CanadianIncomeTaxation,2024/2025: PlanningandDecision Making26th Edition
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ByWilliamBuckwold
CompleteChapterSolutionsManual
**AllChaptersincluded
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
CY CY CY CY CY CY CY CY CY
CHAPTER1 C
Y
TAXATION―ITSROLEINBUSINESSDECISIONMAKING C
Y C
Y C
Y C
Y C
Y C
Y
ReviewQuestions
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1. If income tax is imposed after profits have been determined, why is taxation relevant to
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business decision making?
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2. Most business decisions involve the evaluation of alternative courses of action. For
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example, a marketing manager may be responsible for choosing a strategy for establishing
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
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Y
salesinnewgeographicalterritories.Brieflyexplain howthetaxfactorcanbean integral part of
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thisdecision.
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3. What are the fundamental variables of the income taxsystem that decision-makers shouldbe
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
familiarwithsothattheycanapplytaxissuestotheirareasofresponsibility?
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
4. Whatisan―after-tax‖approachtodecisionmaking?
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Y C
Y C
Y C
Y C
Y C
Y C
Y
. 1
Instructor Solutions Manual Chapter One
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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. CY CY CY CY CY CY CY CY CY
SolutionstoReviewQuestions C
Y C
Y C
Y
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
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results. However, at all levels of management, alternative courses of action are evaluated.In
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
manycases, thechoiceof onealternativeover theother mayaffectboththe amount andthe timing
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Y CY C
Y C
Y CY C
Y C
Y CY C
Y CY C
Y C
Y C
Y CY CY CY
of future taxes on income generated from that activity. Therefore, the person making those
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decisions has a direct input into future after-tax cash flow. Obviously, decisions that reduce or
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postpone the payment of tax affect the ultimate return oninvestment and, in turn, the value of
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Y C
Y
theenterprise.Includingthetaxvariableasapartoftheformaldecisionprocess will ultimately lead
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
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to improved after-taxcash flow.
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Y CY
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
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formal presence in the new territory with a branch office or a separate corporation. The new
C
Y C
Y CY CY CY C
Y CY CY CY CY CY CY CY CY CY CY
territories may also cross provincial or international boundaries. Provincial income tax rates
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Y CY CY CY CY CY CY CY CY C
Y
varyamongst theprovinces. Theamount of income that is subject totax in thenewprovince will be
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Y C
Y C
Y C
Y C
Y C
Y CY C
Y C
Y CY C
Y C
Y C
Y C
Y C
Y C
Y CY CY
different for each of the three alternatives mentioned above. For example, with direct selling,
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Y CY CY CY CY CY CY CY CY CY CY
none of the income is taxed in the newprovince, but with a separate corporation, all of the income is
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Y CY CY CY
taxed in the new province. Because thetax cost is different in eachcase, taxation is a relevant part
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of the decision and must be included in any cost-benefit analysis that compares the three
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alternatives [Reg. 400-402.1].
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R1-3 A basic understanding of the following variables will significantly strengthen a decision
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maker'sabilitytoapplytaxissues totheir areaof responsibility.
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Y CY C
Y CY C
Y CY
Typesof Income C
Y CY - Employment, Business, Property, Capital CY CY CY
gainsTaxableEntities
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Y - Individuals, Corporations, Trusts CY CY
AlternativeBusiness C
Y - Corporation, Proprietorship, Partnership, CY CY
LimitedStructures CY partnership,Jointarrangement,Incometrust C
Y C
Y CY C
Y
TaxJurisdictions C
Y - Federal,Provincial,Foreign C
Y C
Y
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
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divestitures, or debt and equity restructuring, will impact the amount and timing of the tax cost.
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Therefore,cashflowexistsonlyonanaftertaxbasis,and,thetaximpactswhetherornot the ultimate
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
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result of the decision is successful. An after-tax approach to decision-making requires each
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decision-maker to think "after-tax" for every decision at the time the decision is being made, and,
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to consider alternative courses of action to minimize the tax cost, in the same way that
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Y CY CY CY CY CY CY CY
decisions aremaderegarding othertypesof costs.
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Y C
Y CY C
Y C
Y CY
Failure to apply an after-tax approach at the time that decisions are made may
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provideinaccurateinformationforevaluation,and,resultinapermanentlyinefficienttax
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
structure.
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. 2
Instructor Solutions Manual Chapter One
CY CY CY CY
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. CY CY CY CY CY CY CY CY CY
CHAPTER2 C
Y
FUNDAMENTALSOFTAXPLANNING C
Y C
Y C
Y
ReviewQuestions
C
Y
1. ―Taxplanningandtaxavoidancemeanthesamething.‖Isthisstatementtrue?Explain.
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
2. Whatdistinguishestaxevasionfromtaxavoidanceandtaxplanning?
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
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Explain.
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4. The purpose of tax planning is to reduce or defer the tax costs associated with financial
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
transactions. What are the general types of tax planning activities? Briefly explain how each
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of them may reduce or defer the tax cost.
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5. ―Itisalwaysbettertopaytaxlaterratherthansooner.‖Isthisstatementtrue?Explain.
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always betterfor the
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individual to transfer their business to acorporation?
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Y
7. ―As long as all of the income tax rules are known, a tax plan can be developed with certainty.‖
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Is this statement true? Explain.
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8. Whatbasicskillsarerequiredtodevelopagoodtaxplan?
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
9. An entrepreneur is developing a new business venture and is planning to raise equity capital
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from individual investors. Their adviser indicates that the venture could be structured as a
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corporation (i.e., shares are issued to the investors) or as a limited partnership (i.e.,
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partnership units are sold). Both structures provide limited liability for the investors. Should
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the entrepreneur consider the tax positions of the individual investors? Explain. Without
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dealing withspecifictax rules, what generaltax factorsshouldan investorconsider before making
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an investment?
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10. Whatisataxavoidancetransaction? C
Y C
Y C
Y C
Y C
Y
11. ―If a transaction (or a series of transactions) that results in a tax benefit was not
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undertaken primarily for bona fide business, investment, or family purposes, the general
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Y CY CY CY CY CY CY CY CY CY CY
anti- avoidancerulewillapplyandeliminatethetaxbenefit.‖Isthisstatementtrue?Explain.
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Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
. 1
Instructor Solutions Manual Chapter Two
CY CY CY CY
CY CY j
ByWilliamBuckwold
CompleteChapterSolutionsManual
**AllChaptersincluded
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
CY CY CY CY CY CY CY CY CY
CHAPTER1 C
Y
TAXATION―ITSROLEINBUSINESSDECISIONMAKING C
Y C
Y C
Y C
Y C
Y C
Y
ReviewQuestions
C
Y
1. If income tax is imposed after profits have been determined, why is taxation relevant to
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
business decision making?
CY CY CY
2. Most business decisions involve the evaluation of alternative courses of action. For
CY CY CY CY CY CY CY CY CY CY CY
example, a marketing manager may be responsible for choosing a strategy for establishing
CY C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
salesinnewgeographicalterritories.Brieflyexplain howthetaxfactorcanbean integral part of
CY CY CY CY CY
thisdecision.
CY C
Y
3. What are the fundamental variables of the income taxsystem that decision-makers shouldbe
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
familiarwithsothattheycanapplytaxissuestotheirareasofresponsibility?
CY CY C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
4. Whatisan―after-tax‖approachtodecisionmaking?
C
Y C
Y C
Y C
Y C
Y C
Y C
Y
. 1
Instructor Solutions Manual Chapter One
CY CY CY CY
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. CY CY CY CY CY CY CY CY CY
SolutionstoReviewQuestions C
Y C
Y C
Y
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
results. However, at all levels of management, alternative courses of action are evaluated.In
CY C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
manycases, thechoiceof onealternativeover theother mayaffectboththe amount andthe timing
CY C
Y CY C
Y C
Y CY C
Y C
Y CY C
Y CY C
Y C
Y C
Y CY CY CY
of future taxes on income generated from that activity. Therefore, the person making those
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
decisions has a direct input into future after-tax cash flow. Obviously, decisions that reduce or
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
postpone the payment of tax affect the ultimate return oninvestment and, in turn, the value of
CY CY CY CY CY CY CY CY CY CY CY CY CY CY C
Y C
Y
theenterprise.Includingthetaxvariableasapartoftheformaldecisionprocess will ultimately lead
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y CY CY CY
to improved after-taxcash flow.
CY CY CY C
Y CY
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
formal presence in the new territory with a branch office or a separate corporation. The new
C
Y C
Y CY CY CY C
Y CY CY CY CY CY CY CY CY CY CY
territories may also cross provincial or international boundaries. Provincial income tax rates
CY CY C
Y CY CY CY CY CY CY CY CY C
Y
varyamongst theprovinces. Theamount of income that is subject totax in thenewprovince will be
CY C
Y C
Y C
Y C
Y C
Y C
Y CY C
Y C
Y CY C
Y C
Y C
Y C
Y C
Y C
Y CY CY
different for each of the three alternatives mentioned above. For example, with direct selling,
CY CY CY C
Y CY CY CY CY CY CY CY CY CY CY
none of the income is taxed in the newprovince, but with a separate corporation, all of the income is
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY C
Y CY CY CY
taxed in the new province. Because thetax cost is different in eachcase, taxation is a relevant part
CY CY C Y C Y CY C Y CY CY CY CY CY CY CY CY CY CY CY
of the decision and must be included in any cost-benefit analysis that compares the three
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
alternatives [Reg. 400-402.1].
CY CY CY
R1-3 A basic understanding of the following variables will significantly strengthen a decision
CY CY CY CY CY CY CY CY CY CY CY CY
maker'sabilitytoapplytaxissues totheir areaof responsibility.
CY C
Y CY CY CY C
Y CY C
Y CY C
Y CY
Typesof Income C
Y CY - Employment, Business, Property, Capital CY CY CY
gainsTaxableEntities
CY C
Y - Individuals, Corporations, Trusts CY CY
AlternativeBusiness C
Y - Corporation, Proprietorship, Partnership, CY CY
LimitedStructures CY partnership,Jointarrangement,Incometrust C
Y C
Y CY C
Y
TaxJurisdictions C
Y - Federal,Provincial,Foreign C
Y C
Y
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
CY CY CY CY CY CY CY CY CY CY CY CY
divestitures, or debt and equity restructuring, will impact the amount and timing of the tax cost.
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
Therefore,cashflowexistsonlyonanaftertaxbasis,and,thetaximpactswhetherornot the ultimate
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y CY CY
result of the decision is successful. An after-tax approach to decision-making requires each
CY CY CY CY CY CY CY CY CY CY CY CY CY
decision-maker to think "after-tax" for every decision at the time the decision is being made, and,
CY CY CY CY CY CY CY CY CY j CY CY CY CY CY CY
to consider alternative courses of action to minimize the tax cost, in the same way that
CY CY CY CY CY CY CY CY C
Y CY CY CY CY CY CY CY
decisions aremaderegarding othertypesof costs.
CY CY C
Y C
Y CY C
Y C
Y CY
Failure to apply an after-tax approach at the time that decisions are made may
CY C Y CY C Y CY C Y C Y C Y C Y CY C Y CY C Y
provideinaccurateinformationforevaluation,and,resultinapermanentlyinefficienttax
CY C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
structure.
CY
. 2
Instructor Solutions Manual Chapter One
CY CY CY CY
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. CY CY CY CY CY CY CY CY CY
CHAPTER2 C
Y
FUNDAMENTALSOFTAXPLANNING C
Y C
Y C
Y
ReviewQuestions
C
Y
1. ―Taxplanningandtaxavoidancemeanthesamething.‖Isthisstatementtrue?Explain.
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
2. Whatdistinguishestaxevasionfromtaxavoidanceandtaxplanning?
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
CY CY CY CY CY CY CY CY CY CY CY CY CY
Explain.
CY
4. The purpose of tax planning is to reduce or defer the tax costs associated with financial
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
transactions. What are the general types of tax planning activities? Briefly explain how each
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
of them may reduce or defer the tax cost.
CY CY CY CY CY CY CY CY CY
5. ―Itisalwaysbettertopaytaxlaterratherthansooner.‖Isthisstatementtrue?Explain.
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always betterfor the
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
individual to transfer their business to acorporation?
CY CY CY CY CY CY CY C
Y
7. ―As long as all of the income tax rules are known, a tax plan can be developed with certainty.‖
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
Is this statement true? Explain.
CY CY CY CY CY
8. Whatbasicskillsarerequiredtodevelopagoodtaxplan?
C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
9. An entrepreneur is developing a new business venture and is planning to raise equity capital
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
from individual investors. Their adviser indicates that the venture could be structured as a
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
corporation (i.e., shares are issued to the investors) or as a limited partnership (i.e.,
CY CY CY CY CY CY CY CY CY CY CY CY CY CY
partnership units are sold). Both structures provide limited liability for the investors. Should
CY CY CY CY CY CY CY CY CY CY C Y CY CY
the entrepreneur consider the tax positions of the individual investors? Explain. Without
CY CY CY CY CY CY CY CY CY CY C Y CY
dealing withspecifictax rules, what generaltax factorsshouldan investorconsider before making
C
Y CY CY CY CY CY CY CY CY CY CY CY CY CY
an investment?
CY CY
10. Whatisataxavoidancetransaction? C
Y C
Y C
Y C
Y C
Y
11. ―If a transaction (or a series of transactions) that results in a tax benefit was not
CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY
undertaken primarily for bona fide business, investment, or family purposes, the general
CY C
Y CY CY CY CY CY CY CY CY CY CY
anti- avoidancerulewillapplyandeliminatethetaxbenefit.‖Isthisstatementtrue?Explain.
CY CY C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y C
Y
. 1
Instructor Solutions Manual Chapter Two
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