The PEP Tax module is arguably the toughest. You have to be prepared for quants, and I mean a lot of quants.
Below are my top 5 tips for Tax candidates:
1. Know the Blueprint
The CPA Canada’s elective blueprint gives the breakdown of the exam structure. Here are the competency allocations for the Tax module:
- Total Duration: 4 hours
- MCQ-portion
- Up to 30 questions
- Allow 40 minutes
- Competencies:
- Tax 100%
- Case-portion
- 2 cases
- 80-120 minutes in length (each)
- Allow 200 minutes
- Competencies:
- Tax 50% (from my experience, more likely 70-80%)
- FN or FR or S&G or MA 50% (from my experience, more likely 30-20%)
- Other notes
- You will have access to the Handbook (HB) and the Income Tax Act (ITA)
- New tax standards cut-off date is December 31 of the prior year
- Reference sheet for common tax formula are provided
- You will have access to the Handbook (HB) and the Income Tax Act (ITA)
2. Be Prepared to Study for Hours
Be prepared to spend more than the usual number of hours going through the cases. Most of the AOs have quants components, which means you need to debrief the excel solutions thoroughly.
- Plan to spend 15-25 hours per week studying
- Go through the ITA to understand its structure and where common things are (eg CCA rates).
- Deconstruct the excel solutions to understand the formula
- Make personal notes of the common topics (see below)
3. Write Schedule 1 Explanations in Excel
One of the most common topics tested in Tax is the Schedule 1. The case provides the accounting income and your task is to figure out the net income for tax purposes (NITP), taxable income (TI) and potentially tax payable (TP). Candidates often ask me if it’s required to write explanations for additions and deductions and if so, where is the best place to write them.
- All additions (eg amortization) and deductions (eg CCA) require explanations
- Keep your explanations in excel to help the marker tie your numbers to the analysis
- Explain WHY an item is allowed or disallowed, don’t write superficially
- Check out my interview with Matt, who passed the CFE with Honour Rolls, while writing depth in Tax.
4. Show Support for Calculations
If you want to get Competent (C), you need to show support for calculations. If the marker is confused, he/she will not take the time to dig through your complex spreadsheet,
- Your quants need references to suppose the calculations
- You can create “note 1”, “note 2”, etc, but it’s simpler to use letter annotations (eg A, B, C = A-B)
- Make sure to keep your annotations simple (time management is key)
5. Focus on these Tax Topics
Though the CPA Competency map for Tax is lengthy, and any of the testable materials can come up, these are the key topics to focus on:
- Section 85 rollover
- Acquisition of control
- Employer provided automobile – standby charge
- Employer provided automobile – operating benefit
- CCA
- Tax income/payable – individual
- Tax income/payable – corporation
- Deductibility of expenses(eg home office, meals, moving expenses, etc.)
- Common business expenses DISALLOWED
- Common business expenses ALLOWED
- Death/divorce of taxpayer
- Employee vs Contractor
- Residency
- Property Income
- Sales tax (GST) rules and deadlines
- Pros/cons of incorporating
- Salary vs. Dividends
- Filing and payment deadlines
Get More Mock Exam Practice Cases
I offer two (2) original CPA PEP Taxation mock exam practice cases that help you prepare for the tax module exam. My cases test you on new AOs and help you better prepare for the exam.
