Solution Manual for Canadian Income Taxation
26th Edition by William Buckwold
All chapters 1-23 Covered
,TABLE OF CONTENT
U U
ChapterU1UTaxationUItsURoleUinUDecisionUMakingU Cha
pterU2UFundamentalsUofUTaxUPlanning
ChapterU3ULiabilityUforUTax,UIncomeUDetermination,UandUAdministrationUofUtheUIncomeUTaxUSystemU C
hapterU4UIncomeUfromUEmployment
ChapterU5UIncomeUfromUBusiness
ChapterU6UTheUAcquisition,UUse,UandUDisposalUofUDepreciableUPropertyU Ch
apterU7UIncomeUfromUProperty
ChapterU8UGainsUandULossesUonUtheUDispositionUofUCapitalUProperty-CapitalUGains
ChapterU9UOtherUIncome,UOtherUDeductions,UandUSpecialURulesUforUCompletingUNetUIncomeUforUTaxUPurpos
esU ChapterU10UIndividuals:UDeterminationUofUTaxableUIncomeUandUTaxesUPayable
ChapterU11UCorporations-AnUIntroduction
ChapterU12UOrganization,UCapitalUStructures,UandUIncomeUDistributionsUofUCorporationsU Ch
apterU13UTheUCanadian-ControlledUPrivateUCorporation
ChapterU14UMultipleUCorporationsUandUTheirUReorganizationU Cha
pterU15UPartnerships
ChapterU16ULimitedUPartnershipsUandUJointUVentures
U ChapterU17UTrusts
ChapterU18UBusinessUAcquisitionsUandUDivestitures-
AssetsUversusUSharesU ChapterU19UBusinessUAcquisitionsUandUDivestitures-
Tax-
DeferredUSalesU ChapterU20UDomesticUandUInternationalUBusinessUExpansio
n
ChapterU21UTaxUAspectsUofUCorporateUFinancingU Cha
pterU22UIntroductionUtoUGST/HST
ChapterU23UBusinessUValuations
Chapter 1 U
Taxation – It’s Role in Business Decision Making
U U U U U U U
ReviewUQuestions
1. IfU incomeU taxU isU imposedU afterU profitsU haveU beenU determined,U whyU isU taxationU relevan
tU toU businessUdecisionUmaking?
2. MostUbusinessUdecisionsUinvolveUtheUevaluationUofUalternativeUcoursesUofUaction.UForUexam
ple,U aU marketingU managerU mayU beU responsibleU forU choosingU aU strategyU forU establishing
U salesU inU newUgeographicalUterritories.UBrieflyUexplainUhowUtheUtaxUfactorUcanUbeUanU integr
alUpartUofUthisU decision.
3. WhatUareUtheUfundamentalUvariablesUofUtheUincomeUtaxUsystemUthatUdecision-
makersUshouldU beU familiarUwithUsoUthatUtheyUcanUapplyUtaxUissuesUtoUtheirUareasUofUrespon
sibility?
4. WhatUisUanU“after-tax”UapproachUtoUdecisionUmaking?
,SolutionsUtoUReviewUQuestions
R1-
1U OnceU profitU isU determined,U theU IncomeU TaxU ActU determinesU theU amountU ofU incomeU ta
xU thatU results.UHowever,U atU allU levelsU ofUmanagement,U alternativeUcoursesU ofU actionU areU ev
aluated.U InU manyUcases,U theUchoiceU ofUoneU alternativeUoverUtheU otherU mayU affectU bothU theU
amountU andU theU timingU ofU futureU taxesU onU incomeU generatedU fromU thatU activity.U Therefor
e,U theU personU makingU thoseU decisionsU hasU aU directU inputU intoU futureU after-
taxU cashU flow.U Obviously,U decisionsU thatU reduceUorU postponeUtheUpaymentU ofUtaxUaffectU th
eU ultimateUreturnU onU investmentU and,UinUturn,U theUvalueUofUtheUenterprise.UIncludingUtheUt
axUvariableUasU aUpartUofUtheUformalUdecisionUprocessU willUultimatelyUleadUtoUimprovedUafter
-taxUcashUflow.
R1-
2UExpansionUcanUbeUachievedUinUnewUgeographicUareasUthroughUdirectUselling,UorUbyUestabli
shingUaU formalUpresenceUinUtheUnewUterritoryUwithUaUbranchU officeUorUaUseparateUcorporati
on.UTheUnewU territoriesUmayUalsoUcrossU provincialU orUinternationalUboundaries.UProvincialU
incomeUtaxUratesU varyUamongstU theUprovinces.UTheUamountU ofUincomeUthatU isUsubjectU toUta
xUinUtheUnewU provinceU willUbeUdifferentUforU eachUofUtheUthreeUalternativesU mentionedU abov
e.UForU example,UwithUdirectU selling,U noneU ofU theU incomeU isU taxedU inU theU newU province,U but
U withU aU separateU corporation,U allU ofU theU incomeU isU taxedU inU theU newU province.U BecauseU
theU taxU costU isU differentU inU eachU case,U taxationU isU aU relevantU partU ofU theU decisionU andU mu
stU beU includedU inU anyU cost-
benefitU analysisU thatUcomparesUtheUthreeUalternativesU[Reg.U400-402.1].
R1-
3UAU basicUunderstandingUofUtheUfollowingU variablesU willUsignificantlyUstrengthenU aUdecision
U maker'sUabilityUtoUapplyUtaxUissuesUtoUtheirUareaUofUresponsibility.
TypesUofUIncome -
Employment,UBusiness,UProperty,UCapitalUgainsU T
axableUEntities - Individuals,UCorporations,UTrusts
AlternativeUBusiness -
Corporation,UProprietorship,UPartnership,ULimitedU St
ructures partnership,UJointUarrangement,UIncomeUtrust
TaxUJurisdictions - Federal,UProvincial,UForeign
R1-
4U AllU cashU flowU decisions,U whetherU relatedU toU revenues,U expenses,U assetU acquisitionsU or
U divestitures,U orU debtU andU equityU restructuring,U willU impactU theU amountU andU timingU ofU th
eU taxU cost.UTherefore,UcashUflowUexistsUonlyUonUanUafterUtaxUbasis,Uand,UtheUtaxUimpactsUwhe
therUorUnotU theU ultimateU resultUofU theU decisionU isU successful.U AnU after-
taxU approachU toUU decision-U makingU requiresU eachU decision-makerU toU thinkU "after-
tax"U forU everyU decisionU atU theU timeU theU decisionUisUbeingUmade,Uand,UtoUconsiderUalternati
veUcoursesUofUactionUtoUminimizeUtheUtaxUcost,U inUtheUsameUwayUthatUdecisionsUareUmadeUre
gardingUotherUtypesUofUcosts.
FailureU toU applyU anU after-
taxU approachU atU theU timeU thatU decisionsU areU madeU mayU provideU inaccurateUinformation
UforUevaluation,Uand,UresultUinUaUpermanentlyUinefficientUtaxUstructure.
, CHAPTERU2
FUNDAMENTALSUOFUTAXUPLANNING
ReviewUQuestions
1. “TaxUplanningUandUtaxUavoidanceUmeanUtheUsameUthing.”UIsUthisUstatementUtrue?UExplain.
2. WhatUdistinguishesUtaxUevasionUfromUtaxUavoidanceUandUtaxUplanning?
3. DoesUCanadaU RevenueUAgencyUdealU withUallU taxU avoidanceUactivitiesU inU theUsameUway?U E
xplain.
4. TheU purposeU ofU taxU planningU isU toU reduceU orU deferU theU taxU costsU associatedU withU fina
ncialU transactions.UWhatUareUtheUgeneralUtypesUofUtaxUplanningUactivities?UBrieflyUexplainU
howU eachU ofUthemUmayUreduceUorUdeferUtheUtaxUcost.
5. “ItUisUalwaysUbetterUtoUpayUtaxUlaterUratherUthanUsooner.”UIsUthisUstatementUtrue?UExplain.
6. WhenUcorporateUtaxUratesUareU13%UandUtaxUratesUforUindividualsUareU40%,UisUitUalwaysUbette
rUforU theUindividualUtoUtransferUtheirUbusinessUtoUaUcorporation?
7. “AsUU longUU asUU allUUofUUtheUU incomeUUtaxUU rulesUUareUUknown,UUaUUtaxUUplanUU canUU beUUdevelop
edUU with
certainty.”UIsUthisUstatementUtrue?UExplain.
8. WhatUbasicUskillsUareUrequiredUtoUdevelopUaUgoodUtaxUplan?
9. AnUentrepreneurU isU developingU aU newUbusinessUUventureU andUisUUplanningU toU raiseU equi
tyU capitalU fromU individualU investors.U TheirU adviserU indicatesU thatU theU ventureU couldU be
U structuredU asU aU corporationU (i.e.,U sharesU areU issuedU toU theU investors)U orU asU aU limitedU
partnershipU(i.e.,UpartnershipUunitsUareUsold).UBothUstructuresUprovideUlimitedUliabilityUforU
theU investors.U ShouldU theU entrepreneurU considerU theU taxU positionsU ofU theU individualU inv
estors?U Explain.UWithoutU dealingU withUspecificU taxUrules,UwhatU generalUtaxUfactorsUshould
U anU investorU considerUbeforeUmakingUanUinvestment?
10. WhatUisUaUtaxUavoidanceUtransaction?
11. “IfUaUtransactionU(orUaUseriesUofUtransactions)UthatUresultsUinUaUtaxUbenefitUwasUnotUundert
akenU primarilyU forU bonaU fideU business,U investment,U orU familyU purposes,U theU generalU a
nti-
U avoidanceUruleUwillUapplyUandUeliminateUtheUtaxUbenefit.”UIsU thisUstatementUtrue?UExplain.
26th Edition by William Buckwold
All chapters 1-23 Covered
,TABLE OF CONTENT
U U
ChapterU1UTaxationUItsURoleUinUDecisionUMakingU Cha
pterU2UFundamentalsUofUTaxUPlanning
ChapterU3ULiabilityUforUTax,UIncomeUDetermination,UandUAdministrationUofUtheUIncomeUTaxUSystemU C
hapterU4UIncomeUfromUEmployment
ChapterU5UIncomeUfromUBusiness
ChapterU6UTheUAcquisition,UUse,UandUDisposalUofUDepreciableUPropertyU Ch
apterU7UIncomeUfromUProperty
ChapterU8UGainsUandULossesUonUtheUDispositionUofUCapitalUProperty-CapitalUGains
ChapterU9UOtherUIncome,UOtherUDeductions,UandUSpecialURulesUforUCompletingUNetUIncomeUforUTaxUPurpos
esU ChapterU10UIndividuals:UDeterminationUofUTaxableUIncomeUandUTaxesUPayable
ChapterU11UCorporations-AnUIntroduction
ChapterU12UOrganization,UCapitalUStructures,UandUIncomeUDistributionsUofUCorporationsU Ch
apterU13UTheUCanadian-ControlledUPrivateUCorporation
ChapterU14UMultipleUCorporationsUandUTheirUReorganizationU Cha
pterU15UPartnerships
ChapterU16ULimitedUPartnershipsUandUJointUVentures
U ChapterU17UTrusts
ChapterU18UBusinessUAcquisitionsUandUDivestitures-
AssetsUversusUSharesU ChapterU19UBusinessUAcquisitionsUandUDivestitures-
Tax-
DeferredUSalesU ChapterU20UDomesticUandUInternationalUBusinessUExpansio
n
ChapterU21UTaxUAspectsUofUCorporateUFinancingU Cha
pterU22UIntroductionUtoUGST/HST
ChapterU23UBusinessUValuations
Chapter 1 U
Taxation – It’s Role in Business Decision Making
U U U U U U U
ReviewUQuestions
1. IfU incomeU taxU isU imposedU afterU profitsU haveU beenU determined,U whyU isU taxationU relevan
tU toU businessUdecisionUmaking?
2. MostUbusinessUdecisionsUinvolveUtheUevaluationUofUalternativeUcoursesUofUaction.UForUexam
ple,U aU marketingU managerU mayU beU responsibleU forU choosingU aU strategyU forU establishing
U salesU inU newUgeographicalUterritories.UBrieflyUexplainUhowUtheUtaxUfactorUcanUbeUanU integr
alUpartUofUthisU decision.
3. WhatUareUtheUfundamentalUvariablesUofUtheUincomeUtaxUsystemUthatUdecision-
makersUshouldU beU familiarUwithUsoUthatUtheyUcanUapplyUtaxUissuesUtoUtheirUareasUofUrespon
sibility?
4. WhatUisUanU“after-tax”UapproachUtoUdecisionUmaking?
,SolutionsUtoUReviewUQuestions
R1-
1U OnceU profitU isU determined,U theU IncomeU TaxU ActU determinesU theU amountU ofU incomeU ta
xU thatU results.UHowever,U atU allU levelsU ofUmanagement,U alternativeUcoursesU ofU actionU areU ev
aluated.U InU manyUcases,U theUchoiceU ofUoneU alternativeUoverUtheU otherU mayU affectU bothU theU
amountU andU theU timingU ofU futureU taxesU onU incomeU generatedU fromU thatU activity.U Therefor
e,U theU personU makingU thoseU decisionsU hasU aU directU inputU intoU futureU after-
taxU cashU flow.U Obviously,U decisionsU thatU reduceUorU postponeUtheUpaymentU ofUtaxUaffectU th
eU ultimateUreturnU onU investmentU and,UinUturn,U theUvalueUofUtheUenterprise.UIncludingUtheUt
axUvariableUasU aUpartUofUtheUformalUdecisionUprocessU willUultimatelyUleadUtoUimprovedUafter
-taxUcashUflow.
R1-
2UExpansionUcanUbeUachievedUinUnewUgeographicUareasUthroughUdirectUselling,UorUbyUestabli
shingUaU formalUpresenceUinUtheUnewUterritoryUwithUaUbranchU officeUorUaUseparateUcorporati
on.UTheUnewU territoriesUmayUalsoUcrossU provincialU orUinternationalUboundaries.UProvincialU
incomeUtaxUratesU varyUamongstU theUprovinces.UTheUamountU ofUincomeUthatU isUsubjectU toUta
xUinUtheUnewU provinceU willUbeUdifferentUforU eachUofUtheUthreeUalternativesU mentionedU abov
e.UForU example,UwithUdirectU selling,U noneU ofU theU incomeU isU taxedU inU theU newU province,U but
U withU aU separateU corporation,U allU ofU theU incomeU isU taxedU inU theU newU province.U BecauseU
theU taxU costU isU differentU inU eachU case,U taxationU isU aU relevantU partU ofU theU decisionU andU mu
stU beU includedU inU anyU cost-
benefitU analysisU thatUcomparesUtheUthreeUalternativesU[Reg.U400-402.1].
R1-
3UAU basicUunderstandingUofUtheUfollowingU variablesU willUsignificantlyUstrengthenU aUdecision
U maker'sUabilityUtoUapplyUtaxUissuesUtoUtheirUareaUofUresponsibility.
TypesUofUIncome -
Employment,UBusiness,UProperty,UCapitalUgainsU T
axableUEntities - Individuals,UCorporations,UTrusts
AlternativeUBusiness -
Corporation,UProprietorship,UPartnership,ULimitedU St
ructures partnership,UJointUarrangement,UIncomeUtrust
TaxUJurisdictions - Federal,UProvincial,UForeign
R1-
4U AllU cashU flowU decisions,U whetherU relatedU toU revenues,U expenses,U assetU acquisitionsU or
U divestitures,U orU debtU andU equityU restructuring,U willU impactU theU amountU andU timingU ofU th
eU taxU cost.UTherefore,UcashUflowUexistsUonlyUonUanUafterUtaxUbasis,Uand,UtheUtaxUimpactsUwhe
therUorUnotU theU ultimateU resultUofU theU decisionU isU successful.U AnU after-
taxU approachU toUU decision-U makingU requiresU eachU decision-makerU toU thinkU "after-
tax"U forU everyU decisionU atU theU timeU theU decisionUisUbeingUmade,Uand,UtoUconsiderUalternati
veUcoursesUofUactionUtoUminimizeUtheUtaxUcost,U inUtheUsameUwayUthatUdecisionsUareUmadeUre
gardingUotherUtypesUofUcosts.
FailureU toU applyU anU after-
taxU approachU atU theU timeU thatU decisionsU areU madeU mayU provideU inaccurateUinformation
UforUevaluation,Uand,UresultUinUaUpermanentlyUinefficientUtaxUstructure.
, CHAPTERU2
FUNDAMENTALSUOFUTAXUPLANNING
ReviewUQuestions
1. “TaxUplanningUandUtaxUavoidanceUmeanUtheUsameUthing.”UIsUthisUstatementUtrue?UExplain.
2. WhatUdistinguishesUtaxUevasionUfromUtaxUavoidanceUandUtaxUplanning?
3. DoesUCanadaU RevenueUAgencyUdealU withUallU taxU avoidanceUactivitiesU inU theUsameUway?U E
xplain.
4. TheU purposeU ofU taxU planningU isU toU reduceU orU deferU theU taxU costsU associatedU withU fina
ncialU transactions.UWhatUareUtheUgeneralUtypesUofUtaxUplanningUactivities?UBrieflyUexplainU
howU eachU ofUthemUmayUreduceUorUdeferUtheUtaxUcost.
5. “ItUisUalwaysUbetterUtoUpayUtaxUlaterUratherUthanUsooner.”UIsUthisUstatementUtrue?UExplain.
6. WhenUcorporateUtaxUratesUareU13%UandUtaxUratesUforUindividualsUareU40%,UisUitUalwaysUbette
rUforU theUindividualUtoUtransferUtheirUbusinessUtoUaUcorporation?
7. “AsUU longUU asUU allUUofUUtheUU incomeUUtaxUU rulesUUareUUknown,UUaUUtaxUUplanUU canUU beUUdevelop
edUU with
certainty.”UIsUthisUstatementUtrue?UExplain.
8. WhatUbasicUskillsUareUrequiredUtoUdevelopUaUgoodUtaxUplan?
9. AnUentrepreneurU isU developingU aU newUbusinessUUventureU andUisUUplanningU toU raiseU equi
tyU capitalU fromU individualU investors.U TheirU adviserU indicatesU thatU theU ventureU couldU be
U structuredU asU aU corporationU (i.e.,U sharesU areU issuedU toU theU investors)U orU asU aU limitedU
partnershipU(i.e.,UpartnershipUunitsUareUsold).UBothUstructuresUprovideUlimitedUliabilityUforU
theU investors.U ShouldU theU entrepreneurU considerU theU taxU positionsU ofU theU individualU inv
estors?U Explain.UWithoutU dealingU withUspecificU taxUrules,UwhatU generalUtaxUfactorsUshould
U anU investorU considerUbeforeUmakingUanUinvestment?
10. WhatUisUaUtaxUavoidanceUtransaction?
11. “IfUaUtransactionU(orUaUseriesUofUtransactions)UthatUresultsUinUaUtaxUbenefitUwasUnotUundert
akenU primarilyU forU bonaU fideU business,U investment,U orU familyU purposes,U theU generalU a
nti-
U avoidanceUruleUwillUapplyUandUeliminateUtheUtaxUbenefit.”UIsU thisUstatementUtrue?UExplain.
