TESTBANK g
g
Canadian Income Taxation 2022 2023 25th
g g g g
Canadian Edition Buckwold
g g g
, Stuvia.comg-
gThegMarketplacegtogBuygandgSellgyourgStudyg MaterialStuvia.comg-
gThegMarketplacegtogBuygandgSellgyourgStudygMaterial
Medconnoisseurlibraries.com
CHAPTERg1
TAXATION―gITSgROLEgINgBUSINESSgDECISIONgMAKING
ReviewgQuestions
1. Ifgincomegtaxgisgimposedgaftergprofitsghavegbeengdetermined,gwhygisgtaxationgrelevantgtogb
usinessgdecisiongmaking?
2. Mostgbusinessgdecisionsginvolvegthegevaluationgofgalternativegcoursesgofgaction.gForgexam
ple,gagmarketinggmanagergmaygbegresponsiblegforgchoosinggagstrategyg forg establishingg s
alesg ing newg geographicalg territories.g Brieflyg explaing howg theg taxg factorg cangbeganginteg
ralgpartgofgthisgdecision.
3. Whatg areg theg fundamentalg variablesg ofg theg incomeg taxg systemg thatg decision-
makersgshouldgbegfamiliargwithgsogthatgtheygcangapplygtaxgissuesgtogtheirgareasgofgrespons
ibility?
4. Whatgisgang―after-tax‖gapproachgtogdecisiongmaking?
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SolutionsgtogReviewgQuestions
R1-
1gOncegprofitgisgdetermined,gthegIncomegTaxgActgdeterminesgthegamountgofgincomegtaxgthat
gresults.gHowever,gatgallglevelsgofgmanagement,galternativegcoursesgofgactiongaregevaluated
.g Ing manyg cases,g theg choiceg ofg oneg alternativeg overg theg otherg mayg affectg bothg theg am
ountgandg theg timingg ofg futureg taxesg ong incomeg generatedg fromg thatg activity.g Therefore,
g thegpersong makingg thoseg decisionsg hasg ag directg inputg intog futureg after-
taxg cashg flow.gObviously,gdecisionsgthatgreducegorgpostponegthegpaymentgofgtaxgaffectgtheg
ultimategreturng ong investmentg and,g ing turn,g theg valueg ofg theg enterprise.g Includingg theg taxg
variableg asg ag partgofgthegformalgdecisiongprocessgwillgultimatelygleadgtogimprovedgafter-
taxgcashgflow.
R1-
2gExpansiongcangbegachievedgingnewggeographicgareasgthroughgdirectgselling,gorgbyg establi
shinggagformalgpresencegingthegnewgterritorygwithgagbranchgofficegorgagseparategcorporation.
gThegnewgterritoriesgmaygalsogcrossgprovincialgorginternationalgboundaries.gProvincialgincom
egtaxgratesgvarygamongstgthegprovinces.gThegamountgofgincomegthatgisgsubjectgtogtaxgingthe
gnewgprovincegwillgbegdifferentgforgeachgofgthegthreegalternativesgmentionedgabove.gForgexa
mple,gwithgdirectgselling,gnonegofgthegincomegisgtaxedgingthegnewgprovince,gbutgwithgagsepar
ategcorporation,gallgofgthegincomegisgtaxedgingthegnewgprovince.gBecauseg theg taxg costg isg di
fferentg ing eachg case,g taxationg isg agrelevantg partg ofg theg decisiongandgmustgbegincludedging
anygcost-benefitganalysisgthatgcomparesgtheg threegalternativesg [Reg.g400-402.1].
R1-
3gAgbasicgunderstandinggofgthegfollowinggvariablesgwillgsignificantlygstrengthengagdecisiong
maker'sgabilitygtogapplygtaxgissuesgtogtheirgareagofgresponsibility.
TypesgofgIncome -
Employment,gBusiness,gProperty,gCapitalggainsgTa
xablegEntities - Individuals,gCorporations,gTrusts
AlternativegBusiness - Corporation,gProprietorship,gPartnership,gLimited
Structures
partnership,gJointgarrangement,gIncomegtrustgTax
gJurisdictions -g Federal,gProvincial,gForeign
R1-
4gAllgcashgflowgdecisions,gwhethergrelatedgtogrevenues,gexpenses,gassetgacquisitionsgorgdiv
estitures,gorgdebtgandgequitygrestructuring,gwillgimpactgthegamountgandgtiminggofgthegtaxgcos
t.g Therefore,g cashg flowg existsg onlyg ong ang afterg taxg basis,g and,g theg taxg impactsg whetherg
orgnotgthegultimategresultgofgthegdecisiongisgsuccessful.gAngafter-taxgapproachgtogdecision-
gmakinggrequiresgeachgdecision-makergtogthinkg"after-
tax"gforgeverygdecisiongatgthegtimegthegdecisiongisgbeinggmade,gand,gtogconsidergalternativeg
coursesgofgactiongtogminimizegthegtaxgcost,gingthegsamegwaygthatgdecisionsgaregmadegregar
dinggothergtypesgofgcosts.
Failuregtogapplygangafter-
taxgapproachgatgthegtimegthatg decisionsgaregmadegmaygprovideg inaccurateginformationgfo
rgevaluation,gand,gresultgingagpermanentlyginefficientgtaxgstructure.
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g
Canadian Income Taxation 2022 2023 25th
g g g g
Canadian Edition Buckwold
g g g
, Stuvia.comg-
gThegMarketplacegtogBuygandgSellgyourgStudyg MaterialStuvia.comg-
gThegMarketplacegtogBuygandgSellgyourgStudygMaterial
Medconnoisseurlibraries.com
CHAPTERg1
TAXATION―gITSgROLEgINgBUSINESSgDECISIONgMAKING
ReviewgQuestions
1. Ifgincomegtaxgisgimposedgaftergprofitsghavegbeengdetermined,gwhygisgtaxationgrelevantgtogb
usinessgdecisiongmaking?
2. Mostgbusinessgdecisionsginvolvegthegevaluationgofgalternativegcoursesgofgaction.gForgexam
ple,gagmarketinggmanagergmaygbegresponsiblegforgchoosinggagstrategyg forg establishingg s
alesg ing newg geographicalg territories.g Brieflyg explaing howg theg taxg factorg cangbeganginteg
ralgpartgofgthisgdecision.
3. Whatg areg theg fundamentalg variablesg ofg theg incomeg taxg systemg thatg decision-
makersgshouldgbegfamiliargwithgsogthatgtheygcangapplygtaxgissuesgtogtheirgareasgofgrespons
ibility?
4. Whatgisgang―after-tax‖gapproachgtogdecisiongmaking?
1
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Medconnoisseurlibraries.com
SolutionsgtogReviewgQuestions
R1-
1gOncegprofitgisgdetermined,gthegIncomegTaxgActgdeterminesgthegamountgofgincomegtaxgthat
gresults.gHowever,gatgallglevelsgofgmanagement,galternativegcoursesgofgactiongaregevaluated
.g Ing manyg cases,g theg choiceg ofg oneg alternativeg overg theg otherg mayg affectg bothg theg am
ountgandg theg timingg ofg futureg taxesg ong incomeg generatedg fromg thatg activity.g Therefore,
g thegpersong makingg thoseg decisionsg hasg ag directg inputg intog futureg after-
taxg cashg flow.gObviously,gdecisionsgthatgreducegorgpostponegthegpaymentgofgtaxgaffectgtheg
ultimategreturng ong investmentg and,g ing turn,g theg valueg ofg theg enterprise.g Includingg theg taxg
variableg asg ag partgofgthegformalgdecisiongprocessgwillgultimatelygleadgtogimprovedgafter-
taxgcashgflow.
R1-
2gExpansiongcangbegachievedgingnewggeographicgareasgthroughgdirectgselling,gorgbyg establi
shinggagformalgpresencegingthegnewgterritorygwithgagbranchgofficegorgagseparategcorporation.
gThegnewgterritoriesgmaygalsogcrossgprovincialgorginternationalgboundaries.gProvincialgincom
egtaxgratesgvarygamongstgthegprovinces.gThegamountgofgincomegthatgisgsubjectgtogtaxgingthe
gnewgprovincegwillgbegdifferentgforgeachgofgthegthreegalternativesgmentionedgabove.gForgexa
mple,gwithgdirectgselling,gnonegofgthegincomegisgtaxedgingthegnewgprovince,gbutgwithgagsepar
ategcorporation,gallgofgthegincomegisgtaxedgingthegnewgprovince.gBecauseg theg taxg costg isg di
fferentg ing eachg case,g taxationg isg agrelevantg partg ofg theg decisiongandgmustgbegincludedging
anygcost-benefitganalysisgthatgcomparesgtheg threegalternativesg [Reg.g400-402.1].
R1-
3gAgbasicgunderstandinggofgthegfollowinggvariablesgwillgsignificantlygstrengthengagdecisiong
maker'sgabilitygtogapplygtaxgissuesgtogtheirgareagofgresponsibility.
TypesgofgIncome -
Employment,gBusiness,gProperty,gCapitalggainsgTa
xablegEntities - Individuals,gCorporations,gTrusts
AlternativegBusiness - Corporation,gProprietorship,gPartnership,gLimited
Structures
partnership,gJointgarrangement,gIncomegtrustgTax
gJurisdictions -g Federal,gProvincial,gForeign
R1-
4gAllgcashgflowgdecisions,gwhethergrelatedgtogrevenues,gexpenses,gassetgacquisitionsgorgdiv
estitures,gorgdebtgandgequitygrestructuring,gwillgimpactgthegamountgandgtiminggofgthegtaxgcos
t.g Therefore,g cashg flowg existsg onlyg ong ang afterg taxg basis,g and,g theg taxg impactsg whetherg
orgnotgthegultimategresultgofgthegdecisiongisgsuccessful.gAngafter-taxgapproachgtogdecision-
gmakinggrequiresgeachgdecision-makergtogthinkg"after-
tax"gforgeverygdecisiongatgthegtimegthegdecisiongisgbeinggmade,gand,gtogconsidergalternativeg
coursesgofgactiongtogminimizegthegtaxgcost,gingthegsamegwaygthatgdecisionsgaregmadegregar
dinggothergtypesgofgcosts.
Failuregtogapplygangafter-
taxgapproachgatgthegtimegthatg decisionsgaregmadegmaygprovideg inaccurateginformationgfo
rgevaluation,gand,gresultgingagpermanentlyginefficientgtaxgstructure.
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