8 units from the second investment). Therefore, the value of his investment on December 31 will be 125.6 units x $9.55 NAVPU = $1,256.

References: Canadian Investment Funds Course, Chapter 2: Mutual Funds1

The Strategic Investment Planning (SIP) process is a four-step process that helps advisors to create and deliver customized investment plans for their clients. The four steps are:

• Clarify Client Status, Problems and Opportunities: This step involves gathering information about the client’s personal and financial situation, goals, risk tolerance, and investment knowledge. The advisor also identifies the client’s problems and opportunities, such as tax issues, estate planning needs, or market trends.
• Identify Strategies and Present the Plan: This step involves analyzing the information collected in the previous step and developing strategies to address the client’s problems and opportunities. The advisor also presents the plan to the client, explaining the rationale, benefits, costs, and risks of the proposed strategies. This is the stage where Sonya mentions factors such as inflation, interest rates, and rates of return, as they are relevant to the investment approaches she is offering to Elijah.
• Implement the Plan: This step involves executing the agreed-upon strategies with the client’s consent. The advisor also ensures that the necessary documentation and transactions are completed.
• Monitor and Update: This step involves reviewing the performance of the plan and making adjustments as needed. The advisor also communicates with the client regularly and updates the plan according to any changes in the client’s situation or goals.

References:

• Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.3: The Strategic Investment Planning (SIP) Process, page 2-81
• Strategic Investment Planning Process - IFSE Institute2

Retractable preferred shares are a type of preferred stock that lets the issuer force the redemption of the shares at a set price and time. The issuer can pay cash or common shares to the retractable preferred shareholders.

References = Retractable Preferred Shares: What it is, How it Works, Example, What are Retractable Preferred Shares? Definition, And How Does it Work? - CFAJournal, Retractable Preferred Shares | Example | Feature - Accountinguide

Michael, capital gains are the profits you make when you sell an asset that has increased in value. For example, if you bought a mutual fund for $1,000 and sold it later for $1,500, you have a capital gain of $500. Capital gains are taxed only when they are realized, which means when you actually sell the asset and receive the proceeds. You do not have to report any unrealized capital gains, which are the potential profits you would make if you sold the asset at its current market value. Capital gains are taxed on all types of mutual funds, not just equity funds. However, the amount of capital gains you have to report may vary depending on the type of fund and how often it distributes its gains to investors. Capital gains are not tax-free, but they are taxed at a lower rate than other types of income. You only have to pay tax on 50% of your net capital gains, which is the total capital gains minus the total capital losses in a year. For more information on how to calculate and report your capital gains, you can refer to the Canada Revenue Agency website1 or consult a tax professional.

References: Canadian Investment Funds Course, Chapter 9: Taxation of Investment Income2

A LIF is a type of registered retirement income fund that is used to hold and pay out locked-in pension funds. A LIF has both a minimum and a maximum withdrawal limit for each calendar year, which are determined by the federal or provincial pension legislation, the age of the annuitant, and the value of the fund. The minimum withdrawal limit is similar to that of a RRIF, but the maximum withdrawal limit is intended to ensure that the LIF provides income for the lifetime of the annuitant123

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.4: Life Income Fund (LIF)4 and web search results from search_web(query="maximum withdrawal limit for LIF RRSP RRIF DPSP")123

4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

A Registered Education Savings Plan (RESP) is a tax-advantaged savings plan that helps parents and family members save for a child’s post-secondary education. The government also contributes to the plan through the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), depending on the family income and the amount of contributions. However, there are some rules and limits that apply to RESP contributions and government grants. One of them is the lifetime contribution limit, which is the maximum amount that can be contributed to an RESP for a beneficiary from all sources. The lifetime contribution limit is $50,000 per beneficiary, regardless of how many RESPs are opened for them or who contributes to them. Therefore, statement A is correct. Justin and Yvonne may contribute a combined lifetime maximum of $50,000 for Grace to their RESP.

The other statements are incorrect for the following reasons:

• Statement B: RESPs are not tax-free investment plans. They are tax-deferred plans, meaning that the contributions are made with after-tax dollars and the investment income earned in the plan is not taxed until it is withdrawn as an educational assistance payment (EAP) for the beneficiary. The EAPs are taxed in the hands of the beneficiary, who usually has little or no income and pays little or no tax.
• Statement C: There is no annual contribution limit for RESP contributions. However, there is an annual limit for the CESG, which is 20% of the first $2,500 contributed per beneficiary per year, up to a maximum of $500 per year. The CESG also has a lifetime limit of $7,200 per beneficiary.
• Statement D: Contributions made to an RESP are not eligible for a tax deduction in the year they are contributed. They are made with after-tax dollars and do not reduce the contributor’s taxable income.

References: Canadian Investment Funds Course, Unit 9, Section 9.1

An IPP is a registered, defined-benefit pension plan that provides a fixed retirement benefit to the person designated in the plan. It is similar to an RRSP, but with some differences in contribution limits, deductions, and tax benefits. One of the main advantages of an IPP is that it allows higher contribution limits than an RRSP, especially for older and higher-income individuals. The contributions are based on the actuarial calculations of the pension benefit, and are tax-deductible for the sponsoring corporation. The higher contribution limits can help Fabiola catch up on her retirement savings and reduce her taxable income123

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.3: Individual Pension Plan (IPP) and web search results from search_web(query="individual pension plan")123

https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

 According to the Canadian Investment Funds Course, different types of investment income are taxed differently in Canada. Interest income is fully taxed at the marginal rate, while dividend income is favourably taxed with a dividend tax credit. Capital gains are taxed on 50% of the gain at the marginal rate, and foreign income is subject to withholding tax. Therefore, a tax-efficient strategy is to include interest paying investments, such as bonds or GICs, in the registered plan, where they can grow tax-deferred until withdrawal. Dividend paying investments, such as Canadian stocks or ETFs, should be included in the non-registered plan, where they can benefit from the lower tax rate and the dividend tax credit. Foreign income should also be avoided in the non-registered plan, unless it is held in a U.S. dollar account or a foreign currency hedged ETF, to reduce the impact of withholding tax and currency fluctuations.

References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)