Solutions Manual For Canadian Income Taxation Planning and Decision Making, 26th Edition Buckwold ||All Chapters

Solutions For Canadian Income Taxation
Planning and Decision Making, 26th Edition
Buckwold

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation,
v v v v v v v v




CHAPTER 1 v




TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
v v v v v v




Review Questions
v




1. If income tax is imposed after profits have been determined, why is taxation relevant to
v v v v v v v v v v v v v v


vbusiness decision making? v v




2. Most business decisions involve the evaluation of alternative courses of action. For
v v v v v v v v v v v


example, a marketing manager may be responsible for choosing a strategy for
v v v v v v v v v v v v


establishing sales in new geographical territories. Briefly explain how the tax factor can be
v v v v v v v v v v v v v v


an integral part of this decision.
v v v v v v




3. What are the fundamental variables of the income tax system that decision-makers should
v v v v v v v v v v v v


be familiar with so that they can apply tax issues to their areas of responsibility?
v v v v v v v v v v v v v v v




4. What is an “after-tax” approach to decision making?
v v v v v v v




. 1

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 26 Ed.
v v v v v v v v v




Instructor Solutions Manual Chapter One
v v v v

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, v v v v v v v v




Solutions to Review Questions
v v v




R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
v v v v v v v v v v v v v v v


results. However, at all levels of management, alternative courses of action are
v v v v v v v v v v v v


evaluated. In many cases, the choice of one alternative over the other may affect both the
v v v v v v v v v v v v v v v v


amount and the timing of future taxes on income generated from that activity. Therefore,
v v v v v v v v v v v v v v


the person making those decisions has a direct input into future after-tax cash flow.
v v v v v v v v v v v v v v


Obviously, decisions that reduce or postpone the payment of tax affect the ultimate
v v v v v v v v v v v v v


return oninvestment and, in turn, the value of the enterprise. Including the tax variable as
v v v v v v v v v v v v v v v v


a part of the formal decision process will ultimately lead to improved after-tax cash flow.
v v v v v v v v v v v v v v v




R1-2 Expansion can be achieved in new geographic areas through direct selling, or by
v v v v v v v v v v v v v


establishing a formal presence in the new territory with a branch office or a separate
v v v v v v v v v v v v v v v


corporation. The new territories may also cross provincial or international boundaries.
v v v v v v v v v v v


Provincial income tax rates vary amongst the provinces. The amount of income that is
v v v v v v v v v v v v v v


subject to tax in the new province will be different for each of the three alternatives
v v v v v v v v v v v v v v v v


mentioned above. For example, with direct selling, none of the income is taxed in the new
v v v v v v v v v v v v v v v v


province, but with a separate corporation, all of the income is taxed in the new province.
v v v v v v v v v v v v v v v v


Because the tax cost is different in each case, taxation is a relevant part of the decision and
v v v v v v v v v v v v v v v v v v


must be included in any cost-benefit analysis that compares the three alternatives [Reg.
v v v v v v v v v v v v v


400-402.1].
v




R1-3 A basic understanding of the following variables will significantly strengthen a decision
v v v v v v v v v v v v


maker's ability to apply tax issues to their area of responsibility.
v v v v v v v v v v v




Types of Income v v - Employment, Business, Property, Capital v v v




v gainsTaxable Entities v v - Individuals, Corporations, Trusts v v




Alternative Business v - Corporation, Proprietorship, Partnership, Limited v v v


Structures v partnership, Joint arrangement, Income trust v v v v




Tax Jurisdictions v - Federal, Provincial, Foreign v v




R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
v v v v v v v v v v v v


divestitures, or debt and equity restructuring, will impact the amount and timing of the tax
v v v v v v v v v v v v v v v


cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether or
v v v v v v v v v v v v v v v v v


not the ultimate result of the decision is successful. An after-tax approach to decision-
v v v v v v v v v v v v v v


making requires each decision-maker to think "after-tax" for every decision at thetime the
v v v v v v v v v v v v v


decision is being made, and, to consider alternative courses of action to minimizethe tax
v v v v v v v v v v v v v v v


cost, in the same way that decisions are made regarding other types of costs.
v v v v v v v v v v v v v v




Failure to apply an after-tax approach at the time that decisions are made may
v v v v v v v v v v v v v


provideinaccurate information for evaluation, and, result in a permanently inefficient tax
v v v v v v v v v v v v


structure.
v




. 2
Instructor Solutions Manual Chapter One
v v v v