Canadian Income Taxation – Buckwold, 26th Edition | Complete Solution Manual (Chapters 1–23)

SOLUTION MANUAL

Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23

,TABLE OF CONTENTS vi vi




Chapter1 Taxation-Its Role in Decision Making
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Chapter2 Fundamentals of Tax Planning
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Chapter 3 Liability for Tax, Income Determination, and Administration of the Income Tax System
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Chapter 4 Income from Employment
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Chapter 5 Income from Business
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Chapter 6 The Acquisition, Use, and Disposal of Depreciable Property
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Chapter7 Income from Property
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Chapter8 Gains and Losses on the Disposition of Capital Property-Capital Gains
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Chapter 9 Other Income, Other Deductions, and Special Rules for Completing Net Income for Tax Purposes
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Chapter 10 Individuals: Determination of Taxable Income and Taxes Payable
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Chapter 11 Corporations-An Introduction
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Chapter 12 Organization, Capital Structures, and Income Distributions of Corporations
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Chapter 13 The Canadian-Controlled Private Corporation
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Chapter 14 Multiple Corporations and Their Reorganization
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Chapter 15 Partnerships
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Chapter 16 Limited Partnerships and Joint Ventures
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Chapter 17 Trusts
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Chapter 18 Business Acquisitions and Divestitures-Assets versus Shares
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Chapter 19 Business Acquisitions and Divestitures-Tax-Deferred Sales
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Chapter 20 Domestic and International Business Expansion
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Chapter 21 Tax Aspects of Corporate Financing
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Chapter 22 Introduction to GST/HST
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Chapter 23 Business Valuations
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, CHAPTER 1 vi




TAXATION― ITS ROLE IN BUSINESS DECISION MAKING vi vi vi vi vi vi




Review Questions vi




1. If income tax is imposed after profits have been determined, why is taxation relevant to business decis
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ion making? vi




2. Most business decisions involve the evaluation of alternative courses of action. For example, a marke
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ting manager may be responsible for choosing a strategy for establishing sales in new geographical te
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rritories. Briefly explain how the tax factor can be an integral part 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 responsibility?
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4. What is an ―after-tax‖ approach to decision making? vi vi vi vi vi vi vi




Solutions to Review Questions
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R1-
1 Once profit is determined, the Income Tax Act determines the amount of income tax that results. How
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ever, at all levels of management, alternative courses of action are evaluated.In many cases, the choice
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of one alternative over the other may affect both the amount and the timing of future taxes on income ge
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nerated from that activity. Therefore, the person making those decisions has a direct input into future af
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ter-
tax cash flow. Obviously, decisions that reduce or postpone the payment of tax affect the ultimate retu
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rn on investment and, in turn, the value of the enterprise. Including the tax variable as a part of the forma
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l decision process will ultimately lead to improved after-tax cash flow.
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R1-
2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a forma
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l presence in the new territory with a branch office or a separate corporation. The new territories may al
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so cross provincial or international boundaries. Provincial income tax rates vary amongst the provinces
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. The amount of income that is subject to tax in the new province will be different for each of the three al
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ternatives mentioned above. For example, with direct selling, none of the income is taxed in the new pr
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ovince, but with a separate corporation, all of the income is taxed in the new province. Because the tax c
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ost is different in each case, taxation is a relevant part of the decision and must be included in any cost-
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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 maker's abili
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ty to apply tax issues to their area of responsibility.
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Types of Income vi vi - Employment, Business, Property, Capital gains vi vi vi vi




Taxable Entities vi - Individuals, Corporations, Trusts vi vi




Alternative Business vi - Corporation, Proprietorship, Partnership, Limited vi vi vi

, Structures partnership, Joint arrangement, Income trust vi vi vi vi




Tax Jurisdictions vi - Federal, Provincial, Foreign vi vi




R1-
4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or divestitures, or d
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ebt and equity restructuring, will impact the amount and timing of the tax cost. Therefore, cash flow ex
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ists only on an after tax basis, and, the tax impacts whetheror not the ultimate result of the decision is
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successful. An after-tax approach to decision-making requires each decision-maker to think "after-
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tax" for every decision at thetime the decision is being made, and, to consider alternative courses of acti
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on to minimizethe tax cost, in the same way that decisions are made regarding other types of costs.
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Failure to apply an after- v i v i v i v i




tax approach at the time that decisions are made may provideinaccurate information for evaluation, and, res
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ult in a permanently inefficient tax structure.
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CHAPTER 2 vi




FUNDAMENTALS OF TAX PLANNING vi vi vi




Review Questions vi




1. ―Tax planning and tax avoidance mean the same thing.‖ Is this statement true? Explain.
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2. What distinguishes tax evasion from tax avoidance and tax planning?
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3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way? Explain.
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4. The purpose of tax planning is to reduce or defer the tax costs associated with financial transactions.
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What are the general types of tax planning activities? Briefly explain how each of them may reduce or
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defer the tax cost.
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5. ―It is always better to pay tax later rather than sooner.‖ Is this statement true? Explain.
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6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always better for the indiv
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idual to transfer their business to a corporation?
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7. ―As long as all of the income tax rules are known, a tax plan can be developed with certainty.‖ Is this
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statement true? Explain. vi vi




8. What basic skills are required to develop a good tax plan?
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9. An entrepreneur is developing a new business venture and is planning to raise equity capital from indi
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vidual investors. Their adviser indicates that the venture could be structured as a corporation (i.e., sha
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res are issued to the investors) or as a limited partnership (i.e., partnership units are sold). Both str
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uctures provide limited liability forthe investors. Should the entrepreneur consider the tax position
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s of the individual investors? Explain. Without dealing with specific tax rules, what general tax factor
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s should an investor consider before making an investment?
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