FP Canada exams: CFP and QAFP

Priya and Sam own a home worth $600,000 and have $80,000 in RRSPs, $20,000 in TFSAs and a car worth $15,000. They owe $350,000 on their mortgage, $10,000 on a car loan and $5,000 on a credit card. What is their net worth?

$350,000 Net worth is total assets minus total liabilities. Their assets add up to $715,000 and their debts to $365,000, so their net worth is $350,000.

Elena has an RESP for her son, made up of her contributions, government grants and investment growth. When her son starts university and receives educational assistance payments (EAPs) made up of the grants and growth, who is taxed on them?

Her son, as the student EAPs, which come from the grants and the investment growth, are taxable income of the student. Students often have little other income, so they may pay little or no tax on them. Elena’s own contributions can come back to her tax-free, since she didn’t get a deduction for them.

Tom has $300 extra each month to pay down debt. He owes money on a credit card at 20% interest, a car loan at 6%, a line of credit at 9% and a mortgage at 5%. All have their minimum payments covered. To save the most interest, where should the extra $300 go first?

The credit card Putting extra money toward the debt with the highest interest rate saves the most interest. The credit card costs 20%, so every dollar paid off there saves more than a dollar paid toward any of the other debts.

A client holds a government bond paying a fixed 3% coupon. Since she bought it, interest rates on similar new bonds have risen to 5%. What has most likely happened to the market price of her bond?

It has fallen Bond prices move in the opposite direction to interest rates. New bonds now pay 5%, so a buyer will only take her 3% bond at a lower price. That lower price raises the yield for the new buyer.

Marie tells her planner she enjoys investing and isn’t bothered by big market swings. She has $40,000 saved for a home down payment she plans to make in 18 months. What is the most appropriate approach for this money?

Keep it in low-risk, liquid investments such as a high-interest savings account or short-term GICs Risk tolerance is how comfortable she is with swings. Risk capacity is how much loss her plans can absorb. With only 18 months until she needs the money for a fixed goal, her capacity to take risk with it is low, so it belongs in safe, liquid investments.

A client moves from owning shares in just two Canadian banks to a broadly diversified portfolio of stocks across many companies, sectors and countries. Which kind of risk does this mainly reduce?

Unsystematic (company-specific) risk Diversification spreads money across many holdings, so a problem at one company or sector does far less damage. That reduces unsystematic, or company-specific, risk. Market-wide risk remains, because a broad downturn affects most stocks at once.

Daniel owns a personal life insurance policy and names his wife as beneficiary. If he dies, how is the death benefit she receives generally treated for income tax?

It’s received tax-free In Canada, a life insurance death benefit paid to a named beneficiary is generally received tax-free. That’s one reason life insurance works well for replacing income or covering taxes and debts at death.

Aisha and Ben are both 32, have two young children and a new mortgage, and have a tight budget. They need a large amount of life insurance until the children are independent, about 20 years. Which type of coverage best fits?

Term life insurance Term insurance covers a set period and gives the most coverage for each premium dollar. Their need is large and temporary, lasting until the children are grown and the mortgage is smaller, so term fits both the need and the budget.

Raj is self-employed and pays the premiums on his individual disability insurance policy himself, with after-tax money. If he becomes disabled and receives monthly benefits, how are the benefits taxed?

Tax-free When the insured person pays disability premiums personally with after-tax money, the benefits are received tax-free. If an employer pays the premiums, the benefits are generally taxable to the employee instead.

Ana withdraws $10,000 from her TFSA in March 2026 to help pay for a wedding. She has no other TFSA activity. When is that $10,000 added back to her TFSA contribution room?

January 1, 2027 TFSA withdrawals are added back to your contribution room at the start of the next calendar year. Ana’s March 2026 withdrawal comes back on January 1, 2027. If she puts it back sooner without other unused room, she may over-contribute and owe a penalty tax.

Leo’s combined federal and provincial marginal tax rate is 40%, and his average tax rate is 25%. He makes a $5,000 RRSP contribution and deducts it this year. About how much tax does the deduction save him?

$2,000 A deduction removes income from the top of your income, where it would be taxed at your marginal rate. So the saving is $5,000 × 40% = $2,000, assuming the deduction doesn’t move him into a lower bracket. The average rate isn’t the right measure here.

Jordan, a first-time home buyer, opens a First Home Savings Account (FHSA). Which statement best describes how the FHSA is taxed?

Contributions are deductible, and qualifying withdrawals to buy a first home are tax-free The FHSA combines the best of both. Like an RRSP, contributions are deductible. Like a TFSA, a qualifying withdrawal to buy a first home is tax-free. Withdrawals that aren’t qualifying are taxable.

Gloria turns 71 this year and still has money in her RRSP. By what date must she convert it to a RRIF or an annuity, or withdraw it?

December 31 of the year she turns 71 An RRSP must end by December 31 of the year the owner turns 71. Most people convert it to a RRIF or buy an annuity so the money stays tax-deferred. If she does nothing, the full value can be treated as income.

Henri is deciding when to start his CPP retirement pension. Compared with starting at 65, what happens if he starts at 60?

His pension is permanently reduced CPP can start as early as 60, but the pension is permanently reduced by 0.6% for each month before 65. Starting at 60 means a pension 36% smaller than at 65, for life. Starting after 65 increases it by 0.7% a month, up to age 70.

Which factor mainly determines whether a person qualifies for the Old Age Security (OAS) pension and how much they receive?

The number of years they lived in Canada after age 18 OAS isn’t based on work history or contributions. It’s based on legal status and residence in Canada after age 18. Generally, 40 years of residence after 18 gives a full pension, and fewer years give a partial one. Higher-income seniors may have some or all of it recovered through the OAS recovery tax.

Mark contributed to a spousal RRSP for his wife, Lisa, in 2024. He hasn’t contributed to any spousal RRSP since. Lisa withdraws money from the plan in 2026. Who is generally taxed on the withdrawal?

Mark, up to the amount of his contributions in 2024 to 2026 A spousal RRSP withdrawal is taxed to the contributing spouse if he contributed to any spousal plan in the year of the withdrawal or the two calendar years before it. Here that’s 2024, 2025 and 2026, and Mark contributed in 2024, so the attribution rule applies to him, up to those contributions.

Grace named her son as her attorney under a continuing power of attorney for property, and named her daughter as executor in her will. After Grace dies, who has authority to deal with her property?

Her daughter, as executor under the will A power of attorney only works while the person is alive. It ends at death. From then on, the executor named in the will has authority to gather the assets, pay debts and taxes, and distribute the estate.

In Ontario, Wei and his adult daughter own a cottage as joint tenants with right of survivorship. Wei’s will leaves everything to be split between his two children. When Wei dies, what generally happens to the cottage?

It passes to his daughter as the surviving joint owner, outside the will With joint tenancy with right of survivorship, the surviving joint owner automatically becomes the sole owner. The property passes outside the will and the estate. That’s why joint ownership needs careful planning when a parent wants children treated equally.

A planner can recommend two investment products that both suit a client’s needs. One pays the planner a noticeably higher commission. What should the planner do?

Disclose the conflict of interest to the client, and recommend what’s in the client’s best interest FP Canada’s Standards of Professional Responsibility expect planners to put the client’s interests first and to disclose and manage conflicts of interest. A difference in pay is a conflict, so the client should know about it, and the recommendation must rest on what serves the client.

At a first meeting, a new client says she wants to ‘retire comfortably someday’ but can’t say when, or what ‘comfortably’ means. What should the planner do next?

Ask questions to clarify her goals, timeline and priorities before making recommendations Good recommendations depend on good information. The planner first has to collect and confirm the client’s goals, timeline and priorities, along with her financial facts. Only then can the analysis and recommendations fit her real situation.