FP2 Exam Dumps - Financial Planning II (FPII)

The appropriate contractual doctrine is frustration. Frustration arises where, after a valid contract has been formed and without fault attributable to the party relying on the doctrine, an unforeseen event fundamentally changes the nature of the contractual obligation or makes performance impossible.

The agreement contemplated Sage purchasing a particular building three months later. The destruction of that building by fire before completion eliminates the specific subject matter necessary for the contemplated transaction. Assuming neither party caused the destruction and the contract does not allocate the relevant risk differently, performance in the originally contemplated form has become impossible.

Canadian contract law recognizes frustration as a distinct basis on which contractual obligations may be discharged when subsequent circumstances make the original contractual undertaking impossible or fundamentally different. Supreme Court materials likewise recognize frustration as a doctrine applicable where an agreement becomes impossible to perform in its original form.

There has been no performance, so option C is incorrect. A breach requires failure by a party to perform an enforceable obligation; the facts instead involve destruction by an intervening event. “Operation of law” is too general and does not identify the specific doctrine.

FPII reference/topic: Financial Planning Practice — contract law; discharge of contracts; impossibility of performance; doctrine of frustration.

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Franco should transfer the funds to his own RRSP and maintain the tax-deferred accumulation until the statutory RRSP maturity deadline, then convert the account to a RRIF.

Franco is 66. An RRSP must mature no later than the end of the calendar year in which its annuitant reaches age 71. CRA therefore allows approximately another five years of RRSP tax deferral before Franco must withdraw the funds, purchase an eligible annuity, or transfer them to a Registered Retirement Income Fund.

Because he does not currently require income, immediate RRIF withdrawals would unnecessarily accelerate taxable retirement income. However, option B cannot be maintained until his wife retires in 10 years: Franco would then be approximately 76, well beyond the age at which his RRSP must mature.

A direct transfer to a spousal RRSP is not the appropriate mechanism for moving his existing group RRSP retirement assets. Leaving the funds indefinitely in the group arrangement also fails to recognize the age-71 maturity requirement.

Option C precisely matches the available time horizon: preserve RRSP tax deferral for about five years, then establish a RRIF.

FPII reference/topic: Retirement Planning — group RRSPs; RRSP maturity; age 71 conversion requirements; RRIF planning.

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The question specifically directs that the penalty be calculated using the three-month interest formula. The calculation is:

Outstanding mortgage balance × annual interest rate × 3/12

Therefore:

$250,000 × 5% × 3/12 = $3,125

The correct answer is option C.

Closed mortgages generally restrict the amount of principal that can be prepaid without charge. When the permitted prepayment privilege is exceeded, a prepayment penalty may apply. The Financial Consumer Agency of Canada explains that mortgage prepayment penalties are commonly calculated using either three months' interest or an interest rate differential, depending on the mortgage terms and lender's methodology.

The 36 months remaining in Fatima's term would be relevant if an interest-rate-differential calculation were required, but it does not alter the three-month interest calculation specified in the question.

The annual interest on the outstanding balance is:

$250,000 × 5% = $12,500

Three months represent one-quarter of a year:

$12,500 ÷ 4 = $3,125

Accordingly, the applicable penalty is $3,125.

FPII reference/topic: Savings Planning and Debt Management — mortgages; closed mortgages; prepayment privileges and penalties.

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A Supplemental Executive Retirement Plan is generally an unregistered deferred compensation arrangement designed to provide highly compensated employees with retirement benefits beyond limits available through registered retirement arrangements.

Where the SERP is structured as an unfunded or notional arrangement, the employer normally records the promised benefit as an obligation rather than receiving an immediate deduction for a funded registered-plan contribution. The employer's deduction generally arises when the benefit is ultimately paid and becomes taxable compensation to the executive. Canadian SERP structures commonly use this deferred-deduction treatment.

This is an important distinction from a registered pension plan. A SERP is not simply registered with CRA so that unrestricted deductible contributions may be made. Its principal purpose is precisely to supplement benefits limited by the tax rules governing registered retirement arrangements.

A funded SERP can also involve a Retirement Compensation Arrangement, which brings a separate tax regime, including refundable tax on contributions to the RCA custodian. Therefore, the precise tax consequences depend on funding structure.

For the examination scenario, option C describes the core tax consideration associated with a conventional unfunded SERP: the employer's tax deduction is deferred until the retirement benefit is paid.

FPII reference/topic: Retirement Planning — SERPs; executive compensation; deferred compensation; registered versus non-registered retirement arrangements.

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The applicable maximum is 50% of the payor's net amount under the ordinary support-deduction framework.

Ontario's Family Responsibility and Support Arrears Enforcement Act provides that the total amount deducted by an income source and remitted under a support deduction order generally must not exceed 50% of the net amount owed by the income source to the payor.

The “net amount” concept is important because the statutory limit does not simply mean 50% of gross salary. Required statutory deductions are taken into account in determining the amount available for enforcement.

The support obligation itself continues to exist even where enforcement through a particular income source is limited. Arrears can accumulate and other enforcement measures may become available. There are also specific statutory exceptions applying to certain lump-sum amounts and enforcement circumstances, so the 50% figure should be understood as the standard deduction limit tested by the question rather than an absolute limit in every possible enforcement proceeding.

Accordingly, among the four alternatives, 50% correctly represents the general maximum deduction against the payor's net income source for support enforcement.

FPII reference/topic: Family Law — child-support enforcement; support deduction orders; garnishment; limits on deductions from income.

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