Solution Manual - Canadian Income Taxation, 2023/2024: Planning and Decisio
Making 26th Edition
By William Buckwold
All Chapters (1-23)| Graded A+
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CHAPTER 1: TAXATION― ITS ROLE IN BUSINESS DECISION MAKING…………………………………………………………….3
CHAPTER 2: FUNDAMENTALS OF TAX PLANNING…………………………………………………………………………………….29
CHAPTER 3: LIABILITY FOR TAX, INCOME DETERMINATION, AND ADMINISTRATION OF THE INCOME TAX SYSTEM...97
CHAPTER 4: INCOME FROM EMPLOYMENT………………………………………………………………………………………….139
CHAPTER 5: INCOME FROM BUSINESS…………………………………………………………………………………………….....181
CHAPTER 6: THE ACQUISITION, USE, AND DISPOSAL OF DEPRECIABLE PROPERTY………………………………………223
CHAPTER 7: INCOME FROM PROPERTY………………………………………………………………………………………………265
CHAPTER 8: GAINS AND LOSSES ON THE DISPOSITION OF CAPITAL PROPERTY—CAPITAL GAINS……………………307
CHAPTER 9: OTHER INCOME, OTHER DEDUCTIONS, AND SPECIAL RULES FOR COMPLETING NET INCOME FOR TAX
PURPOSES……………………………………………………………………………………………………………………………..……...349
CHAPTER 10: INDIVIDUALS: DETERMINATION OF TAXABLE INCOME AND TAXES PAYABLE……………………….……….391
CHAPTER 11: CORPORATIONS―AN INTRODUCTION………………………………………………………………………………..433
CHAPTER 12: ORGANIZATION, CAPITAL STRUCTURES, AND INCOME DISTRIBUTIONS OF CORPORATIONS…………..475
CHAPTER 13: THE CANADIAN-CONTROLLED PRIVATE CORPORATION………………………………………………………….517
CHAPTER 14: MULTIPLE CORPORATIONS AND THEIR REORGANIZATION………………………………………………………559
CHAPTER 15 PARTNERSHIPS………………………………………………………………………………………………………...…...601
CHAPTER 16: LIMITED PARTNERSHIPS AND JOINT VENTURES…………………………………………………………..……….643
CHAPTER 17 TRUSTS………………………………………………………………………………………………………………….....…685
CHAPTER 18: BUSINESS ACQUISITIONS AND DIVESTITURES ― ASSETS VERSUS SHARES…………………………...…..727
CHAPTER 19: BUSINESS ACQUISITIONS AND DIVESTITURES― TAX-DEFERRED SALES……………………………………784
CHAPTER 20: DOMESTIC AND INTERNATIONAL BUSINESS EXPANSION………………………………………………………...826
CHAPTER 21: TAX ASPECTS OF CORPORATE FINANCING………………………………………………………………………....868
CHAPTER 22: AN OVERVIEW OF GST/HST………………………………………………………………………………………….….894
.
CHAPTER 23: BUSINESS VALUATIONS……………………………………………………………………………………………….…952
,CHAPTER 1: TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
Review Questions
1. If income tax is imposed after profits have been determined, why is taxation relevant to
business decision making?
2. Most business decisions involve the evaluation of alternative courses of action. For example,
a marketing manager may be responsible for choosing a strategy for establishing sales in
new geographical territories. Briefly expchapterlain how the tax factor can be an integral
part of this decision.
3. What are the fundamental variables of the income tax system that decision-makers should be
familiar with so that they can apply tax issues to their areas of responsibility?
4. What is an “after-tax” approach to decision making?
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Solutions to Review Questions
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
results. However, at all levels of management, alternative courses of action are evaluated. In
many cases, the choice of one alternative over the other may affect both the amount and the
timing of future taxes on income generated from that activity. Therefore, the person making
those decisions has a direct input into future after-tax cash flow. Obviously, decisions that
reduce or postpone the payment of tax affect the ultimate return on investment and, in turn,
the value of the enterprise. Including the tax variable as a part of the formal decision process
will ultimately lead to improved after-tax cash flow.
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
formal presence in the new territory with a branch office or a separate corporation. The new
territories may also cross provincial or international boundaries. Provincial income tax rates
vary amongst the provinces. The amount of income that is subject to tax in the new province
will be different for each of the three alternatives mentioned above. For example, with direct
selling, none of the income is taxed in the new province, but with a separate corporation, all
of the income is taxed in the new province. Because the tax cost is different in each case,
taxation is a relevant part of the decision and must be included in any cost-benefit analysis
that compares the three alternatives [Reg. 400-402.1].
R1-3 A basic understanding of the following variables will significantly strengthen a decision
maker's ability to apply tax issues to their area of responsibility.
Types of Income - Employment, Business, Property, Capital gains
Taxable Entities - Individuals, Corporations, Trusts
Alternative Business - Corporation, Proprietorship, Partnership, Limited
Structures partnership, Joint arrangement, Income trust
Tax Jurisdictions - Federal, Provincial, Foreign
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
divestitures, or debt and equity restructuring, will impact the amount and timing of the tax
cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether or not
the ultimate result of the decision is successful. An after-tax approach to decision-
making requires each decision-maker to think "after-tax" for every decision at the time the
decision is being made, and, to consider alternative courses of action to minimize the tax cost,
in the same way that decisions are made regarding other types of costs.
Failure to apply an after-tax approach at the time that decisions are made may provide
inaccurate information for evaluation, and, result in a permanently inefficient tax structure.
. 2
Instructor Solutions Manual Chapter One
Making 26th Edition
By William Buckwold
All Chapters (1-23)| Graded A+
~1~
,g
CHAPTER 1: TAXATION― ITS ROLE IN BUSINESS DECISION MAKING…………………………………………………………….3
CHAPTER 2: FUNDAMENTALS OF TAX PLANNING…………………………………………………………………………………….29
CHAPTER 3: LIABILITY FOR TAX, INCOME DETERMINATION, AND ADMINISTRATION OF THE INCOME TAX SYSTEM...97
CHAPTER 4: INCOME FROM EMPLOYMENT………………………………………………………………………………………….139
CHAPTER 5: INCOME FROM BUSINESS…………………………………………………………………………………………….....181
CHAPTER 6: THE ACQUISITION, USE, AND DISPOSAL OF DEPRECIABLE PROPERTY………………………………………223
CHAPTER 7: INCOME FROM PROPERTY………………………………………………………………………………………………265
CHAPTER 8: GAINS AND LOSSES ON THE DISPOSITION OF CAPITAL PROPERTY—CAPITAL GAINS……………………307
CHAPTER 9: OTHER INCOME, OTHER DEDUCTIONS, AND SPECIAL RULES FOR COMPLETING NET INCOME FOR TAX
PURPOSES……………………………………………………………………………………………………………………………..……...349
CHAPTER 10: INDIVIDUALS: DETERMINATION OF TAXABLE INCOME AND TAXES PAYABLE……………………….……….391
CHAPTER 11: CORPORATIONS―AN INTRODUCTION………………………………………………………………………………..433
CHAPTER 12: ORGANIZATION, CAPITAL STRUCTURES, AND INCOME DISTRIBUTIONS OF CORPORATIONS…………..475
CHAPTER 13: THE CANADIAN-CONTROLLED PRIVATE CORPORATION………………………………………………………….517
CHAPTER 14: MULTIPLE CORPORATIONS AND THEIR REORGANIZATION………………………………………………………559
CHAPTER 15 PARTNERSHIPS………………………………………………………………………………………………………...…...601
CHAPTER 16: LIMITED PARTNERSHIPS AND JOINT VENTURES…………………………………………………………..……….643
CHAPTER 17 TRUSTS………………………………………………………………………………………………………………….....…685
CHAPTER 18: BUSINESS ACQUISITIONS AND DIVESTITURES ― ASSETS VERSUS SHARES…………………………...…..727
CHAPTER 19: BUSINESS ACQUISITIONS AND DIVESTITURES― TAX-DEFERRED SALES……………………………………784
CHAPTER 20: DOMESTIC AND INTERNATIONAL BUSINESS EXPANSION………………………………………………………...826
CHAPTER 21: TAX ASPECTS OF CORPORATE FINANCING………………………………………………………………………....868
CHAPTER 22: AN OVERVIEW OF GST/HST………………………………………………………………………………………….….894
.
CHAPTER 23: BUSINESS VALUATIONS……………………………………………………………………………………………….…952
,CHAPTER 1: TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
Review Questions
1. If income tax is imposed after profits have been determined, why is taxation relevant to
business decision making?
2. Most business decisions involve the evaluation of alternative courses of action. For example,
a marketing manager may be responsible for choosing a strategy for establishing sales in
new geographical territories. Briefly expchapterlain how the tax factor can be an integral
part of this decision.
3. What are the fundamental variables of the income tax system that decision-makers should be
familiar with so that they can apply tax issues to their areas of responsibility?
4. What is an “after-tax” approach to decision making?
~3~
, g
Solutions to Review Questions
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
results. However, at all levels of management, alternative courses of action are evaluated. In
many cases, the choice of one alternative over the other may affect both the amount and the
timing of future taxes on income generated from that activity. Therefore, the person making
those decisions has a direct input into future after-tax cash flow. Obviously, decisions that
reduce or postpone the payment of tax affect the ultimate return on investment and, in turn,
the value of the enterprise. Including the tax variable as a part of the formal decision process
will ultimately lead to improved after-tax cash flow.
R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
formal presence in the new territory with a branch office or a separate corporation. The new
territories may also cross provincial or international boundaries. Provincial income tax rates
vary amongst the provinces. The amount of income that is subject to tax in the new province
will be different for each of the three alternatives mentioned above. For example, with direct
selling, none of the income is taxed in the new province, but with a separate corporation, all
of the income is taxed in the new province. Because the tax cost is different in each case,
taxation is a relevant part of the decision and must be included in any cost-benefit analysis
that compares the three alternatives [Reg. 400-402.1].
R1-3 A basic understanding of the following variables will significantly strengthen a decision
maker's ability to apply tax issues to their area of responsibility.
Types of Income - Employment, Business, Property, Capital gains
Taxable Entities - Individuals, Corporations, Trusts
Alternative Business - Corporation, Proprietorship, Partnership, Limited
Structures partnership, Joint arrangement, Income trust
Tax Jurisdictions - Federal, Provincial, Foreign
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
divestitures, or debt and equity restructuring, will impact the amount and timing of the tax
cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether or not
the ultimate result of the decision is successful. An after-tax approach to decision-
making requires each decision-maker to think "after-tax" for every decision at the time the
decision is being made, and, to consider alternative courses of action to minimize the tax cost,
in the same way that decisions are made regarding other types of costs.
Failure to apply an after-tax approach at the time that decisions are made may provide
inaccurate information for evaluation, and, result in a permanently inefficient tax structure.
. 2
Instructor Solutions Manual Chapter One
