SOLUTION MANUAL
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
q q
Chapter1qTaxation-ItsqRoleqinqDecisionqMaking
Chapter2qFundamentalsqofqTaxqPlanning
Chapterq3qLiabilityqforqTax,qIncomeqDetermination,qandqAdministrationqofqtheqIncomeqTaxqSystem
Chapterq4qIncomeqfromqEmployment
Chapterq5qIncomeqfromqBusiness
Chapterq6qTheqAcquisition,qUse,qandqDisposalqofqDepreciableqProperty
Chapter7qIncomeqfromqProperty
Chapter8qGainsqandqLossesqonqtheqDispositionqofqCapitalqProperty-CapitalqGains
Chapterq9qOtherqIncome,qOtherqDeductions,qandqSpecialqRulesqforqCompletingqNetqIncomeqforqTaxqPurposes
Chapterq10qIndividuals:qDeterminationqofqTaxableqIncomeqandqTaxesqPayable
Chapterq11qCorporations-AnqIntroduction
Chapterq12qOrganization,qCapitalqStructures,qandqIncomeqDistributionsqofqCorporations
Chapterq13qTheqCanadian-ControlledqPrivateqCorporation
Chapterq14qMultipleqCorporationsqandqTheirqReorganization
Chapterq15qPartnerships
Chapterq16qLimitedqPartnershipsqandqJointqVentures
Chapterq17qTrusts
Chapterq18qBusinessqAcquisitionsqandqDivestitures-AssetsqversusqShares
Chapterq19qBusinessqAcquisitionsqandqDivestitures-Tax-DeferredqSales
Chapterq20qDomesticqandqInternationalqBusinessqExpansion
Chapterq21qTaxqAspectsqofqCorporateqFinancing
Chapterq22qIntroductionqtoqGST/HST
Chapterq23qBusinessqValuations
, CHAPTERq1
TAXATION―qITSqROLEqINqBUSINESSqDECISIONqMAKING
ReviewqQuestions
1. Ifqincomeqtaxqisqimposedqafterqprofitsqhaveqbeenqdetermined,qwhyqisqtaxationqrelevantqtoqbusinessq
decisionqmaking?
2. Mostqbusinessqdecisionsqinvolveqtheqevaluationqofqalternativeqcoursesqofqaction.qForqexample,qaqm
arketingqmanagerqmayqbeqresponsibleqforqchoosingqaqstrategyqforqestablishingqsalesqinqnewqgeogra
phicalqterritories.qBrieflyqexplainqhowqtheqtaxqfactorqcanqbeqanqintegralqpartqofqthisqdecision.
3. Whatqareqtheqfundamentalqvariablesqofqtheqincomeqtaxqsystemqthatqdecision-
makersqshouldqbeqfamiliarqwithqsoqthatqtheyqcanqapplyqtaxqissuesqtoqtheirqareasqofqresponsibility?
4. Whatqisqanq―after-tax‖qapproachqtoqdecisionqmaking?
SolutionsqtoqReviewqQuestions
R1-
1qOnceqprofitqisqdetermined,qtheqIncomeqTaxqActqdeterminesqtheqamountqofqincomeqtaxqthatqresults.
qHowever,qatqallqlevelsqofqmanagement,qalternativeqcoursesqofqactionqareqevaluated.qInqmanyqcases,qt
heqchoiceqofqoneqalternativeqoverqtheqotherqmayqaffectqbothqtheqamountqandqtheqtimingqofqfutureqtax
esqonqincomeqgeneratedqfromqthatqactivity.qTherefore,qtheqpersonqmakingqthoseqdecisionsqhasqaqdire
ctqinputqintoqfutureqafter-
taxqcashq flow.qObviously,qdecisionsqthatqreduceqorqpostponeqtheqpaymentqofqtaxqaffectqthequltimate
qreturnqonqinvestmentqand,qinqturn,qtheqvalueqofqtheqenterprise.qIncludingqtheqtaxqvariableqasqaqpartqo
fqtheqformalqdecisionqprocessqwillqultimatelyqleadqtoqimprovedqafter-taxqcashqflow.
R1-
2qExpansionqcanqbeqachievedqinqnewqgeographicqareasqthroughqdirectqselling,qorqbyqestablishingqaqf
ormalqpresenceqinqtheqnewqterritoryqwithqaqbranchqofficeqorqaqseparateqcorporation.qTheqnewqterritor
iesqmayqalsoqcrossqprovincialqorqinternationalqboundaries.qProvincialqincomeqtaxqratesqvaryqamongs
tqtheqprovinces.qTheqamountqofqincomeqthatqisqsubjectqtoqtaxqinqtheqnewqprovinceqwillqbeqdifferentqf
orqeachqofqtheqthreeqalternativesqmentionedqabove.qForqexample,qwithqdirectqselling,qnoneqofqtheqinc
omeqisqtaxedqinqtheqnewqprovince,qbutqwithqaqseparateqcorporation,qallqofqtheqincomeqisqtaxedqinqthe
qnewqprovince.qBecauseqtheqtaxqcostqisqdifferentqinqeachqcase,qtaxationqisqaqrelevantqpartqofqtheqdeci
sionqandqmustqbeqincludedqinqanyqcost-
benefitqanalysisqthatqcomparesqtheqthreeqalternativesq[Reg.q400-402.1].
R1-
3qAqbasicqunderstandingqofqtheqfollowingqvariablesqwillqsignificantlyqstrengthenqaqdecisionqmaker's
qabilityqtoqapplyqtaxqissuesqtoqtheirqareaqofq responsibility.
TypesqofqIncome - Employment,qBusiness,qProperty,qCapitalqgains
TaxableqEntities - Individuals,qCorporations,qTrusts
, AlternativeqBusiness - Corporation,qProprietorship,qPartnership,qLimited
Structures partnership,qJointqarrangement,qIncomeqtrust
TaxqJurisdictions - Federal,qProvincial,qForeign
R1-
4qAllqcashqflowqdecisions,qwhetherqrelatedqtoqrevenues,qexpenses,qassetqacquisitionsqorqdivestitures,
qorqdebtqandqequityqrestructuring,qwillqimpactqtheqamountqandqtimingqofqtheqtaxqcost.q Therefore,q cas
hq flowq existsq onlyq onq anq afterq taxq basis,q and,q theq taxq impactsq whetherqorqnotqthequltimateqresultqofq
theqdecisionqisqsuccessful.qAnqafter-taxqapproachqtoqdecision-makingqrequiresqeachqdecision-
makerqtoqthinkq"after-
tax"qforqeveryqdecisionqatqtheqtimeqtheqdecisionqisqbeingqmade,qand,qtoqconsiderqalternativeqcoursesq
ofqactionqtoqminimizeqtheqtaxqcost,qinqtheqsameqwayqthatqdecisionsqareqmadeqregardingqotherqtypesqo
fqcosts.
Failureq toq applyq anq after-
taxq approachq atq theq timeq thatq decisionsq areq madeq mayq provideqinaccurateqinformationqforqevaluation,qand,qr
esultqinqaqpermanentlyqinefficientqtaxqstructure.
CHAPTERq2
FUNDAMENTALSqOFqTAXqPLANNING
ReviewqQuestions
1. ―Taxqplanningqandqtaxqavoidanceqmeanqtheqsameqthing.‖qIsqthisqstatementqtrue?qExplain.
2. Whatqdistinguishesqtaxqevasionqfromqtaxqavoidanceqandqtaxqplanning?
3. DoesqCanadaqRevenueqAgencyqdealqwithqallqtaxqavoidanceqactivitiesqinqtheqsameqway?qExplain.
4. Theqpurposeqofqtaxqplanningqisqtoqreduceqorqdeferqtheqtaxqcostsqassociatedqwithqfinancialqtransacti
ons.qWhatqareqtheqgeneralqtypesqofqtaxqplanningqactivities?qBrieflyqexplainqhowqeachqofqthemqmay
qreduceqorqdeferqtheqtaxqcost.
5. ―Itqisqalwaysqbetterqtoqpayqtaxqlaterqratherqthanqsooner.‖qIsqthisqstatementqtrue?qExplain.
6. Whenqcorporateqtaxqratesqareq13%qandqtaxqratesqforqindividualsqareq40%,qisqitqalwaysqbetterqforqth
eqindividualqtoqtransferqtheirqbusinessqtoqaqcorporation?
7. ―Asqlongqasqallqofqtheqincomeqtaxqrulesqareqknown,qaqtaxqplanqcanqbeqdevelopedqwithqcertainty.‖qI
sqthisqstatementqtrue?qExplain.
8. Whatqbasicqskillsqareqrequiredqtoqdevelopqaqgoodqtaxqplan?
9. Anqentrepreneurqisqdevelopingqaqnewqbusinessqventureqandqisqplanningqtoqraiseqequityqcapitalqfro
mqindividualqinvestors.qTheirqadviserqindicatesqthatqtheqventureqcouldqbeqstructuredqasqaqcorporati
onq(i.e.,qsharesqareqissuedqtoqtheqinvestors)qorqasqaqlimitedqpartnershipq (i.e.,q partnershipq unitsq areq
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
q q
Chapter1qTaxation-ItsqRoleqinqDecisionqMaking
Chapter2qFundamentalsqofqTaxqPlanning
Chapterq3qLiabilityqforqTax,qIncomeqDetermination,qandqAdministrationqofqtheqIncomeqTaxqSystem
Chapterq4qIncomeqfromqEmployment
Chapterq5qIncomeqfromqBusiness
Chapterq6qTheqAcquisition,qUse,qandqDisposalqofqDepreciableqProperty
Chapter7qIncomeqfromqProperty
Chapter8qGainsqandqLossesqonqtheqDispositionqofqCapitalqProperty-CapitalqGains
Chapterq9qOtherqIncome,qOtherqDeductions,qandqSpecialqRulesqforqCompletingqNetqIncomeqforqTaxqPurposes
Chapterq10qIndividuals:qDeterminationqofqTaxableqIncomeqandqTaxesqPayable
Chapterq11qCorporations-AnqIntroduction
Chapterq12qOrganization,qCapitalqStructures,qandqIncomeqDistributionsqofqCorporations
Chapterq13qTheqCanadian-ControlledqPrivateqCorporation
Chapterq14qMultipleqCorporationsqandqTheirqReorganization
Chapterq15qPartnerships
Chapterq16qLimitedqPartnershipsqandqJointqVentures
Chapterq17qTrusts
Chapterq18qBusinessqAcquisitionsqandqDivestitures-AssetsqversusqShares
Chapterq19qBusinessqAcquisitionsqandqDivestitures-Tax-DeferredqSales
Chapterq20qDomesticqandqInternationalqBusinessqExpansion
Chapterq21qTaxqAspectsqofqCorporateqFinancing
Chapterq22qIntroductionqtoqGST/HST
Chapterq23qBusinessqValuations
, CHAPTERq1
TAXATION―qITSqROLEqINqBUSINESSqDECISIONqMAKING
ReviewqQuestions
1. Ifqincomeqtaxqisqimposedqafterqprofitsqhaveqbeenqdetermined,qwhyqisqtaxationqrelevantqtoqbusinessq
decisionqmaking?
2. Mostqbusinessqdecisionsqinvolveqtheqevaluationqofqalternativeqcoursesqofqaction.qForqexample,qaqm
arketingqmanagerqmayqbeqresponsibleqforqchoosingqaqstrategyqforqestablishingqsalesqinqnewqgeogra
phicalqterritories.qBrieflyqexplainqhowqtheqtaxqfactorqcanqbeqanqintegralqpartqofqthisqdecision.
3. Whatqareqtheqfundamentalqvariablesqofqtheqincomeqtaxqsystemqthatqdecision-
makersqshouldqbeqfamiliarqwithqsoqthatqtheyqcanqapplyqtaxqissuesqtoqtheirqareasqofqresponsibility?
4. Whatqisqanq―after-tax‖qapproachqtoqdecisionqmaking?
SolutionsqtoqReviewqQuestions
R1-
1qOnceqprofitqisqdetermined,qtheqIncomeqTaxqActqdeterminesqtheqamountqofqincomeqtaxqthatqresults.
qHowever,qatqallqlevelsqofqmanagement,qalternativeqcoursesqofqactionqareqevaluated.qInqmanyqcases,qt
heqchoiceqofqoneqalternativeqoverqtheqotherqmayqaffectqbothqtheqamountqandqtheqtimingqofqfutureqtax
esqonqincomeqgeneratedqfromqthatqactivity.qTherefore,qtheqpersonqmakingqthoseqdecisionsqhasqaqdire
ctqinputqintoqfutureqafter-
taxqcashq flow.qObviously,qdecisionsqthatqreduceqorqpostponeqtheqpaymentqofqtaxqaffectqthequltimate
qreturnqonqinvestmentqand,qinqturn,qtheqvalueqofqtheqenterprise.qIncludingqtheqtaxqvariableqasqaqpartqo
fqtheqformalqdecisionqprocessqwillqultimatelyqleadqtoqimprovedqafter-taxqcashqflow.
R1-
2qExpansionqcanqbeqachievedqinqnewqgeographicqareasqthroughqdirectqselling,qorqbyqestablishingqaqf
ormalqpresenceqinqtheqnewqterritoryqwithqaqbranchqofficeqorqaqseparateqcorporation.qTheqnewqterritor
iesqmayqalsoqcrossqprovincialqorqinternationalqboundaries.qProvincialqincomeqtaxqratesqvaryqamongs
tqtheqprovinces.qTheqamountqofqincomeqthatqisqsubjectqtoqtaxqinqtheqnewqprovinceqwillqbeqdifferentqf
orqeachqofqtheqthreeqalternativesqmentionedqabove.qForqexample,qwithqdirectqselling,qnoneqofqtheqinc
omeqisqtaxedqinqtheqnewqprovince,qbutqwithqaqseparateqcorporation,qallqofqtheqincomeqisqtaxedqinqthe
qnewqprovince.qBecauseqtheqtaxqcostqisqdifferentqinqeachqcase,qtaxationqisqaqrelevantqpartqofqtheqdeci
sionqandqmustqbeqincludedqinqanyqcost-
benefitqanalysisqthatqcomparesqtheqthreeqalternativesq[Reg.q400-402.1].
R1-
3qAqbasicqunderstandingqofqtheqfollowingqvariablesqwillqsignificantlyqstrengthenqaqdecisionqmaker's
qabilityqtoqapplyqtaxqissuesqtoqtheirqareaqofq responsibility.
TypesqofqIncome - Employment,qBusiness,qProperty,qCapitalqgains
TaxableqEntities - Individuals,qCorporations,qTrusts
, AlternativeqBusiness - Corporation,qProprietorship,qPartnership,qLimited
Structures partnership,qJointqarrangement,qIncomeqtrust
TaxqJurisdictions - Federal,qProvincial,qForeign
R1-
4qAllqcashqflowqdecisions,qwhetherqrelatedqtoqrevenues,qexpenses,qassetqacquisitionsqorqdivestitures,
qorqdebtqandqequityqrestructuring,qwillqimpactqtheqamountqandqtimingqofqtheqtaxqcost.q Therefore,q cas
hq flowq existsq onlyq onq anq afterq taxq basis,q and,q theq taxq impactsq whetherqorqnotqthequltimateqresultqofq
theqdecisionqisqsuccessful.qAnqafter-taxqapproachqtoqdecision-makingqrequiresqeachqdecision-
makerqtoqthinkq"after-
tax"qforqeveryqdecisionqatqtheqtimeqtheqdecisionqisqbeingqmade,qand,qtoqconsiderqalternativeqcoursesq
ofqactionqtoqminimizeqtheqtaxqcost,qinqtheqsameqwayqthatqdecisionsqareqmadeqregardingqotherqtypesqo
fqcosts.
Failureq toq applyq anq after-
taxq approachq atq theq timeq thatq decisionsq areq madeq mayq provideqinaccurateqinformationqforqevaluation,qand,qr
esultqinqaqpermanentlyqinefficientqtaxqstructure.
CHAPTERq2
FUNDAMENTALSqOFqTAXqPLANNING
ReviewqQuestions
1. ―Taxqplanningqandqtaxqavoidanceqmeanqtheqsameqthing.‖qIsqthisqstatementqtrue?qExplain.
2. Whatqdistinguishesqtaxqevasionqfromqtaxqavoidanceqandqtaxqplanning?
3. DoesqCanadaqRevenueqAgencyqdealqwithqallqtaxqavoidanceqactivitiesqinqtheqsameqway?qExplain.
4. Theqpurposeqofqtaxqplanningqisqtoqreduceqorqdeferqtheqtaxqcostsqassociatedqwithqfinancialqtransacti
ons.qWhatqareqtheqgeneralqtypesqofqtaxqplanningqactivities?qBrieflyqexplainqhowqeachqofqthemqmay
qreduceqorqdeferqtheqtaxqcost.
5. ―Itqisqalwaysqbetterqtoqpayqtaxqlaterqratherqthanqsooner.‖qIsqthisqstatementqtrue?qExplain.
6. Whenqcorporateqtaxqratesqareq13%qandqtaxqratesqforqindividualsqareq40%,qisqitqalwaysqbetterqforqth
eqindividualqtoqtransferqtheirqbusinessqtoqaqcorporation?
7. ―Asqlongqasqallqofqtheqincomeqtaxqrulesqareqknown,qaqtaxqplanqcanqbeqdevelopedqwithqcertainty.‖qI
sqthisqstatementqtrue?qExplain.
8. Whatqbasicqskillsqareqrequiredqtoqdevelopqaqgoodqtaxqplan?
9. Anqentrepreneurqisqdevelopingqaqnewqbusinessqventureqandqisqplanningqtoqraiseqequityqcapitalqfro
mqindividualqinvestors.qTheirqadviserqindicatesqthatqtheqventureqcouldqbeqstructuredqasqaqcorporati
onq(i.e.,qsharesqareqissuedqtoqtheqinvestors)qorqasqaqlimitedqpartnershipq (i.e.,q partnershipq unitsq areq
