SOLUTION MANUAL
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
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Chapter1 Taxation-Its Role in Decision Making
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Chapter2 Fundamentals of Tax Planning
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Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
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Chapter 4 Income from Employment
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Chapter 5 Income from Business
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Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
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Chapter7 Income from Property
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Chapter8 Gains and Losses on the Disposition of Capital Property-Capital Gains
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Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
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Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
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Chapter 11 Corporations-An Introduction
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Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
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Chapter 13 The Canadian-Controlled Private Corporation
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Chapter 14 Multiple Corporations and Their Reorganization
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Chapter 15 Partnerships
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Chapter 16 Limited Partnerships and Joint Ventures
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Chapter 17 Trusts
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Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
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Chapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
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Chapter 20 Domestic and International Business Expansion
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Chapter 21 Tax Aspects of Corporate Financing
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Chapter 22 Introduction to GST/HST
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Chapter 23 Business Valuations
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, CHAPTER 1 SO
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING SO SO SO SO SO SO
Review Questions SO
1. If income tax is imposed after profits have been determined, why is taxation relevant to busin
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ess decision making?
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2. Most business decisions involve the evaluation of alternative courses of action. For example, a
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marketing manager may be responsible for choosing a strategy for establishing sales in new g
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eographical territories. Briefly explain how the tax factor can be an integral part of this decisi
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on.
3. What are the fundamental variables of the income tax system that decision-
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makers should be familiar with so that they can apply tax issues to their areas of responsibility
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?
4. What is an ―after-tax‖ approach to decision making?
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Solutions to Review Questions
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1 Once profit is determined, the Income Tax Act determines the amount of income tax that resul
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ts. However, at all levels of management, alternative courses of action are evaluated.In many ca
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ses, the choice of one alternative over the other may affect both the amount and the timing of f
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uture taxes on income generated from that activity. Therefore, the person making those decision
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s has a direct input into future after-
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tax cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the ulti
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mate return on investment and, in turn, the value of the enterprise. Including the tax variable as
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Oa part of the formal decision process will ultimately lead to improved after-tax cash flow.
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2 Expansion can be achieved in new geographic areas through direct selling, or by establishing
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a formal presence in the new territory with a branch office or a separate corporation. The new t
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erritories may also cross provincial or international boundaries. Provincial income tax rates vary
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amongst the provinces. The amount of income that is subject to tax in the new province will b
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e different for each of the three alternatives mentioned above. For example, with direct selling,
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none of the income is taxed in the new province, but with a separate corporation, all of the inc
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ome is taxed in the new province. Because the tax cost is different in each case, taxation is a re
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levant part of the decision and must be included in any cost-
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benefit analysis that compares the three alternatives [Reg. 400-402.1].
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3 A basic understanding of the following variables will significantly strengthen a decision make
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r's ability to apply tax issues to their area of responsibility.
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Types of Income SO SO - Employment, Business, Property, Capital gains SO SO SO SO
, Taxable Entities SO - Individuals, Corporations, Trusts SO SO
Alternative Business SO - Corporation, Proprietorship, Partnership, Limited SO SO SO
Structures partnership, Joint arrangement, Income trust SO SO SO SO
Tax Jurisdictions SO - Federal, Provincial, Foreign SO SO
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4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or divestitur
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es, or debt and equity restructuring, will impact the amount and timing of the tax cost. Therefor
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e, cash flow exists only on an after tax basis, and, the tax impacts whetheror not the ultimat
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e result of the decision is successful. An after-tax approach to decision-
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making requires each decision-maker to think "after-
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tax" for every decision at thetime the decision is being made, and, to consider alternative cours
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es of action to minimizethe tax cost, in the same way that decisions are made regarding other t
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ypes of costs. SO SO
Failure to apply an after-S O SO SO S O
tax approach at the time that decisions are made may provideinaccurate information for evaluation,
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and, result in a permanently inefficient tax structure.
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CHAPTER 2 SO
FUNDAMENTALS OF TAX PLANNING SO SO SO
Review Questions SO
1. ―Tax planning and tax avoidance mean the same thing.‖ Is this statement true? Explain.
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2. What distinguishes tax evasion from tax avoidance and tax planning?
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3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way? Explain
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.
4. The purpose of tax planning is to reduce or defer the tax costs associated with financial transa
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ctions. What are the general types of tax planning activities? Briefly explain how each of the
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m may reduce or defer the tax cost.
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5. ―It is always better to pay tax later rather than sooner.‖ Is this statement true? Explain.
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6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always better for
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the individual to transfer their business to a corporation?
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7. ―As long as all of the income tax rules are known, a tax plan can be developed with certaint
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y.‖ Is this statement true? Explain.
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8. What basic skills are required to develop a good tax plan?
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9. An entrepreneur is developing a new business venture and is planning to raise equity capital fr
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