SOLUTION MANUAL
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
d d
Chapter1dTaxation-ItsdRoledindDecisiondMaking
Chapter2dFundamentalsdofdTaxdPlanning
Chapterd3dLiabilitydfordTax,dIncomedDetermination,danddAdministrationdofdthedIncomedTaxdSystem
Chapterd4dIncomedfromdEmployment
Chapterd5dIncomedfromdBusiness
Chapterd6dThedAcquisition,dUse,danddDisposaldofdDepreciabledProperty
Chapter7dIncomedfromdProperty
Chapter8dGainsdanddLossesdondthedDispositiondofdCapitaldProperty-CapitaldGains
Chapterd9dOtherdIncome,dOtherdDeductions,danddSpecialdRulesdfordCompletingdNetdIncomedfordTaxdPurposes
Chapterd10dIndividuals:dDeterminationdofdTaxabledIncomedanddTaxesdPayable
Chapterd11dCorporations-AndIntroduction
Chapterd12dOrganization,dCapitaldStructures,danddIncomedDistributionsdofdCorporations
Chapterd13dThedCanadian-ControlleddPrivatedCorporation
Chapterd14dMultipledCorporationsdanddTheirdReorganization
Chapterd15dPartnerships
Chapterd16dLimiteddPartnershipsdanddJointdVentures
Chapterd17dTrusts
Chapterd18dBusinessdAcquisitionsdanddDivestitures-AssetsdversusdShares
Chapterd19dBusinessdAcquisitionsdanddDivestitures-Tax-DeferreddSales
Chapterd20dDomesticdanddInternationaldBusinessdExpansion
Chapterd21dTaxdAspectsdofdCorporatedFinancing
Chapterd22dIntroductiondtodGST/HST
Chapterd23dBusinessdValuations
, CHAPTER 1 d
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
d d d d d d
ReviewdQuestions
1. Ifdincomedtaxdisdimposeddafterdprofitsdhavedbeenddetermined,dwhydisdtaxationdrelevantdtodbusinessddeci
siondmaking?
2. Mostdbusinessddecisionsdinvolvedthedevaluationdofdalternativedcoursesdofdaction.dFordexample,dadmark
etingdmanagerdmaydbedresponsibledfordchoosingdadstrategydfordestablishingdsalesdindnewdgeographicald
territories.dBrieflydexplaindhowdthedtaxdfactordcandbedandintegraldpartdofdthisddecision.
3. Whatdaredthedfundamentaldvariablesdofdthedincomedtaxdsystemdthatddecision-
makersdshoulddbedfamiliardwithdsodthatdtheydcandapplydtaxdissuesdtodtheirdareasdofdresponsibility?
4. Whatdisdand―after-tax‖dapproachdtoddecisiondmaking?
SolutionsdtodReviewdQuestions
R1-
1dOncedprofitdisddetermined,dthedIncomedTaxdActddeterminesdthedamountdofdincomedtaxdthatdresults.dHo
wever,datdalldlevelsdofdmanagement,dalternativedcoursesdofdactiondaredevaluated.dIndmanydcases,dthedchoi
cedofdonedalternativedoverdthedotherdmaydaffectdbothdthedamountdanddthedtimingdofdfuturedtaxesdondincom
edgenerateddfromdthatdactivity.dTherefore,dthedpersondmakingdthoseddecisionsdhasdaddirectdinputdintodfut
uredafter-
taxdcashd flow.dObviously,ddecisionsdthatdreducedordpostponedthedpaymentdofdtaxdaffectdthedultimatedret
urndondinvestmentdand,dindturn,dthedvaluedofdthedenterprise.dIncludingdthedtaxdvariabledasdadpartdofdthedfor
malddecisiondprocessdwilldultimatelydleaddtodimproveddafter-taxdcashdflow.
R1-
2dExpansiondcandbedachieveddindnewdgeographicdareasdthroughddirectdselling,dordbydestablishingdadform
aldpresencedindthednewdterritorydwithdadbranchdofficedordadseparatedcorporation.dThednewdterritoriesdmayd
alsodcrossdprovincialdordinternationaldboundaries.dProvincialdincomedtaxdratesdvarydamongstdthedprovin
ces.dThedamountdofdincomedthatdisdsubjectdtodtaxdindthednewdprovincedwilldbeddifferentdfordeachdofdthedthr
eedalternativesdmentioneddabove.dFordexample,dwithddirectdselling,dnonedofdthedincomedisdtaxeddindthedn
ewdprovince,dbutdwithdadseparatedcorporation,dalldofdthedincomedisdtaxeddindthednewdprovince.dBecausedt
hedtaxdcostdisddifferentdindeachdcase,dtaxationdisdadrelevantdpartdofdtheddecisiondanddmustdbedincludeddinda
nydcost-benefitdanalysisdthatdcomparesdthedthreedalternativesd[Reg.d400-402.1].
R1-
3dAdbasicdunderstandingdofdthedfollowingdvariablesdwilldsignificantlydstrengthendaddecisiondmaker'sdabi
litydtodapplydtaxdissuesdtodtheirdareadofdresponsibility.
TypesdofdIncome - Employment,dBusiness,dProperty,dCapitaldgains
TaxabledEntities - Individuals,dCorporations,dTrusts
AlternativedBusiness - Corporation,dProprietorship,dPartnership,dLimited
, Structures partnership,dJointdarrangement,dIncomedtrust
TaxdJurisdictions - Federal,dProvincial,dForeign
R1-
4dAlldcashdflowddecisions,dwhetherdrelateddtodrevenues,dexpenses,dassetdacquisitionsdorddivestitures,dord
debtdanddequitydrestructuring,dwilldimpactdthedamountdanddtimingdofdthedtaxdcost.d Therefore,d cashd flowd
existsd onlyd ond and afterd taxd basis,d and,d thed taxd impactsd whetherdordnotdthedultimatedresultdofdtheddecision
disdsuccessful.dAndafter-taxdapproachdtoddecision-makingdrequiresdeachddecision-makerdtodthinkd"after-
tax"dfordeveryddecisiondatdthedtimedtheddecisiondisdbeingdmade,dand,dtodconsiderdalternativedcoursesdofdac
tiondtodminimizedthedtaxdcost,dindthedsamedwaydthatddecisionsdaredmadedregardingdotherdtypesdofdcosts.
Failured tod applyd and after-
taxd approachd atd thed timed thatd decisionsd ared maded mayd providedinaccuratedinformationdfordevaluation,dand,dresul
tdindadpermanentlydinefficientdtaxdstructure.
CHAPTER 2 d
FUNDAMENTALS OF TAX PLANNING d d d
ReviewdQuestions
1. ―Taxdplanningdanddtaxdavoidancedmeandthedsamedthing.‖dIsdthisdstatementdtrue?dExplain.
2. Whatddistinguishesdtaxdevasiondfromdtaxdavoidancedanddtaxdplanning?
3. DoesdCanadadRevenuedAgencyddealdwithdalldtaxdavoidancedactivitiesdindthedsamedway?dExplain.
4. Thedpurposedofdtaxdplanningdisdtodreducedorddeferdthedtaxdcostsdassociateddwithdfinancialdtransactions.d
Whatdaredthedgeneraldtypesdofdtaxdplanningdactivities?dBrieflydexplaindhowdeachdofdthemdmaydreducedo
rddeferdthedtaxdcost.
5. ―Itdisdalwaysdbetterdtodpaydtaxdlaterdratherdthandsooner.‖dIsdthisdstatementdtrue?dExplain.
6. Whendcorporatedtaxdratesdared13%danddtaxdratesdfordindividualsdared40%,disditdalwaysdbetterdfordthedindi
vidualdtodtransferdtheirdbusinessdtodadcorporation?
7. ―Asdlongdasdalldofdthedincomedtaxdrulesdaredknown,dadtaxdplandcandbeddevelopeddwithdcertainty.‖dIsdthi
sdstatementdtrue?dExplain.
8. Whatdbasicdskillsdaredrequireddtoddevelopdadgooddtaxdplan?
9. Andentrepreneurdisddevelopingdadnewdbusinessdventuredanddisdplanningdtodraisedequitydcapitaldfromdind
ividualdinvestors.dTheirdadviserdindicatesdthatdthedventuredcoulddbedstructureddasdadcorporationd(i.e.,ds
haresdaredissueddtodthedinvestors)dordasdadlimiteddpartnershipd (i.e.,d partnershipd unitsd ared sold).d Bothd s
tructuresd provided limitedd liabilityd fordthedinvestors.dShoulddthedentrepreneurdconsiderdthedtaxdpositio
nsdofdthedindividualdinvestors?dExplain.dWithoutddealingdwithdspecificdtaxdrules,dwhatdgeneraldtaxdfact
orsdshoulddandinvestordconsiderdbeforedmakingdandinvestment?
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
d d
Chapter1dTaxation-ItsdRoledindDecisiondMaking
Chapter2dFundamentalsdofdTaxdPlanning
Chapterd3dLiabilitydfordTax,dIncomedDetermination,danddAdministrationdofdthedIncomedTaxdSystem
Chapterd4dIncomedfromdEmployment
Chapterd5dIncomedfromdBusiness
Chapterd6dThedAcquisition,dUse,danddDisposaldofdDepreciabledProperty
Chapter7dIncomedfromdProperty
Chapter8dGainsdanddLossesdondthedDispositiondofdCapitaldProperty-CapitaldGains
Chapterd9dOtherdIncome,dOtherdDeductions,danddSpecialdRulesdfordCompletingdNetdIncomedfordTaxdPurposes
Chapterd10dIndividuals:dDeterminationdofdTaxabledIncomedanddTaxesdPayable
Chapterd11dCorporations-AndIntroduction
Chapterd12dOrganization,dCapitaldStructures,danddIncomedDistributionsdofdCorporations
Chapterd13dThedCanadian-ControlleddPrivatedCorporation
Chapterd14dMultipledCorporationsdanddTheirdReorganization
Chapterd15dPartnerships
Chapterd16dLimiteddPartnershipsdanddJointdVentures
Chapterd17dTrusts
Chapterd18dBusinessdAcquisitionsdanddDivestitures-AssetsdversusdShares
Chapterd19dBusinessdAcquisitionsdanddDivestitures-Tax-DeferreddSales
Chapterd20dDomesticdanddInternationaldBusinessdExpansion
Chapterd21dTaxdAspectsdofdCorporatedFinancing
Chapterd22dIntroductiondtodGST/HST
Chapterd23dBusinessdValuations
, CHAPTER 1 d
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
d d d d d d
ReviewdQuestions
1. Ifdincomedtaxdisdimposeddafterdprofitsdhavedbeenddetermined,dwhydisdtaxationdrelevantdtodbusinessddeci
siondmaking?
2. Mostdbusinessddecisionsdinvolvedthedevaluationdofdalternativedcoursesdofdaction.dFordexample,dadmark
etingdmanagerdmaydbedresponsibledfordchoosingdadstrategydfordestablishingdsalesdindnewdgeographicald
territories.dBrieflydexplaindhowdthedtaxdfactordcandbedandintegraldpartdofdthisddecision.
3. Whatdaredthedfundamentaldvariablesdofdthedincomedtaxdsystemdthatddecision-
makersdshoulddbedfamiliardwithdsodthatdtheydcandapplydtaxdissuesdtodtheirdareasdofdresponsibility?
4. Whatdisdand―after-tax‖dapproachdtoddecisiondmaking?
SolutionsdtodReviewdQuestions
R1-
1dOncedprofitdisddetermined,dthedIncomedTaxdActddeterminesdthedamountdofdincomedtaxdthatdresults.dHo
wever,datdalldlevelsdofdmanagement,dalternativedcoursesdofdactiondaredevaluated.dIndmanydcases,dthedchoi
cedofdonedalternativedoverdthedotherdmaydaffectdbothdthedamountdanddthedtimingdofdfuturedtaxesdondincom
edgenerateddfromdthatdactivity.dTherefore,dthedpersondmakingdthoseddecisionsdhasdaddirectdinputdintodfut
uredafter-
taxdcashd flow.dObviously,ddecisionsdthatdreducedordpostponedthedpaymentdofdtaxdaffectdthedultimatedret
urndondinvestmentdand,dindturn,dthedvaluedofdthedenterprise.dIncludingdthedtaxdvariabledasdadpartdofdthedfor
malddecisiondprocessdwilldultimatelydleaddtodimproveddafter-taxdcashdflow.
R1-
2dExpansiondcandbedachieveddindnewdgeographicdareasdthroughddirectdselling,dordbydestablishingdadform
aldpresencedindthednewdterritorydwithdadbranchdofficedordadseparatedcorporation.dThednewdterritoriesdmayd
alsodcrossdprovincialdordinternationaldboundaries.dProvincialdincomedtaxdratesdvarydamongstdthedprovin
ces.dThedamountdofdincomedthatdisdsubjectdtodtaxdindthednewdprovincedwilldbeddifferentdfordeachdofdthedthr
eedalternativesdmentioneddabove.dFordexample,dwithddirectdselling,dnonedofdthedincomedisdtaxeddindthedn
ewdprovince,dbutdwithdadseparatedcorporation,dalldofdthedincomedisdtaxeddindthednewdprovince.dBecausedt
hedtaxdcostdisddifferentdindeachdcase,dtaxationdisdadrelevantdpartdofdtheddecisiondanddmustdbedincludeddinda
nydcost-benefitdanalysisdthatdcomparesdthedthreedalternativesd[Reg.d400-402.1].
R1-
3dAdbasicdunderstandingdofdthedfollowingdvariablesdwilldsignificantlydstrengthendaddecisiondmaker'sdabi
litydtodapplydtaxdissuesdtodtheirdareadofdresponsibility.
TypesdofdIncome - Employment,dBusiness,dProperty,dCapitaldgains
TaxabledEntities - Individuals,dCorporations,dTrusts
AlternativedBusiness - Corporation,dProprietorship,dPartnership,dLimited
, Structures partnership,dJointdarrangement,dIncomedtrust
TaxdJurisdictions - Federal,dProvincial,dForeign
R1-
4dAlldcashdflowddecisions,dwhetherdrelateddtodrevenues,dexpenses,dassetdacquisitionsdorddivestitures,dord
debtdanddequitydrestructuring,dwilldimpactdthedamountdanddtimingdofdthedtaxdcost.d Therefore,d cashd flowd
existsd onlyd ond and afterd taxd basis,d and,d thed taxd impactsd whetherdordnotdthedultimatedresultdofdtheddecision
disdsuccessful.dAndafter-taxdapproachdtoddecision-makingdrequiresdeachddecision-makerdtodthinkd"after-
tax"dfordeveryddecisiondatdthedtimedtheddecisiondisdbeingdmade,dand,dtodconsiderdalternativedcoursesdofdac
tiondtodminimizedthedtaxdcost,dindthedsamedwaydthatddecisionsdaredmadedregardingdotherdtypesdofdcosts.
Failured tod applyd and after-
taxd approachd atd thed timed thatd decisionsd ared maded mayd providedinaccuratedinformationdfordevaluation,dand,dresul
tdindadpermanentlydinefficientdtaxdstructure.
CHAPTER 2 d
FUNDAMENTALS OF TAX PLANNING d d d
ReviewdQuestions
1. ―Taxdplanningdanddtaxdavoidancedmeandthedsamedthing.‖dIsdthisdstatementdtrue?dExplain.
2. Whatddistinguishesdtaxdevasiondfromdtaxdavoidancedanddtaxdplanning?
3. DoesdCanadadRevenuedAgencyddealdwithdalldtaxdavoidancedactivitiesdindthedsamedway?dExplain.
4. Thedpurposedofdtaxdplanningdisdtodreducedorddeferdthedtaxdcostsdassociateddwithdfinancialdtransactions.d
Whatdaredthedgeneraldtypesdofdtaxdplanningdactivities?dBrieflydexplaindhowdeachdofdthemdmaydreducedo
rddeferdthedtaxdcost.
5. ―Itdisdalwaysdbetterdtodpaydtaxdlaterdratherdthandsooner.‖dIsdthisdstatementdtrue?dExplain.
6. Whendcorporatedtaxdratesdared13%danddtaxdratesdfordindividualsdared40%,disditdalwaysdbetterdfordthedindi
vidualdtodtransferdtheirdbusinessdtodadcorporation?
7. ―Asdlongdasdalldofdthedincomedtaxdrulesdaredknown,dadtaxdplandcandbeddevelopeddwithdcertainty.‖dIsdthi
sdstatementdtrue?dExplain.
8. Whatdbasicdskillsdaredrequireddtoddevelopdadgooddtaxdplan?
9. Andentrepreneurdisddevelopingdadnewdbusinessdventuredanddisdplanningdtodraisedequitydcapitaldfromdind
ividualdinvestors.dTheirdadviserdindicatesdthatdthedventuredcoulddbedstructureddasdadcorporationd(i.e.,ds
haresdaredissueddtodthedinvestors)dordasdadlimiteddpartnershipd (i.e.,d partnershipd unitsd ared sold).d Bothd s
tructuresd provided limitedd liabilityd fordthedinvestors.dShoulddthedentrepreneurdconsiderdthedtaxdpositio
nsdofdthedindividualdinvestors?dExplain.dWithoutddealingdwithdspecificdtaxdrules,dwhatdgeneraldtaxdfact
orsdshoulddandinvestordconsiderdbeforedmakingdandinvestment?
