Financial Planning Body of Knowledge

The Financial Planning Body of Knowledge (FP-BoK) describes knowledge expected of CFP® professionals and QAFPTM professionals.

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Revision History

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This page contains all revisions that have been made to the Financial Planning Body of Knowledge (FP-BoK) and the case studies since this website was launched. The version label for the FP-BoK may be found on the Home page, About page, and each of the knowledge topic pages. The version label for each case study may be found on the first page of each case study PDF. Please note that the FP-BoK and each of the case study PDFs may have unique version labels as the version label on a particular case study is only updated if revisions have been made to that case study specifically.

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FP-BoK: Version 1.4.0, Updated 20200331

The following revisions were made to the FP-BoK under Version 1.4.0:


Knowledge Topic 8: Investments

Sub-Topic: Investment Objectives and Constraints
Knowledge is expected of both QAFP™ professionals and CFP® professionals.

Rationale

Content has been added to clarify the concepts of risk tolerance, suitability and risk capacity as they relate to each other. Specifically,

  1. An individual has one risk tolerance that is unique to their personality and which can be estimated
  2. Suitability of risk is a component of risk tolerance and primarily involves a client’s previous investment experience, level of financial knowledge and prior investment behaviour
  3. Risk capacity is specific to a goal and relates to the client’s financial ability to tolerate volatility and the quantum of assets available to fund the goal

Revision

The knowledge requirements under the sub-topic have been revised to include text as shown below in green:

  • Explain the elements that impact an individual’s investment risk profile 
    • Risk Tolerance
      • Willingness to accept risk (personal attitudes towards fluctuations in investment value)
    • Risk Capacity
      • Ability to accept risk (financial capacity to sustain fluctuations in investment value)
    • Need for risk (minimum amount of risk that must be incurred to earn the expected return which will achieve goal).
  • Explain the variables that may affect risk tolerance and risk capacity, such as:
    • Time horizon
    • Investment objective
    • Importance of investment to achievement of goal
    • Personal attitudes
    • Tolerance for downside volatility
      • Net worth
      • Amount of income
      • Stability of income
  • Explain the elements that impact investment suitability
    • client’s previous investment experience,
    • level of financial knowledge; and
    • prior investment behaviour

       

  • Explain that an individual has a single risk tolerance.
  • Explain that an individual may have different risk capacities for different goals


Knowledge Topic 9: Taxation

Sub-Topic: Taxation of Business Ownership Structures
Sub-Topic: Taxation of a Canadian Controlled Private Corporation

Knowledge is expected for CFP® professionals only.

Rationale

Budget 2019 created a new Refundable Dividend Tax on Hand (RDTOH) structure to eliminate a tax deferral advantage. The new rules allow a refund of RDTOH only where a private corporation pays non-eligible dividends, with an exception for RDTOH that arises from eligible portfolio dividends received by a corporation. To implement this change, a new RDTOH account is created. The existing structure is known as non-eligible RDTOH and the new will be eligible RDTOH.

A key distinction for receiving refunds of tax is whether a dividend paid is eligible or non-eligible, which is determined by whether the corporation’s income has been taxed at the general tax rate or has been subject to the small business deduction.

Budget 2019 also introduced a clawback of the Small Business Limit based on the amount of passive investment income received within a Canadian Controlled Private Corporation (CCPC). Passive income in excess of $50,000 reduces the Small Business Limit at a rate of $5 for each $1 of excess income so that the limit is reduced to $0 with passive income amounts of $150,000 or more. Once the Small Business Limit is $0, the Small Business Deduction (SMABUD) is unavailable. The clawback applies to aggregate passive income totals across connected corporations.

Revision

The knowledge requirements under the sub-topic have been revised to include text as shown below in green text:

  • Define a connected Canadian Controlled Private Corporation.
  • Explain the purpose and application of the Small Business Deduction
  • Define the Small Business Limit
  • Explain the effect of receiving passive income on the Small Business Limit for a Canadian Controlled Private Corporation

     

  • Define the Refundable Dividend Tax on Hand (RDTOH).
    • Non-eligible RDTOH
    • Eligible RDTOH


Knowledge Topic 9: Taxation

Sub-Topic: Income Splitting for Self-Employed Business Owners
Knowledge is expected for CFP® professionals only.

Rationale

New measures were recently introduced aimed to limit the tax benefits of income splitting where the recipient of the income is a related family member who may have limited contribution to the family business. The rules effectively expand the “kiddie tax” to apply to all family members.

The rules are complex and introduce several new terms to the tax act used to define individuals or situations that the Tax on Split Income (TOSI) rules will apply to. Income subject to the new tax rules is taxed at the highest marginal tax rate.

Revision

New knowledge requirements under the sub-topic have been added as shown below:

  • Identify that Tax on Split Income (TOSI) rules impact methods of income splitting
  • Explain how the Tax on Split Income (TOSI) rules impact methods of income splitting

     

  • Explain terms used in the application of TOSI rules, including:
    • Related business
    • Specified individual
    • Excluded amount
    • Excluded shares
    • Excluded business
    • Reasonable return


Knowledge Topic 9: Taxation

Sub-Topic: Estate Freezes
Knowledge is expected for CFP® professionals only.

Rationale

The recently announced Tax on Split Income (TOSI) rules may impact planning for estate freezes.

Revision

The knowledge requirements under the topic; Explain how each of the factors may impact the suitability of an estate freeze, such as; has been updated to include:

  • Tax on Split Income (TOSI) rules


Knowledge Topic 4: Registered Retirement Plans

Sub-Topic: Registered Retirement Savings Plans (RRSP)
Sub-Topic: Home Buyers Plan (HBP)

Knowledge is expected of both QAFP™ and CFP® professionals.

Rationale

Budget 2018 introduced the First Time Home Buyer Incentive, to be effective beginning September 2019. With this program, the Government of Canada provides:

  • 5% of a first-time buyer’s purchase of existing homes
  • 5% or 10% of a first-time buyer’s purchase of a new build

The incentive is available to first-time homebuyers with qualified annual incomes of $120,000 or less. A participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual income, limiting the home price to a maximum of $480,000. 

Revision

The knowledge requirements under the topic have been updated to include:

  • Explain the qualifying conditions to participate in the First Time Home Buyer Incentive program


Knowledge Topic 9: Taxation

Sub-Topic: Tax Consequences at Death
Sub-Topic: Taxation of the Deceased

Knowledge is expected of CFP® professionals only.

Rationale

Charitable donations are an important tax planning strategy, especially in estate planning as rules for claiming tax credits are expanded in the year of death. To adequately represent the topic, additional content was added to the section.

Revision

The knowledge requirements under the topic have been updated to include:

  • Explain how charitable donations may be used for a deceased taxpayer

     

  • Identify the availability of donation tax credits for:
    • donations of the deceased and
    • donations of the estate


Knowledge Topic 7: Economics

Sub-Topic: Macroeconomics
Sub-Topic: Macroeconomic Theory

Knowledge is expected of both QAFP™ and CFP® professionals only.

Rationale

The wording used in the section may not have reflected variability in economic cycles.

Revision

The knowledge requirements under the topic have been revised as shown below in green text:

  • Explain key economic trends, such as:
    • Globalization
    • Volatility in asset prices
    • Growing debt to GDP levels
    • Uncertainty in global markets
    • Economic stability/instability


Knowledge Topic 3: Credit and Debt

Sub-Topic: Instalment Credit Facilities
Sub-Topic: Loan from an Employer

Knowledge is expected of both QAFP™ and CFP® professionals.

Rationale

A tax deduction for a home relocation loan from an employer is no longer available.

Revision

The knowledge requirement; Identify that an employee may claim a tax deduction for a home relocation loan from an employer, has been removed.

 

FP-BoK: Version 1.3.0, Updated 20190318

The following revisions were made to the FP-BoK under Version 1.3.0:


Knowledge Topic 9: Taxation

Sub-Topic: Federal Tax Deductions for Self-Employed Business Owners
Knowledge is expected for CFP® professionals.

Rationale

Cumulative Eligible Capital (CEC) is now considered depreciable property, subject to Capital Cost Allowance (CCA) rules. CCA Class 14.1 was created for the purposes of tracking amounts related to the former CEC regime and for new Eligible Capital Property (ECP).

Revision

The section titled “Cumulative Eligible Property” has been removed.

 

Knowledge Topic 8- Investments

Sub-Topic: Investment Marketplace
Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

Rationale

Socially Responsible Investing (SRI) is an investment objective that combines both financial return and social/environmental good to bring about a positive change. SRI is a growing trend in the marketplace with increasing availability of products aligned to an SRI mandate.

Related to the notion of investing in a socially responsible manner is the use of additional criteria which, in combination with the traditional financial measurements, measure the Environmental, Social and Governance (ESG) factors of a company to attempt to determine the sustainability and ethical impact of an investment in the company or business.

Revision

The knowledge requirements under the topic, Explain key trends currently affecting investment advice, such as; has been updated to include:

  • Socially Responsible Investing (SRI) objectives
  • Environmental, Social and Governance (ESG) measurement

 

    Case Study – Protecting the Family: Version 1.0.1, updated 20180724

    Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

    Rationale

    • The case states that there is a family RESP which has $20,000 allocated to the seven year old child and $15,000 allocated to the five year old child. In the ‘Life Insurance Needs Analysis’ chart, when determining the amount of insurance required to protect each child’s education needs, $15,000 is used for child #1 and $20,000 is used for child #2.
    • The case states Pat is age 33 and Leslie is age 35. They are planning to protect their lifestyle until they retire at age 65. In the ‘Life Insurance Needs Analysis’ chart, when calculating retirement needs for Pat if Leslie dies, N=34 is used for the number of years for Leslie to reach age 65.

    Revisions

    • In subscript 4, the amount of existing education funds has been changed to $20,000 for child #1. In subscript 5, the amount of existing education funds has been changed to $15,000 for child #2 to match the case facts. The Life Insurance Needs Analysis chart was revised accordingly.
    • In subscript 6, when calculating retirement needs for Pat is Leslie dies, N=30 was used since Leslie is age 35 and is 30 years away from age 65. The Life Insurance Needs Analysis chart was revised accordingly
    • The addition within each column was revised to reflect the changed amounts resulting from the corrections.
    • On page 7, the amount of insurance coverage identified for Leslie was revised to $1.45 million

     

    Case Study – Breaking a Mortgage in Favour of Lower Interest Rates: Version 1.0.1, updated 20180724

    Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

    Rationale

    An error was identified in the chart on page 4, Calculations for ‘Five-Year Fixed Mortgage’, where the last line of the chart was incorrectly identified as the principal remaining at the end of a five year term. In fact, the chart was showing the principal remaining at the end of two years, to provide a comparison to the previous chart, ‘Calculations for Two-Year Fixed Mortgage’.

    Revision

    Wording was changed in the last line of the five-year chart on page 4 to read “Principal remaining at end of two years”.

     

    FP-BoK: Version 1.2.0, Updated 20180724

    The following revisions were made to the FP-BoK under Version 1.2.0:


    Knowledge Topic 2: Financial Analysis

    Sub-Topic: Financial Statements for a Business
    Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

    Rationale

    This sub-topic was previously titled “Financial Statements for an Organization”. “Organization” generally refers to both for-profit and non-profit entities. The word “Business” generally refers to for-profit entities. There exists a wide variety of financial statements for non-profit entities that can vary from standard generally accepted for-profit financial statements.

    Revision

    The word “organization” was replaced with the word “business” throughout this knowledge sub-topic.

     

    Knowledge Topic 7: Economics

    Sub-Topic: Macroeconomics
    Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

    Rationale

    The scope of crypto-currencies is growing rapidly and digital currencies are widely available. However, understanding of the securitization, creation, regulation and taxation of these currencies is not as widespread. To adequately represent the unique knowledge associated with this form of money, a sub-topic has been added to the Body of Knowledge.

    Revision

    A new article, Foundations of Money, has been added with the following knowledge expectations:

    • Explain the system that secures the modern money supply
    • Identify the nature of digital currency, such as;
      • Creation of digital money
      • Securitization of digital money
      • Regulation in Canada
      • Treatment for tax purposes in Canada
      • Risks of using digital money

     

    Knowledge Topic 8: Investments

    Sub-Topic: Foundations of Investment; Sub-Topic: Investment Marketplace
    Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

    Rationale

    Online investment management companies are rapidly growing and gaining prominence. It was suggested that the knowledge topics related to “Fin-tech” would be better located within the Investment Marketplace sub topic.

    Revision

    The following knowledge expectation has been removed from Sub-Topic: Foundations of Investments and added to Sub-Topic: Investment Marketplace:

    • Explain key trends currently affecting investment advice, such as;
      • Growth and use of robo-advisors
      • Fin-tech (financial technology) company offerings
      • Channels through which advice is available

       

      Knowledge Topic 9: Taxation

      Sub-Topic: Basic Income for Tax Purposes
      Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

      Rationale

      The taxation of a Deferred Salary Arrangement (SDA) was added to the Body of Knowledge. A SDA is a common salary arrangement in some professions where sabbatical leave can be accrued. The taxation of the deferred income can have different treatment depending on whether the arrangement is designated as ‘prescribed’.

      Revision

      Under Income Received by Employees, the following knowledge expectation was added:

      • Identify how a salary deferral arrangement (SDA) affects the taxation of income

       

      Knowledge Topic 11: Insurance

      Sub-Topic: Property and Casualty Insurance
      Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

      Rationale

      It was suggested that knowledge of identity theft insurance may not be adequately represented within the existing knowledge item of “cyber security insurance”. Cyber breach or data breach is when personal information is unintentionally exposed or disclosed. Identity theft is the application of the exposed data, using it to steal by mis-representing the personal information of another. Identity theft is commonly offered as a rider or as an inclusion to a homeowner or renter insurance policy.

      Revision

      Under Liability Insurance, the following knowledge expectation was added as follows:

      Bolded, green text below was added. 

      • Identify types of liability insurance, such as:
        • Commercial general liability insurance
        • Professional liability insurance (errors and omissions)
        • Cyber security insurance
        • Identity theft insurance
        • Environmental insurance
        • Executor insurance
        • Director insurance

         

      Case Study — Balancing Multiple Goals: Version 1.1.0, Updated 20171218

      Knowledge is expected of both FPSC Level 1®  and CFP® professionals.

      • The timelines in the case narrative and the related calculations were amended to be consistent.
      • Inflation calculations had been done on a simplified basis (rate of return – inflation rate). Since financial planners are expected to use the more technically correct [(interest rate – inflation rate)/(1 + inflation rate)] formula, inflation calculations were modified to use the correct formula.
      • The case narrative was modified to clarify how and when inflation adjustments were to be considered, and calculations were revised accordingly.
      • The case narrative was modified to clarify when payments were being made or received (beginning or end of period) and the calculations were revised to reflect the correct timing of payments.
      • The MERs were revised to account for the different fees of and individual plans, before and during retirement.
      • The average tax rate was adjusted to be consistent with the client’s taxable income.
      • The planning issues were addressed in the priority order presented in the case narrative and the strategies were adjusted accordingly.
      • The rates of return and inflation rates in the case narrative were adjusted to reflect monthly compounding and calculations were revised if needed to provide consistency.

       

      FP-BoK: Version 1.1.0, Updated 20171206

      The following revisions were made to the FP-BoK under Version 1.1.0:


      Knowledge Topic 11: Insurance

      Sub-Topic: Health Care Insurance
      Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

      Rationale

      The Health Insurance section was changed to correct the way private health services plans (PHSPs) are represented. S. 248(1) of the Income Tax Act defines a PHSP as a:

      • contract of insurance in respect of hospital expenses, medical expenses or any combination of such expenses, or
      • medical care insurance plan or hospital care insurance plan or any combination of such plans except provincial and federal government health care insurance plans.

      PHSPs are for reimbursement of expenses which would otherwise qualify as eligible medical expenses, including prescriptions, medical, dental, vision care and hospital expenses. PHSPs do not include employer-paid premiums for life, disability, critical illness or accidental death and dismemberment insurance nor in most cases employee assistance programs, unless the program is administered by authorized medical practitioners as defined by CRA.

      Revision

      Under Private Health Services Plans, the following knowledge expectation was revised as follows: 

      Bolded, green text below was added. Red, italicized text was removed.

      • Identify types of coverage generally provided by private health services plans, such as:
      • Extended health coverage (above government-provided benefits)
        • Prescription drug coverage
        • Ambulance service coverage
        • Increased level of hospital accommodation
        • Out-of-country medically required care coverage
        • Vision coverage
        • Auditory coverage
        • Paramedical services coverage
        • Special medical supplies (E.g. Artificial limbs, prosthetics, medical equipment)
      • Dental coverage
      • Employee Assistance Programs, where services are provided by an authorized medical practitioner, as defined by the CRA
      • Employee assistance programs (i.e. crisis intervention, counselling, health information)
      • Short-term disability insurance
      • Long-term disability coverage
      • Life insurance
      • Accidental death and dismemberment insurance
      • Critical illness insurance

       

      Sub-Topic: Foundations of Life Insurance

      Knowledge is expected of both FPSC Level 1® certificants and CFP® professionals.

      Rationale

      The Foundations of Life Insurance section was clarified to reflect the opportunity to take an advance on a life insurance policy under certain circumstances, which may typically include situations of a shortened life expectancy.

      Revision

      Under Life Insurance Contracts, the following knowledge expectation was removed:

      • Identify that an accelerated benefit may be available on a life insurance policy under certain circumstances

      A revised knowledge expectation was added:

      • Identify that an advanced benefit may be available on a life insurance policy under certain circumstances, such as a shortened life expectancy.

       

      Sub-Topic: Advanced Uses of Life Insurance

      Knowledge is expected of CFP®  professionals only.

      Rationale

      The Advanced Uses of Life Insurance section was revised to include an awareness of life settlements.

      Revision

      Under Advanced Uses of Life Insurance, the following knowledge expectation was added:

      • Identify that it may be possible to sell a life insurance policy to a third party, subject to jurisdictional legislation and regulation.

       

      Case Study—Structuring Income and Assets for a Business Owner:
      Version 1.0.1, Updated 20171206

      Knowledge is expected of CFP® professionals only.

      Rationale
      The knowledge expectations in this case, under Tax Planning, failed to take into account that child-care deductions cannot be made where the childcare provider is related and under the age of 18. Eligible childcare costs include day-care or babysitting, boarding school certain camp expenses. Medical expenses, education costs, clothing and transportation expenses are not eligible. You are also not allowed to deduct payments made to persons under 18 years of age who are related to you.

      Revision
      On page 1, Althea’s daughter’s (June) age was changed to 19:

      • Omar and Althea are parents to 12-year-old twins. Omar also has two children from a previous marriage–January, age 22, and June, age 19.

      Rationale
      This case referenced the Family Tax Cut, which was repealed for 2016 and later years. The case was revised to remove the Family Tax Cut.

      Revision
      The following knowledge expectation on page 2 was removed:

      • Family tax cut: Explain that the couple may qualify for the family tax cut, enabling up to $50,000 of Omar’s income to be taxed at Althea’s lower tax rate. This could increase the couple`s after-tax income by up to $2,000 per year. Direct Omar to the Canada Revenue Agency website for more details, including the tips on claiming the credit on their personal tax returns.

       

      Case Study—Tax Deductions and Income Splitting Opportunities:
      Version 1.0.1, Updated 20171206

      Knowledge is expected of both FPSC Level 1®  and CFP® professionals.

      Rationale
      This case referenced the Family Tax Cut, which was repealed for 2016 and later years. The case was revised to remove the Family Tax Cut.

      Revision
      The following Knowledge Expectation on page 4 was removed:

      • Explain that the Family Tax Cut credit is available to the couple, enabling Diane as the higher income spouse to transfer up to $50,000 of income to Peter for tax purposes. This would save the couple up to $2,000 in taxes per year. They should investigate this opportunity with their tax specialist.

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