, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
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CHAPTER 1 5t
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING 5t 5t 5t 5t 5t 5t
Review Questions
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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? 5t 5t
2. Most business decisions involve the evaluation of alternative courses of action. For exa
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mple, a marketing manager may be responsible for choosing a strategy for establishing
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sales in new geographical territories. Briefly explain how the tax factor can be an integral p
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art of this decision.
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3. What are the fundamental variables of the income tax system that decision-
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makers should be familiar with so that they can apply tax issues to their areas of respon
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sibility?
4. What is an ―after-tax‖ approach to decision making?
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. 1
Instructor Solutions Manual Chapter One
5t 5t 5t 5t
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
5t 5t 5t 5t 5t 5t 5t 5t 5t
Solutions to Review Questions
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R1-
1 Once profit is determined, the Income Tax Act determines the amount of income tax th
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at results. However, at all levels of management, alternative courses of action are evaluat
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ed. In many cases, the choice of one alternative over the other may affect both the amount
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and the timing of future taxes on income generated from that activity. Therefore, the pers
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on making those decisions has a direct input into future after-
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tax cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the
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ultimate return on investment and, in turn, the value of the enterprise. Including the tax v
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ariable as a part of the formal decision process will ultimately lead to improved after-
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tax cash flow. 5t 5t
R1-
2 Expansion can be achieved in new geographic areas through direct selling, or by establ
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ishing a formal presence in the new territory with a branch office or a separate corporatio
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n. The new territories may also cross provincial or international boundaries. Provincial inc
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ome tax rates vary amongst the provinces. The amount of income that is subject to tax in
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the new province will be different for each of the three alternatives mentioned above. For
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example, with direct selling, none of the income is taxed in the new province, but with a s
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eparate corporation, all of the income is taxed in the new province. Because the tax cost i
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s different in each case, taxation is a relevant part of the decision and must be included in a
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ny cost-benefit analysis that compares the three 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's ability to apply tax issues to their area of responsibility.
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Types of Income 5t 5t -
Employment, Business, Property, Capital gains Ta 5t 5t 5t 5t 5t
xable Entities 5t - Individuals, Corporations, Trusts 5t 5t
Alternative Business 5t -
Corporation, Proprietorship, Partnership, Limited Str 5t 5t 5t 5t
uctures partnership, Joint arrangement, Income trust 5t 5t 5t 5t
Tax Jurisdictions 5t - Federal, Provincial, Foreign 5t 5t
R1-
4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or di
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vestitures, or debt and equity restructuring, will impact the amount and timing of the tax c
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ost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether or n
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ot the ultimate result of the decision is successful. An after-
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tax approach to decision-making requires each decision-maker to think "after-
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tax" for every decision at the time the decision is being made, and, to consider alternative
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courses of action to minimize the tax cost, in the same way that decisions are made rega
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rding other types of costs.
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Failure to apply an after- 5t 5t 5t 5t
tax approach at the time that decisions are made may provide inaccurate information
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for evaluation, and, result in a permanently inefficient tax structure.
t 5t 5t 5t 5t 5t 5t 5t 5t 5t
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
5t 5t 5t 5t 5t 5t 5t 5t 5t
CHAPTER 1 5t
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
5t 5t 5t 5t 5t 5t
. 2
Instructor Solutions Manual Chapter One
5t 5t 5t 5t
5t 5t 5t 5t 5t 5t 5t 5t 5t
CHAPTER 1 5t
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING 5t 5t 5t 5t 5t 5t
Review Questions
5t
1. If income tax is imposed after profits have been determined, why is taxation relevant to
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
business decision making? 5t 5t
2. Most business decisions involve the evaluation of alternative courses of action. For exa
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
mple, a marketing manager may be responsible for choosing a strategy for establishing
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
sales in new geographical territories. Briefly explain how the tax factor can be an integral p
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
art of this decision.
5t 5t 5t
3. What are the fundamental variables of the income tax system that decision-
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
makers should be familiar with so that they can apply tax issues to their areas of respon
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
sibility?
4. What is an ―after-tax‖ approach to decision making?
5t 5t 5t 5t 5t 5t 5t
. 1
Instructor Solutions Manual Chapter One
5t 5t 5t 5t
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
5t 5t 5t 5t 5t 5t 5t 5t 5t
Solutions to Review Questions
5t 5t 5t
R1-
1 Once profit is determined, the Income Tax Act determines the amount of income tax th
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at results. However, at all levels of management, alternative courses of action are evaluat
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ed. In many cases, the choice of one alternative over the other may affect both the amount
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and the timing of future taxes on income generated from that activity. Therefore, the pers
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on making those decisions has a direct input into future after-
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
tax cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5
ultimate return on investment and, in turn, the value of the enterprise. Including the tax v
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ariable as a part of the formal decision process will ultimately lead to improved after-
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
tax cash flow. 5t 5t
R1-
2 Expansion can be achieved in new geographic areas through direct selling, or by establ
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
ishing a formal presence in the new territory with a branch office or a separate corporatio
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
n. The new territories may also cross provincial or international boundaries. Provincial inc
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
ome tax rates vary amongst the provinces. The amount of income that is subject to tax in
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the new province will be different for each of the three alternatives mentioned above. For
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example, with direct selling, none of the income is taxed in the new province, but with a s
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eparate corporation, all of the income is taxed in the new province. Because the tax cost i
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s different in each case, taxation is a relevant part of the decision and must be included in a
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
ny cost-benefit analysis that compares the three alternatives [Reg. 400-402.1].
5t 5t 5t 5t 5t 5t 5t 5t 5t
R1-
3 A basic understanding of the following variables will significantly strengthen a decision
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
maker's ability to apply tax issues to their area of responsibility.
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t
Types of Income 5t 5t -
Employment, Business, Property, Capital gains Ta 5t 5t 5t 5t 5t
xable Entities 5t - Individuals, Corporations, Trusts 5t 5t
Alternative Business 5t -
Corporation, Proprietorship, Partnership, Limited Str 5t 5t 5t 5t
uctures partnership, Joint arrangement, Income trust 5t 5t 5t 5t
Tax Jurisdictions 5t - Federal, Provincial, Foreign 5t 5t
R1-
4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or di
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vestitures, or debt and equity restructuring, will impact the amount and timing of the tax c
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ost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether or n
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ot the ultimate result of the decision is successful. An after-
5 t 5 t 5 t 5 t 5 t 5 t 5 t 5 t 5 t 5 t
tax approach to decision-making requires each decision-maker to think "after-
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tax" for every decision at the time the decision is being made, and, to consider alternative
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courses of action to minimize the tax cost, in the same way that decisions are made rega
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rding other types of costs.
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Failure to apply an after- 5t 5t 5t 5t
tax approach at the time that decisions are made may provide inaccurate information
5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5t 5
for evaluation, and, result in a permanently inefficient tax structure.
t 5t 5t 5t 5t 5t 5t 5t 5t 5t
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
5t 5t 5t 5t 5t 5t 5t 5t 5t
CHAPTER 1 5t
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
5t 5t 5t 5t 5t 5t
. 2
Instructor Solutions Manual Chapter One
5t 5t 5t 5t
