Solution Manual for Canadian Income Taxation
26th Edition by William Buckwold
All chapters 1-23 Covered
,TABLE OF CONTENT
Chapter 1 Taxation Its Role in Decision Making
Chapter 2 Fundamentals of Tax Planning
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
Chapter 4 Income from Employment
Chapter 5 Income from Business
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
Chapter 7 Income from Property
Chapter 8 Gains and Losses on the Disposition of Capital Property-Capital Gains
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
Chapter 11 Corporations-An Introduction
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
Chapter 13 The Canadian-Controlled Private Corporation
Chapter 14 Multiple Corporations and Their Reorganization
Chapter 15 Partnerships
Chapter 16 Limited Partnerships and Joint Ventures
Chapter 17 Trusts
Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
Chapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
Chapter 20 Domestic and International Business Expansion
Chapter 21 Tax Aspects of Corporate Financing
Chapter 22 Introduction to GST/HST
Chapter 23 Business Valuations
Chapter 1
Taxation – It’s 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 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?
,Solutions Cto CReview CQuestions
R1-1 C Once C profit C is C determined, C the C Income C Tax C Act C determines C the C amount C of
C income C tax C that C results. C However, C at C all C levels C of C management, C alternative C courses
C of C action C are C evaluated. C In C many C cases, C the C choice C of C one C alternative C over C the C other
C may C affect C both C the C amount C and C the C timing C of C future C taxes C on C income C generated
C from C that C activity. C Therefore, C the C person C making C those C decisions C has C a C direct
C input C into C future C after-tax C cash C flow. C Obviously, C decisions C that C reduce C or
C postpone C the C payment C of C tax C affect C the C ultimate C return C on C investment C and, C in C turn,
C the Cvalue C of Cthe C enterprise. CIncluding Cthe Ctax Cvariable Cas C a Cpart C of Cthe Cformal C decision
C process C will Cultimately Clead Cto Cimproved Cafter-tax Ccash Cflow.
R1-2 CExpansion Ccan Cbe Cachieved C in Cnew C geographic Careas Cthrough Cdirect Cselling, Cor Cby
Cestablishing Ca C formal C presence Cin Cthe C new C territory Cwith Ca Cbranch C office Cor C a
C separate Ccorporation. CThe Cnew C territories C may C also C cross C provincial C or C international
C boundaries. C Provincial C income C tax C rates C vary C amongst C the C provinces. C The C amount C of
C income C that C is C subject C to C tax C in C the C new C province C will C be C different C for C each C of C the
C three C alternatives C mentioned C above. C For C example, C with C direct C selling, C none C of C the
C income C is C taxed C in C the C new C province, C but C with C a C separate C corporation, C all C of C the
C income C is C taxed C in C the C new C province. C Because C the C tax C cost C is C different C in C each
C case, C taxation C is C a C relevant C part C of C the C decision C and C must C be C included C in C any
C cost-benefit C analysis C that Ccompares Cthe Cthree Calternatives C[Reg. C400-402.1].
R1-3 CA C basic C understanding C of C the C following C variables C will C significantly C strengthen C a Cdecision
C maker's Cability Cto Capply Ctax Cissues Cto Ctheir Carea Cof Cresponsibility.
Types Cof CIncome - Employment, CBusiness, CProperty, CCapital
Cgains C Taxable CEntities - Individuals, CCorporations, CTrusts
Alternative CBusiness - Corporation, CProprietorship, CPartnership,
CLimited C Structures partnership, CJoint Carrangement, CIncome Ctrust
Tax CJurisdictions - Federal, CProvincial, CForeign
R1-4 C All C cash C flow C decisions, C whether C related C to C revenues, C expenses, C asset C acquisitions
C or C divestitures, C or C debt C and C equity C restructuring, C will C impact C the C amount C and
C timing C of C the C tax C cost. CTherefore, Ccash Cflow Cexists Conly Con Can Cafter Ctax Cbasis, Cand, Cthe
Ctax Cimpacts Cwhether Cor C not C the C ultimate C result Cof C the C decision C is C successful. C An
C after-tax C approach C to C C decision- C making C requires C each C decision-maker C to C think
C "after-tax" C for C every C decision C at C the C time C the C decision Cis Cbeing Cmade, Cand, Cto
Cconsider C alternative Ccourses C of C action Cto Cminimize Cthe Ctax Ccost, C in Cthe Csame Cway Cthat
Cdecisions Care Cmade Cregarding Cother Ctypes Cof C costs.
Failure C to C apply C an C after-tax C approach C at C the C time C that C decisions C are C made C may
C provide C inaccurate Cinformation Cfor Cevaluation, Cand, Cresult Cin Ca Cpermanently
Cinefficient Ctax Cstructure.
, CHAPTERC2
FUNDAMENTALSCOFCTAXCPLANNING
Review CQuestions
1. “Tax Cplanning Cand Ctax Cavoidance Cmean Cthe Csame Cthing.” CIs Cthis Cstatement Ctrue? CExplain.
2. What Cdistinguishes Ctax Cevasion Cfrom Ctax Cavoidance Cand Ctax Cplanning?
3. Does C Canada CRevenue CAgency C deal C with C all C tax C avoidance Cactivities C in C the C same C way?
C Explain.
4. The C purpose C of C tax C planning C is C to C reduce C or C defer C the C tax C costs C associated
C with C financial C transactions. CWhat C are Cthe C general C types Cof C tax Cplanning C activities?
CBriefly Cexplain C how C each C of Cthem Cmay Creduce Cor Cdefer Cthe Ctax Ccost.
5. “It Cis Calways Cbetter Cto Cpay Ctax Clater Crather Cthan Csooner.” CIs Cthis Cstatement Ctrue? CExplain.
6. When Ccorporate Ctax Crates Care C13% Cand Ctax Crates Cfor Cindividuals Care C40%, Cis Cit Calways
Cbetter Cfor C the Cindividual Cto Ctransfer Ctheir Cbusiness Cto Ca Ccorporation?
7. “As C C long C C as C C all C Cof C C the C C income C C tax C C rules C C are C Cknown, C C a C C tax C C plan C C can C C be C
C developed C C with
certainty.” CIs Cthis Cstatement Ctrue? CExplain.
8. What Cbasic Cskills Care Crequired Cto Cdevelop Ca Cgood Ctax Cplan?
9. An Centrepreneur C is C developing C a C new Cbusiness C Cventure C and Cis C Cplanning C to
C raise C equity C capital C from C individual C investors. C Their C adviser C indicates C that C the
C venture C could C be C structured C as C a C corporation C (i.e., C shares C are C issued C to C the
C investors) C or C as C a C limited C partnership C (i.e., Cpartnership C units Care Csold). CBoth
Cstructures C provide Climited C liability Cfor C the C investors. C Should C the C entrepreneur
C consider C the C tax C positions C of C the C individual C investors? C Explain. C Without C dealing
C with C specific C tax C rules, C what C general C tax C factors C should C an C investor C consider Cbefore
Cmaking Can Cinvestment?
10. What Cis Ca Ctax Cavoidance Ctransaction?
11. “If Ca Ctransaction C (or Ca Cseries Cof Ctransactions) Cthat C results C in Ca Ctax Cbenefit Cwas Cnot
C undertaken C primarily C for C bona C fide C business, C investment, C or C family C purposes,
C the C general C anti- C avoidance Crule Cwill Capply Cand Celiminate Cthe Ctax Cbenefit.” CIs C this
Cstatement Ctrue? CExplain.
26th Edition by William Buckwold
All chapters 1-23 Covered
,TABLE OF CONTENT
Chapter 1 Taxation Its Role in Decision Making
Chapter 2 Fundamentals of Tax Planning
Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
Chapter 4 Income from Employment
Chapter 5 Income from Business
Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
Chapter 7 Income from Property
Chapter 8 Gains and Losses on the Disposition of Capital Property-Capital Gains
Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
Chapter 11 Corporations-An Introduction
Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
Chapter 13 The Canadian-Controlled Private Corporation
Chapter 14 Multiple Corporations and Their Reorganization
Chapter 15 Partnerships
Chapter 16 Limited Partnerships and Joint Ventures
Chapter 17 Trusts
Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
Chapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
Chapter 20 Domestic and International Business Expansion
Chapter 21 Tax Aspects of Corporate Financing
Chapter 22 Introduction to GST/HST
Chapter 23 Business Valuations
Chapter 1
Taxation – It’s 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 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?
,Solutions Cto CReview CQuestions
R1-1 C Once C profit C is C determined, C the C Income C Tax C Act C determines C the C amount C of
C income C tax C that C results. C However, C at C all C levels C of C management, C alternative C courses
C of C action C are C evaluated. C In C many C cases, C the C choice C of C one C alternative C over C the C other
C may C affect C both C the C amount C and C the C timing C of C future C taxes C on C income C generated
C from C that C activity. C Therefore, C the C person C making C those C decisions C has C a C direct
C input C into C future C after-tax C cash C flow. C Obviously, C decisions C that C reduce C or
C postpone C the C payment C of C tax C affect C the C ultimate C return C on C investment C and, C in C turn,
C the Cvalue C of Cthe C enterprise. CIncluding Cthe Ctax Cvariable Cas C a Cpart C of Cthe Cformal C decision
C process C will Cultimately Clead Cto Cimproved Cafter-tax Ccash Cflow.
R1-2 CExpansion Ccan Cbe Cachieved C in Cnew C geographic Careas Cthrough Cdirect Cselling, Cor Cby
Cestablishing Ca C formal C presence Cin Cthe C new C territory Cwith Ca Cbranch C office Cor C a
C separate Ccorporation. CThe Cnew C territories C may C also C cross C provincial C or C international
C boundaries. C Provincial C income C tax C rates C vary C amongst C the C provinces. C The C amount C of
C income C that C is C subject C to C tax C in C the C new C province C will C be C different C for C each C of C the
C three C alternatives C mentioned C above. C For C example, C with C direct C selling, C none C of C the
C income C is C taxed C in C the C new C province, C but C with C a C separate C corporation, C all C of C the
C income C is C taxed C in C the C new C province. C Because C the C tax C cost C is C different C in C each
C case, C taxation C is C a C relevant C part C of C the C decision C and C must C be C included C in C any
C cost-benefit C analysis C that Ccompares Cthe Cthree Calternatives C[Reg. C400-402.1].
R1-3 CA C basic C understanding C of C the C following C variables C will C significantly C strengthen C a Cdecision
C maker's Cability Cto Capply Ctax Cissues Cto Ctheir Carea Cof Cresponsibility.
Types Cof CIncome - Employment, CBusiness, CProperty, CCapital
Cgains C Taxable CEntities - Individuals, CCorporations, CTrusts
Alternative CBusiness - Corporation, CProprietorship, CPartnership,
CLimited C Structures partnership, CJoint Carrangement, CIncome Ctrust
Tax CJurisdictions - Federal, CProvincial, CForeign
R1-4 C All C cash C flow C decisions, C whether C related C to C revenues, C expenses, C asset C acquisitions
C or C divestitures, C or C debt C and C equity C restructuring, C will C impact C the C amount C and
C timing C of C the C tax C cost. CTherefore, Ccash Cflow Cexists Conly Con Can Cafter Ctax Cbasis, Cand, Cthe
Ctax Cimpacts Cwhether Cor C not C the C ultimate C result Cof C the C decision C is C successful. C An
C after-tax C approach C to C C decision- C making C requires C each C decision-maker C to C think
C "after-tax" C for C every C decision C at C the C time C the C decision Cis Cbeing Cmade, Cand, Cto
Cconsider C alternative Ccourses C of C action Cto Cminimize Cthe Ctax Ccost, C in Cthe Csame Cway Cthat
Cdecisions Care Cmade Cregarding Cother Ctypes Cof C costs.
Failure C to C apply C an C after-tax C approach C at C the C time C that C decisions C are C made C may
C provide C inaccurate Cinformation Cfor Cevaluation, Cand, Cresult Cin Ca Cpermanently
Cinefficient Ctax Cstructure.
, CHAPTERC2
FUNDAMENTALSCOFCTAXCPLANNING
Review CQuestions
1. “Tax Cplanning Cand Ctax Cavoidance Cmean Cthe Csame Cthing.” CIs Cthis Cstatement Ctrue? CExplain.
2. What Cdistinguishes Ctax Cevasion Cfrom Ctax Cavoidance Cand Ctax Cplanning?
3. Does C Canada CRevenue CAgency C deal C with C all C tax C avoidance Cactivities C in C the C same C way?
C Explain.
4. The C purpose C of C tax C planning C is C to C reduce C or C defer C the C tax C costs C associated
C with C financial C transactions. CWhat C are Cthe C general C types Cof C tax Cplanning C activities?
CBriefly Cexplain C how C each C of Cthem Cmay Creduce Cor Cdefer Cthe Ctax Ccost.
5. “It Cis Calways Cbetter Cto Cpay Ctax Clater Crather Cthan Csooner.” CIs Cthis Cstatement Ctrue? CExplain.
6. When Ccorporate Ctax Crates Care C13% Cand Ctax Crates Cfor Cindividuals Care C40%, Cis Cit Calways
Cbetter Cfor C the Cindividual Cto Ctransfer Ctheir Cbusiness Cto Ca Ccorporation?
7. “As C C long C C as C C all C Cof C C the C C income C C tax C C rules C C are C Cknown, C C a C C tax C C plan C C can C C be C
C developed C C with
certainty.” CIs Cthis Cstatement Ctrue? CExplain.
8. What Cbasic Cskills Care Crequired Cto Cdevelop Ca Cgood Ctax Cplan?
9. An Centrepreneur C is C developing C a C new Cbusiness C Cventure C and Cis C Cplanning C to
C raise C equity C capital C from C individual C investors. C Their C adviser C indicates C that C the
C venture C could C be C structured C as C a C corporation C (i.e., C shares C are C issued C to C the
C investors) C or C as C a C limited C partnership C (i.e., Cpartnership C units Care Csold). CBoth
Cstructures C provide Climited C liability Cfor C the C investors. C Should C the C entrepreneur
C consider C the C tax C positions C of C the C individual C investors? C Explain. C Without C dealing
C with C specific C tax C rules, C what C general C tax C factors C should C an C investor C consider Cbefore
Cmaking Can Cinvestment?
10. What Cis Ca Ctax Cavoidance Ctransaction?
11. “If Ca Ctransaction C (or Ca Cseries Cof Ctransactions) Cthat C results C in Ca Ctax Cbenefit Cwas Cnot
C undertaken C primarily C for C bona C fide C business, C investment, C or C family C purposes,
C the C general C anti- C avoidance Crule Cwill Capply Cand Celiminate Cthe Ctax Cbenefit.” CIs C this
Cstatement Ctrue? CExplain.
