SolutionManualforCanadianIncomeTaxation
k
j k
j k
j k
j k
j jk
26th EditionbyWilliamBuckwold
jk jk j k k
j k
j k
j jk
Allchapters1-23Covered
k
j k
j k
j
, TABLEOFCONTENT jk jk
Chapter 1 Taxation Its Role in Decision Making
jk jk jk jk jk jk jk
jChapter 2 Fundamentals of Tax Planning
k jk jk jk jk jk
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
jk jk jk jk jk jk jk jk jk jk jk jk jk
jChapter 4 Income from Employment
k jk jk jk jk
Chapter 5 Income from Business
jk jk jk jk
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
jk jk jk jk jk jk jk jk jk
j Chapter 7 Income from Property
k jk jk jk jk
Chapter 8 Gains and Losses on the Disposition of Capital Property-Capital Gains
jk jk jk jk jk jk jk jk jk jk jk
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
j Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
k jk jk jk jk jk jk jk jk jk
Chapter 11 Corporations-An Introduction
jk jk jk
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
jk jk jk jk jk jk jk jk jk
j Chapter 13 The Canadian-Controlled Private Corporation
k jk jk jk jk jk
Chapter 14 Multiple Corporations and Their Reorganization
jk jk jk jk jk jk
jChapter 15 Partnerships
k jk jk
Chapter 16 Limited Partnerships and Joint Ventures
jk jk jk jk jk jk
jChapter 17 Trusts
k jk jk
Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
jk jk jk jk jk jk jk
jChapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
k jk jk jk jk jk jk
jChapter 20 Domestic and International Business Expansion
k jk jk jk jk jk jk
Chapter 21 Tax Aspects of Corporate Financing
jk jk jk jk jk jk
Chapter 22 Introduction to GST/HST
j k jk jk jk jk
Chapter 23 Business Valuations
jk jk jk
Chapter 1 jk
Taxation – It’s Role in Business Decision Making jk jk jk jk jk jk jk
Review Questions jk
1. If income tax is imposed after profits have been determined, why is taxation
j k j k j k j k j k j k j k j k j k j k j k j k
relevant to business decision making?
j k j k j k jk jk
2. Most business decisions involve the evaluation of alternative courses of action. For example,
jk jk jk jk jk jk jk jk jk jk jk jk
ja marketing manager may be responsible for choosing a strategy for establishing
k j k j k j k j k j k j k j k j k j k j k j k
sales in new geographical territories. Briefly explain how the tax factor can be an integral
j k j k j k jk jk jk jk jk jk jk jk jk jk jk jk
part of this decision.
jk jk jk j k
3. What are the fundamental variables of the income tax system that decision-makers should be
jk jk jk jk jk jk jk jk jk k
j jk jk jk
jfamiliar with so that they can apply tax issues to their areas of responsibility?
k jk jk jk jk jk jk jk jk jk jk jk jk jk
4. What is an “after-tax” approach to decision making?
jk jk jk jk jk jk jk
,Solutions to Review Questions jk jk jk
R1-1 Once profit is determined, the Income Tax Act determines the amount of income
j k j k j k j k j k j k j k j k j k j k j k j k j k
tax that results. However, at all levels of management, alternative courses of action are
j k j k j k jk jk jk j k jk jk jk jk j k jk jk
evaluated. In many cases, the choice of one alternative over the other may affect both the
jk jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk
amount and the timing of future taxes on income generated from that activity.
jk jk j k j k jk jk jk jk jk jk jk jk j k
Therefore, the person making those decisions has a direct input into future after-tax
jk jk jk jk j k j k j k j k j k j k j k j k j k
cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the
j k j k j k j k j k j k jk jk jk jk jk jk jk jk
ultimate return on investment and, in turn, the value of the enterprise. Including the tax
jk jk jk jk jk jk jk j k jk jk jk jk jk jk jk
variable as a part of the formal decision process will ultimately lead to improved after-tax
jk jk jk jk jk jk jk jk jk j k jk jk jk jk jk
cash flow.jk jk
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
formal presence in the new territory with a branch office or a separate corporation. The
j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
new territories may also cross provincial or international boundaries. Provincial income
jk j k jk jk jk jk jk jk jk jk jk
tax rates vary amongst the provinces. The amount of income that is subject to tax in the
jk jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
new province will be different for each of the three alternatives mentioned above. For
jk jk j k jk jk jk jk jk jk jk jk jk jk jk
example, with direct selling, none of the income is taxed in the new province, but with a
jk jk jk j k jk jk jk jk jk jk jk jk jk jk jk j k jk
separate corporation, all of the income is taxed in the new province. Because the
jk jk jk j k j k j k j k j k j k j k j k j k j k j k
tax cost is different in each case, taxation is a relevant part of the decision and must
j k j k j k j k j k j k j k j k jk jk jk j k j k jk jk jk j k
be included in any cost-benefit analysis that compares the three alternatives [Reg. 400-
j k j k j k j k j k j k j k jk jk jk jk jk jk
402.1].
R1-3 A basic understanding of the following variables will significantly strengthen a decision
jk jk jk jk jk jk jk jk jk jk jk jk
maker's ability to apply tax issues to their area of responsibility.
j k jk jk jk jk jk jk jk jk jk jk
Types of Income jk jk - Employment, Business, Property, Capitalgains k
j k
j k
j k
j
j k Taxable Entities jk - Individuals, Corporations, Trusts jk jk
Alternative Business jk - Corporation,Proprietorship,Partnership,Limited k
j k
j k
j
Structures j k partnership, Joint arrangement, Income trust jk jk jk jk
Tax Jurisdictions jk - Federal, Provincial, Foreign k
j k
j
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions
j k j k j k j k j k j k j k j k j k j k j k
or divestitures, or debt and equity restructuring, will impact the amount and timing
j k j k jk j k j k j k j k jk jk j k j k j k j k
of the tax cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts
j k j k jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
whether or not the ultimate result of the decision is successful. An after-tax
jk jk jk j k j k j k jk j k j k j k j k j k j k
approach to decision- making requires each decision-maker to think "after-tax" for
j k j k jk j k j k j k j k j k j k j k j k j k
every decision at the time the decision is being made, and, to consider alternative courses
j k j k j k j k j k j k j k jk jk jk jk jk jk jk jk
of action to minimize the tax cost, in the same way that decisions are made regarding other
jk jk jk jk jk jk jk j k jk jk jk jk jk jk jk jk jk
types of costs.
jk jk jk
Failure to apply an after-tax approach at the time that decisions are made may
j k j k j k j k j k j k j k j k j k j k j k j k j k
provide inaccurate information for evaluation, and, result in a permanently inefficient tax
j k j k jk jk jk jk jk jk jk jk jk jk
structure.
jk
, CHAPTER2 jk
FUNDAMENTALSOFTAXPLANNING jk jk jk
Review Questions
jk
1. “Tax planning and tax avoidance mean the same thing.” Is this statement true? Explain.
jk jk jk jk jk jk jk jk jk jk jk jk jk
2. What distinguishes tax evasion from tax avoidance and tax planning?
jk jk jk jk jk jk jk jk k
j
3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
jk jk jk jk jk jk jk jk jk jk jk jk jk
jExplain.k
4. The purpose of tax planning is to reduce or defer the tax costs associated with
j k j k j k j k j k j k j k j k j k j k j k j k j k j k
financial
j k transactions. What are the general types of tax planning activities? Briefly
j k jk jk jk jk jk jk jk jk jk jk
explain how each of them may reduce or defer the tax cost.
jk jk jk j k jk jk jk jk jk jk jk jk
5. “It is always better to pay tax later rather than sooner.” Is this statement true? Explain.
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
6. Whencorporatetax rates are 13% and taxrates for individuals are 40%, isit always better for the
k
j k
j k
j jk k
j k
j k
j k
j jk k
j k
j k
j k
j k
j k
j jk jk j k
individual to transfer their business to a corporation?
jk jk jk jk jk jk jk jk
7. “As long as all of the income tax rules are known, a tax plan can be developed with
jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk jk jk j k jk j k jk j k jk j k jk j k jk j k jk j k
certainty.” Is this statement true? Explain. jk jk jk jk jk
8. What basic skills are required to develop a good tax plan?
jk jk jk jk jk jk jk jk jk jk
9. An entrepreneur is developing a new business venture and is planning to raise
jk j k j k j k j k jk jk jk j k jk jk jk j k j k
j equity capital from individual investors. Their adviser indicates that the venture
k j k j k j k j k j k j k j k j k j k j k
could be structured as a corporation (i.e., shares are issued to the investors) or as
j k j k j k j k j k j k j k j k j k j k j k j k j k j k j k
a limited partnership (i.e., partnership units are sold). Both structures provide limited
j k j k j k jk jk jk jk jk jk jk jk jk
liability for the investors. Should the entrepreneur consider the tax positions of the
jk jk jk j k j k j k j k j k j k j k j k j k j k
individual investors? Explain. Without dealing with specific tax rules, what general tax
j k j k j k jk jk jk jk jk jk jk jk jk
factors should an investor consider before making an investment?
jk jk jk jk j k jk jk jk jk
10. What is a tax avoidance transaction? jk jk jk jk jk
11. “If a transaction (or a series of transactions) that results in a tax benefit was not undertaken
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
j primarily for bona fide business, investment, or family purposes, the general
k j k j k j k j k j k j k j k j k j k j k
j anti- avoidance rule will apply and eliminate the tax benefit.” Is this statement true?
k j k jk jk jk jk jk jk jk jk jk jk jk jk
Explain.
jk
k
j k
j k
j k
j k
j jk
26th EditionbyWilliamBuckwold
jk jk j k k
j k
j k
j jk
Allchapters1-23Covered
k
j k
j k
j
, TABLEOFCONTENT jk jk
Chapter 1 Taxation Its Role in Decision Making
jk jk jk jk jk jk jk
jChapter 2 Fundamentals of Tax Planning
k jk jk jk jk jk
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
jk jk jk jk jk jk jk jk jk jk jk jk jk
jChapter 4 Income from Employment
k jk jk jk jk
Chapter 5 Income from Business
jk jk jk jk
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
jk jk jk jk jk jk jk jk jk
j Chapter 7 Income from Property
k jk jk jk jk
Chapter 8 Gains and Losses on the Disposition of Capital Property-Capital Gains
jk jk jk jk jk jk jk jk jk jk jk
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
j Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
k jk jk jk jk jk jk jk jk jk
Chapter 11 Corporations-An Introduction
jk jk jk
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
jk jk jk jk jk jk jk jk jk
j Chapter 13 The Canadian-Controlled Private Corporation
k jk jk jk jk jk
Chapter 14 Multiple Corporations and Their Reorganization
jk jk jk jk jk jk
jChapter 15 Partnerships
k jk jk
Chapter 16 Limited Partnerships and Joint Ventures
jk jk jk jk jk jk
jChapter 17 Trusts
k jk jk
Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
jk jk jk jk jk jk jk
jChapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
k jk jk jk jk jk jk
jChapter 20 Domestic and International Business Expansion
k jk jk jk jk jk jk
Chapter 21 Tax Aspects of Corporate Financing
jk jk jk jk jk jk
Chapter 22 Introduction to GST/HST
j k jk jk jk jk
Chapter 23 Business Valuations
jk jk jk
Chapter 1 jk
Taxation – It’s Role in Business Decision Making jk jk jk jk jk jk jk
Review Questions jk
1. If income tax is imposed after profits have been determined, why is taxation
j k j k j k j k j k j k j k j k j k j k j k j k
relevant to business decision making?
j k j k j k jk jk
2. Most business decisions involve the evaluation of alternative courses of action. For example,
jk jk jk jk jk jk jk jk jk jk jk jk
ja marketing manager may be responsible for choosing a strategy for establishing
k j k j k j k j k j k j k j k j k j k j k j k
sales in new geographical territories. Briefly explain how the tax factor can be an integral
j k j k j k jk jk jk jk jk jk jk jk jk jk jk jk
part of this decision.
jk jk jk j k
3. What are the fundamental variables of the income tax system that decision-makers should be
jk jk jk jk jk jk jk jk jk k
j jk jk jk
jfamiliar with so that they can apply tax issues to their areas of responsibility?
k jk jk jk jk jk jk jk jk jk jk jk jk jk
4. What is an “after-tax” approach to decision making?
jk jk jk jk jk jk jk
,Solutions to Review Questions jk jk jk
R1-1 Once profit is determined, the Income Tax Act determines the amount of income
j k j k j k j k j k j k j k j k j k j k j k j k j k
tax that results. However, at all levels of management, alternative courses of action are
j k j k j k jk jk jk j k jk jk jk jk j k jk jk
evaluated. In many cases, the choice of one alternative over the other may affect both the
jk jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk
amount and the timing of future taxes on income generated from that activity.
jk jk j k j k jk jk jk jk jk jk jk jk j k
Therefore, the person making those decisions has a direct input into future after-tax
jk jk jk jk j k j k j k j k j k j k j k j k j k
cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the
j k j k j k j k j k j k jk jk jk jk jk jk jk jk
ultimate return on investment and, in turn, the value of the enterprise. Including the tax
jk jk jk jk jk jk jk j k jk jk jk jk jk jk jk
variable as a part of the formal decision process will ultimately lead to improved after-tax
jk jk jk jk jk jk jk jk jk j k jk jk jk jk jk
cash flow.jk jk
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
formal presence in the new territory with a branch office or a separate corporation. The
j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
new territories may also cross provincial or international boundaries. Provincial income
jk j k jk jk jk jk jk jk jk jk jk
tax rates vary amongst the provinces. The amount of income that is subject to tax in the
jk jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
new province will be different for each of the three alternatives mentioned above. For
jk jk j k jk jk jk jk jk jk jk jk jk jk jk
example, with direct selling, none of the income is taxed in the new province, but with a
jk jk jk j k jk jk jk jk jk jk jk jk jk jk jk j k jk
separate corporation, all of the income is taxed in the new province. Because the
jk jk jk j k j k j k j k j k j k j k j k j k j k j k
tax cost is different in each case, taxation is a relevant part of the decision and must
j k j k j k j k j k j k j k j k jk jk jk j k j k jk jk jk j k
be included in any cost-benefit analysis that compares the three alternatives [Reg. 400-
j k j k j k j k j k j k j k jk jk jk jk jk jk
402.1].
R1-3 A basic understanding of the following variables will significantly strengthen a decision
jk jk jk jk jk jk jk jk jk jk jk jk
maker's ability to apply tax issues to their area of responsibility.
j k jk jk jk jk jk jk jk jk jk jk
Types of Income jk jk - Employment, Business, Property, Capitalgains k
j k
j k
j k
j
j k Taxable Entities jk - Individuals, Corporations, Trusts jk jk
Alternative Business jk - Corporation,Proprietorship,Partnership,Limited k
j k
j k
j
Structures j k partnership, Joint arrangement, Income trust jk jk jk jk
Tax Jurisdictions jk - Federal, Provincial, Foreign k
j k
j
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions
j k j k j k j k j k j k j k j k j k j k j k
or divestitures, or debt and equity restructuring, will impact the amount and timing
j k j k jk j k j k j k j k jk jk j k j k j k j k
of the tax cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts
j k j k jk j k jk jk jk jk jk jk jk jk jk jk jk jk jk jk
whether or not the ultimate result of the decision is successful. An after-tax
jk jk jk j k j k j k jk j k j k j k j k j k j k
approach to decision- making requires each decision-maker to think "after-tax" for
j k j k jk j k j k j k j k j k j k j k j k j k
every decision at the time the decision is being made, and, to consider alternative courses
j k j k j k j k j k j k j k jk jk jk jk jk jk jk jk
of action to minimize the tax cost, in the same way that decisions are made regarding other
jk jk jk jk jk jk jk j k jk jk jk jk jk jk jk jk jk
types of costs.
jk jk jk
Failure to apply an after-tax approach at the time that decisions are made may
j k j k j k j k j k j k j k j k j k j k j k j k j k
provide inaccurate information for evaluation, and, result in a permanently inefficient tax
j k j k jk jk jk jk jk jk jk jk jk jk
structure.
jk
, CHAPTER2 jk
FUNDAMENTALSOFTAXPLANNING jk jk jk
Review Questions
jk
1. “Tax planning and tax avoidance mean the same thing.” Is this statement true? Explain.
jk jk jk jk jk jk jk jk jk jk jk jk jk
2. What distinguishes tax evasion from tax avoidance and tax planning?
jk jk jk jk jk jk jk jk k
j
3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
jk jk jk jk jk jk jk jk jk jk jk jk jk
jExplain.k
4. The purpose of tax planning is to reduce or defer the tax costs associated with
j k j k j k j k j k j k j k j k j k j k j k j k j k j k
financial
j k transactions. What are the general types of tax planning activities? Briefly
j k jk jk jk jk jk jk jk jk jk jk
explain how each of them may reduce or defer the tax cost.
jk jk jk j k jk jk jk jk jk jk jk jk
5. “It is always better to pay tax later rather than sooner.” Is this statement true? Explain.
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
6. Whencorporatetax rates are 13% and taxrates for individuals are 40%, isit always better for the
k
j k
j k
j jk k
j k
j k
j k
j jk k
j k
j k
j k
j k
j k
j jk jk j k
individual to transfer their business to a corporation?
jk jk jk jk jk jk jk jk
7. “As long as all of the income tax rules are known, a tax plan can be developed with
jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk j k jk jk jk j k jk j k jk j k jk j k jk j k jk j k jk j k
certainty.” Is this statement true? Explain. jk jk jk jk jk
8. What basic skills are required to develop a good tax plan?
jk jk jk jk jk jk jk jk jk jk
9. An entrepreneur is developing a new business venture and is planning to raise
jk j k j k j k j k jk jk jk j k jk jk jk j k j k
j equity capital from individual investors. Their adviser indicates that the venture
k j k j k j k j k j k j k j k j k j k j k
could be structured as a corporation (i.e., shares are issued to the investors) or as
j k j k j k j k j k j k j k j k j k j k j k j k j k j k j k
a limited partnership (i.e., partnership units are sold). Both structures provide limited
j k j k j k jk jk jk jk jk jk jk jk jk
liability for the investors. Should the entrepreneur consider the tax positions of the
jk jk jk j k j k j k j k j k j k j k j k j k j k
individual investors? Explain. Without dealing with specific tax rules, what general tax
j k j k j k jk jk jk jk jk jk jk jk jk
factors should an investor consider before making an investment?
jk jk jk jk j k jk jk jk jk
10. What is a tax avoidance transaction? jk jk jk jk jk
11. “If a transaction (or a series of transactions) that results in a tax benefit was not undertaken
jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk jk
j primarily for bona fide business, investment, or family purposes, the general
k j k j k j k j k j k j k j k j k j k j k
j anti- avoidance rule will apply and eliminate the tax benefit.” Is this statement true?
k j k jk jk jk jk jk jk jk jk jk jk jk jk
Explain.
jk
