Study Guide to CPA Canada Taxation Elective

CPA Canada’s Competency Map has over 90 high-level topics that can be tested on the Tax elective exam, compared with 75 in Finance, 47 in PM, and 25 in Audit. This is why students say that CPA Canada’s Taxation elective is the toughest module to pass.

In this post, I’ll discuss how to plan and prepare for the Tax elective module. You’ll learn about the module format, assignments, topics, exams, how it’s assessed, and study tips to help you pass. 

Related readings:

What’s Taxation elective?

After completing both Core modules in the CPA Canada Professional Education Program (PEP), you will select two elective modules from four possible choices: Assurance, Taxation, Performance Management (PM) and Finance. Completing two electives is required before completing the Capstones 1 and 2, and the Common Final Exam (CFE). Your two chosen electives can be completed in any order.

Tax module is designed to test on the competencies necessary to provide tax services and guidance. Although this elective is taken mostly by those working in public practice, or those wishing to become sole practitioners, anyone can take it. I encourage you to take this module if you’re interested in providing tax consulting or tax prep services, which can be very rewarding and provide opportunities for career growth.

While technical topics in the Core modules can still be tested in Tax elective (such as Assurance and Audit (AS), Financial Reporting (FR), Finance (FN), Strategy & Governance (SG)), the primary competency covered in the module is Tax. So expect almost all of AOs in the exam to be on taxation, with only 1-2 on other areas.

Examples of Tax topics include:

  • Tax income/payable calc – individual
  • Tax income/payable calc – corporation
  • CCA
  • Estate planning
  • Section 85 rollover
  • Section 86 estate freeze
  • Acquistion of control (AoC)
  • Rental income (specified investmnet business income)
  • PRE (principle residence exemption)
  • Sales tax (HST/GST/ITC) rules and deadlines
  • Attribution rules / NAL / TOSI
  • Employee vs Contractor
  • Salary vs Bonus
  • Pros/cons of incorporating

Similar to Core modules, Tax module is held in online format, with all assignments, readings and quizzes taken on the website Desire 2 Learn (D2L). You’ll get access to the materials about a week before the module start date.

How long is it?

The normal Tax module that most students take is 8 weeks long. There is extended version where you can complete it over a 5 -month period. This is good for students who prefer a slower pace of study.

You can also challenge the Tax module, where you skip the entire module and just take the exam. This is allowed only in special circumstances, such as for internationally trained accountants under MRA/MOU.

Is there an instructor?

Similar to Core modules, there is an online facilitator

Tax module has a Module Workshop (MWS). This mandatory two-day event has presentations and activities by a session leader. The activities include review of technicals and case writing. I previously worked as a session leader with CPA Canada.

Before attending the workshop, you must complete and submit pre-work to D2L dropbox.

What are the assignments?

Tax module has weekly assignments that consist of:

  • Multiple-choice questions (MCQs)
  • Integrative problems (IPs)
  • Practice cases (PCs)

MCQs are small problem-based questions that test on technicals.

Below is an example of Tax MCQ:

Below is an example of Tax IP:

The PCs range from 80-minute to 120-minutes, they are designed to simulate the actual Tax elective exam.

Below is an example of Tax PC:

Majority of students find the Tax exam to be harder than the PCs, so I suggest practicing with retired exam cases (discussed below) and mock exam simulations.

You will also be provided with retired exam cases (actual cases from past module exams). I recommend to practice them under time-constraint to see how ready you are for the final exam.

How is it graded?

Unlike Core modules, where you had 5 AOs, Tax module cases will have 6 to 8 AOs.

To be eligible to write the exam (discussed below), you need to get at least 75% total grade from your weekly assignments. The course is weighed as follows:

  • IPs: 30%
  • PCs: 30%
  • Unit quizzes and MWS pre-work: 30%
  • MWS participation: 10%

You should not worry about getting this 75% threshold. Most student reach the 75% mark and get to write the exam; the real challenge is passing the exam.

What’s module syllabus?

The syllabus lists the weekly readings and assignments. You can use the syllabus as a checklist and narrow down topics to study. To download the syllabus, click here.

What is the Tax exam like?

The Tax elective exam is 4 hours and consists of 15 MCQs and two cases for a total of 200 minutes. The maximum time for any one case will not be more than 120 minutes and the minimum will not be any less than 80 minutes.

All four electives (Assurance, PM, Finance, Tax) have this examination format (15 MCQ, 2 cases), which is different from Core modules, where you had 75 MCQs and one case. As you can see, the focus is being shifted from MCQs to case writing. In the CFE, it’s only cases.

Below is the exam blueprint that shows the weighing of the 4 technical competencies tested in Tax MCQs. As you can see, it’s 100% Tax focused:

For the cases portion the majority of AOs will be Tax, plus 1 or 2 other competency areas (ie, Assurance, Finance, FR, SG). While these other competencies can officially make up 50% of the cases, it’s typically around 20-30%, so only 1 or 2 AOs in each case.

All prior learnings from Core 1 and Core 2 are still testable in your exam. I provide estimates on what I think will come up in the Tax exam in my Tax Lessons course.

You will be provided with the CPA Canada Handbook (ASPE and IFRS), the Canadian Auditing Standards (CAS) and the Income Tax Act (ITA) during the exam.

How many tries do I get?

Similar to Core 1/2 modules, you have 3 attempts to pass.  However, unlike core modules, after 3 unsuccessful tries, you don’t get de-registered from the elective. Instead, you can switch your elective and try 3 more times in a different elective. 

What are the textbooks?

The Tax module follows the same Learning EBooks as in Core modules. Here is more information on how to download the CPA Canada Learning eBooks.

Unlike Core modules, the “cheat sheet” given in the exam will NOT have the common ratios. You can download and compare Core and Elective cheat sheets (“Examination Reference Schedules”) here.

What should I study?

Because this is an elective level exam, the biggest portion is corresponding to that elective. I suggest spending most of your time studying the Tax topics, including all EBook Tax chapters. This is necessary because electives test depth of knowledge, so the complexity of the AOs is higher than what you’ve seen in Cores.

As you will get two cases, it’s common for one case to be focused on personal tax issues, while the other on corporate tax.

You will be provided with the Income Tax Act (ITA) during the exam, but it’s hard to navigate, so I don’t suggest relying on it. Instead, you should study and memorize as many concepts as you can during your prep. I still do suggest going through the ITA  to understand the structure and where common things are found (i.e. CCA rates, tax credits). 

I wrote additional Tax elective tips here.

What’s the Tax pass rate?

The Tax pass rate is around 88%. 

Why do students fail Tax?

Statistically, more students pass Tax than the Core modules (see pass rate above). However, Tax also has the lowest pass rate of all 4 elective exams. Here are the top challenges students face:

1) Complex Tax topics. While Tax was tested at routine/core level in Core 1, you’ll get challenging, non-routine Tax topics in the module. These topics take more time to understand. Some examples of complex topics include:

  • Section 85 rollover
  • Full personal and corporate tax returns (Part IV tax)
  • RDTOH calculation
  • Acquisition of control

2) Big picture/implications. Besides performing quant and qual analysis, you’re expected to keep the big picture in mind and speak about the implications. For example, if the individual hasn’t submitted their tax return in time, it’s not enough to only give the deadline, you must also say that the taxpayer should file as soon as possible to avoid penalties. Another example is when recommending employee vs contractor classification, you should discuss the implications of the classification (for example CPP collections). Another example is Schedule 1. When asked to determine net income for tax purposes (NITP), you must explain WHY certain items are allowed or disallowed in Schedule 1.

This takes time to learn and requires critical thinking during the exam.

3) Quant templates. Tax has many calculations that you’ll perform in Excel and show support for. For example, corp/personal tax returns, CCA, PRE, standby and operating benefits. Applying quants templates correctly can be challenging for students. Debriefing the cases and determining the best format to lay out in your quants will help with this.

4) Time management. Like other modules, Tax is a self-lead course, which means you are responsible for managing your time, planning your readings, and understanding the material. Because the exam will have two cases, you must watch your time carefully.

5) Volume of study. Since Tax is a technical and quants-heavy, students find the volume of materials to go through, and time required to debrief cases, to be overwhelming. This means you’ll need to allocate more time to studying and be strict with your schedule to ensure you have enough time to prepare. Expect to spend up to 15-25 hours per week in this module.

Overall, complex and high volume of tax technical, lack in big picture discussions, not applying templates correctly, and time management are the biggest reasons students fail.

Do I need a tutor?

Hiring a tutor is a personal preference and it depends on your circumstances. A CPA tutor brings their expertise, helping to identify your weaknesses, reinforce your strengths, teach complex topics, reveal what topics are most tested, thus helping you speed up your study time and increase your chances of passing the exam.

If you attempt Tax by yourself and don’t pass it, I suggest that you consider getting a tutor. But if you are successful, then you can keep doing what works for you.

Extra resources

Extra Tax resources are available at Tax Lessons course.