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100+ Free CPA PEP Taxation Elective Practice Questions

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2026 Statistics

Key Facts: CPA PEP Taxation Elective Exam

90+

High-Level Topics Testable

CPA Canada Competency Map (Tax elective)

~25%

Objective-Format Portion

CPA PEP Module Exam Structure

4 hours

Module Exam Length

CPA PEP Examinations

Nov 30, 2025

2026 Reference Cut-off

CPA Canada 2026 Technical Update

50%

Capital Gains Inclusion Rate

CPA Canada 2026 Technical Update

2 of 4

Electives Required

CPA PEP Elective Modules

The CPA PEP Taxation elective is one of four electives (with Assurance, Performance Management, and Finance); candidates complete two. Its four-hour module exam combines objective-format questions (about 25%, roughly 15 items) with two cases. CPA Canada's Competency Map lists more than 90 high-level topics testable in Tax, the broadest elective. For 2026 exams the reference cut-off is November 30, 2025: the capital gains inclusion rate remains 50%, the lowest federal bracket was 15% substantively enacted (proposed 14%), and the LCGE on QSBC shares is about $1.25 million. The Income Tax Act, CPA Handbook, and CAS are provided in the exam.

Sample CPA PEP Taxation Elective Practice Questions

Try these sample questions to test your CPA PEP Taxation Elective exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under the Income Tax Act, what determines whether an individual is liable for Canadian income tax on their worldwide income?
A.Canadian citizenship
B.Residence in Canada
C.Ownership of Canadian property
D.Holding a Canadian passport
Explanation: Canadian income tax liability is based on residence, not citizenship. A person resident in Canada is taxed on worldwide income under section 2(1) of the ITA, while a non-resident is generally taxed only on Canadian-source income under section 2(3).
2An employee receives a non-cash gift of merchandise worth $400 and an award worth $300 from their employer in the same year (no other gifts). Under CRA's administrative policy, what amount is a taxable benefit?
A.$0
B.$200
C.$500
D.$700
Explanation: CRA's gifts and awards policy exempts non-cash gifts and awards up to a combined annual total of $500. The total here is $700, so only the excess of $200 over the $500 threshold is a taxable employment benefit.
3Which of the following is generally a deductible employment expense for a salaried employee who is required by contract to pay their own expenses and has a signed Form T2200?
A.Cost of commuting from home to the regular workplace
B.The full cost of a vehicle purchased for work
C.Clothing suitable for office wear
D.Professional membership dues required to maintain a professional status
Explanation: Annual professional membership dues necessary to maintain a professional status recognized by statute are deductible under paragraph 8(1)(i). Commuting is personal, capital cost of a vehicle is only deductible through CCA, and ordinary clothing is non-deductible personal expense.
4For 2026, what is the capital gains inclusion rate that applies to an individual realizing a $100,000 capital gain in Canada?
A.50%
B.66.67%
C.75%
D.25%
Explanation: The proposed increase to a two-thirds inclusion rate was deferred and ultimately not implemented; for 2026 the inclusion rate remains one-half. A $100,000 gain therefore produces a $50,000 taxable capital gain added to income.
5A taxpayer sells shares of a qualified small business corporation and realizes a large capital gain. Approximately what is the lifetime capital gains exemption (LCGE) limit available for 2026?
A.$913,630
B.$1,016,836
C.$1,250,000
D.$500,000
Explanation: The LCGE on QSBC shares was increased to $1,250,000 (and indexed thereafter) and applies for 2026. This exemption shelters eligible capital gains on qualified small business corporation shares from tax.
6Which of the following best describes the integration principle in the Canadian income tax system?
A.Combining federal and provincial returns into one filing
B.Merging GST and HST into a single tax
C.Ensuring income earned through a corporation and distributed to a shareholder bears roughly the same total tax as if earned directly
D.Consolidating a parent and subsidiary into one taxpayer
Explanation: Integration aims to make the combined corporate-plus-personal tax on income flowed through a corporation approximately equal to the tax an individual would pay earning that income directly. The dividend gross-up and dividend tax credit mechanisms implement this.
7An individual receives an eligible dividend of $1,000 from a Canadian public corporation. What is the grossed-up amount included in income for the eligible dividend gross-up?
A.$1,380
B.$1,000
C.$1,150
D.$1,250
Explanation: Eligible dividends are grossed up by 38%, so $1,000 becomes $1,380 included in income. This larger gross-up reflects the higher general corporate tax rate and is paired with a larger dividend tax credit to achieve integration.
8A non-eligible (ordinary) dividend of $2,000 is paid by a CCPC out of income taxed at the small business rate. What is the gross-up rate applied to non-eligible dividends?
A.38%
B.25%
C.15%
D.9%
Explanation: Non-eligible dividends, generally paid from income taxed at the lower small business rate, are grossed up by 15%. The $2,000 dividend is included as $2,300, paired with a smaller dividend tax credit than eligible dividends receive.
9What is the federal small business deduction (SBD) rate that reduces the corporate tax rate on active business income of a CCPC up to the business limit?
A.19%
B.13%
C.15%
D.10%
Explanation: The SBD reduces the basic federal corporate rate (after the general rate reduction baseline of 28% minus 10% abatement = 38% then to 15%) by 19 percentage points, bringing the federal rate on the first $500,000 of active business income to 9%.
10A CCPC earns $600,000 of active business income. What is the federal business limit for the small business deduction before any grind?
A.$400,000
B.$600,000
C.$1,000,000
D.$500,000
Explanation: The federal business limit for the small business deduction is $500,000 of active business income. Income above this limit (here $100,000) is taxed at the general corporate rate, subject to any associated-corporation sharing or grinds.

About the CPA PEP Taxation Elective Exam

The CPA PEP Taxation elective develops competence in providing Canadian tax services for individuals and corporations, covering compliance and planning under the Income Tax Act with exposure to partnerships, trusts, and GST/HST. The four-hour module final exam combines objective-format questions with two cases and is open-reference.

Assessment

Question count not published by the exam provider

Time Limit

Four hours (typically 9:00 a.m. to 1:00 p.m. local time)

Passing Score

No fixed public raw percentage; reported as Pass with distinction, Pass, Marginal pass, or Fail

Exam Fee

Module enrolment fee set by the provincial CPA body or regional delivery; no single national price is published (CPA Canada / provincial CPA bodies (regional delivery such as CPAWSB))

CPA PEP Taxation Elective Exam Content Outline

25-30%

Taxation of Individuals

Residence, employment income and benefits, business and property income, capital gains at the 50% inclusion rate, RRSP/TFSA/RESP, credits, AMT, departure tax, and the principal residence exemption.

25-30%

Corporate Taxation

CCPC status, small business deduction and business limit, taxable-capital and passive-income grinds, RDTOH, GRIP/CDA, Part IV tax, CCA and the accelerated investment incentive, recapture, and acquisition of control.

10-12%

Integration and Dividends

Eligible and non-eligible dividend gross-up, dividend tax credit, refundable taxes, and the integration principle aligning corporate and personal tax on flowed-through income.

12-15%

Tax Planning and Reorganizations

Salary versus dividend, attribution and TOSI, estate freezes, section 85 rollovers, QSBC purification and LCGE multiplication, surplus stripping (section 84.1), and shareholder benefits and loans.

8-10%

GST/HST

Registration and small supplier rules, taxable, zero-rated and exempt supplies, input tax credits and apportionment, place of supply, documentary requirements, and the quick method.

6-8%

Trusts, Estates and Death

Testamentary trusts and the graduated rate estate, the 21-year deemed disposition rule, deemed disposition on death, and the spousal rollover.

8-10%

Tax Compliance and Administration

Filing deadlines and instalments, balance-due dates, reassessment periods, objections and appeals, GAAR, director liability, voluntary disclosures, and professional conduct.

3-5%

Integrated Financial Reporting

The corporate tax provision, current versus deferred tax under IAS 12, and temporary versus permanent differences linking financial reporting with taxation.

How to Pass the CPA PEP Taxation Elective Exam

What You Need to Know

  • Passing score: No fixed public raw percentage; reported as Pass with distinction, Pass, Marginal pass, or Fail
  • Assessment: Question count not published by the exam provider
  • Time limit: Four hours (typically 9:00 a.m. to 1:00 p.m. local time)
  • Exam fee: Module enrolment fee set by the provincial CPA body or regional delivery; no single national price is published

Keys to Passing

  • Work through all 100 available questions
  • Review every answer and explanation
  • Track weak areas and revisit them
  • Use our AI tutor for tough concepts

CPA PEP Taxation Elective Study Tips from Top Performers

1Practice the objective-format questions for speed and accuracy, since they reward precise technical knowledge of the Income Tax Act.
2Learn the integration mechanics (gross-up, dividend tax credit, RDTOH, CDA, Part IV tax) cold, because they recur across both objective questions and cases.
3Know the November 30, 2025 reference cut-off and which 2026 measures are substantively enacted versus proposed.
4Rehearse two-case timing so you can allocate roughly 80 to 120 minutes per case and still finish the objective questions.
5Use the provided Income Tax Act efficiently by tabbing key sections (e.g., 85, 84.1, 55(2), 110.6, GST/HST registration) before exam day.
6Integrate financial reporting by linking the tax provision and deferred taxes to underlying temporary differences.

Frequently Asked Questions

What is the format of the CPA PEP Taxation elective exam?

The module final examination is a four-hour, open-reference, computer-based exam that combines objective-format questions (about 25% of the assessment, roughly 15 items) with two cases. Candidates are provided with the Income Tax Act, the CPA Canada Handbook, and the Canadian Auditing Standards.

How is the Taxation elective exam graded?

Results are reported on a Pass with distinction, Pass, Marginal pass, or Fail scale rather than a fixed public percentage. Transcripts show separate performance on the objective-format questions and the case portion.

Which topics are tested in the CPA Tax elective?

CPA Canada's Competency Map lists more than 90 high-level topics for the Tax elective. Core areas include taxation of individuals and corporations, integration and dividends, GST/HST, trusts and estates, tax planning, and tax compliance and administration, with some integrated financial reporting.

What reference date applies to the 2026 CPA PEP and CFE exams?

The 2026 PEP module exams and the CFE use a November 30, 2025 cut-off for substantively enacted legislation. Proposed but not yet enacted measures may be applied by candidates in case responses, and a supplementary rate table is provided.

What is the capital gains inclusion rate for 2026 CPA exams?

The capital gains inclusion rate remains 50% for 2026; the proposed increase to two-thirds was deferred and not implemented. A $100,000 capital gain therefore produces a $50,000 taxable capital gain.

Do I need to complete the Tax elective to become a CPA?

No. Candidates choose two of four electives (Assurance, Taxation, Performance Management, Finance). Both electives must be completed before Capstone 1, Capstone 2, and the Common Final Examination.

What is the lifetime capital gains exemption used in 2026?

The lifetime capital gains exemption on qualified small business corporation shares is about $1.25 million for 2026 and is indexed. It shelters eligible gains on QSBC shares and qualifying farm or fishing property.

How long does the Tax elective module exam run?

The module examination is four hours, typically scheduled from 9:00 a.m. to 1:00 p.m. local time. Time must be managed across both the objective-format questions and the two cases.