Canadian Income Taxation, 2023/2024:
Planning And Decision Making
27th Edition
By William Buckwold
,
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
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 Explain 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?
. 1
Instructor Solutions Manual Chapter One
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
CHAPTER 1
Solutions To Review Questions
R1-1 OnceTAXATION― ITS ROLE
Profit Is Determined, IN BUSINESS
The Income DECISION
Tax Act Determines MAKING
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
Planning And Decision Making
27th Edition
By William Buckwold
,
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
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 Explain 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?
. 1
Instructor Solutions Manual Chapter One
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
CHAPTER 1
Solutions To Review Questions
R1-1 OnceTAXATION― ITS ROLE
Profit Is Determined, IN BUSINESS
The Income DECISION
Tax Act Determines MAKING
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
