Solution Manual For Canadian Income Taxation 2025/2026 27th Edition ( Abraham Iqbal William Buckwold, 2024) All Chapters | Newest Edition

CHAPTER 1
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TAXATION― ITS ROLE IN BUSINESS DECISION
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MAKING

,Review Questions
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1. If income tax is imposed after profits have been determined, why is taxation
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relevant to business decision making?
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2. Most business decisions involve the evaluation of alternative courses of action.
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For example, a marketing manager may be responsible for choosing a strategy
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for establishing sales in new geographical territories. Briefly explain how the tax
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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-makers
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should be familiar with so that they can apply tax issues to their areas of
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responsibility?
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4. What is an ―after-tax‖ approach to decision making?
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. 1
Instructor Solutions Manual Chapter One
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, CHAPTER 1 hp

Solutions to Review Questions
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R1-1 h p
TAXATION―
Once ITS ROLE
profit is determined, theINIncome
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BUSINESS
Tax ActDECISION
determines the amount of
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hp MAKING
income tax that results. However, at all levels of management, alternative courses
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hp of action are evaluated. In many cases, the choice of one alternative over the other
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hp may affect both the amount and the timing of future taxes on income generated
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hp from that activity. Therefore, the person making those decisions has a direct
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hp input into future after-tax cash flow. Obviously, decisions that reduce or postpone
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hp the payment of tax affect the ultimate return on investment and, in turn, the
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hp value of the enterprise. Including the tax variable as a part of the formal
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hp 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
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establishing a formal presence in the new territory with a branch office or a
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separate corporation. The new territories may also cross provincial or
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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
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different for each of the three alternatives mentioned above. For example, with
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direct selling, none of the income is taxed in the new province, but with a
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separate corporation, all of the income is taxed in the new province. Because
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the tax cost is different in each case, taxation is a relevant part of the decision and
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must be included in any cost-benefit analysis that compares the three
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alternatives [Reg. 400-402.1].
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R1-3 A basic understanding of the following variables will significantly strengthen a
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decision maker's ability to apply tax issues to their area of responsibility.
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Types of Income hp hp - Employment, Business, Property, Capital hp hp hp




hp gains Taxable Entities - hp hp Individuals, Corporations, Trusts hp hp




Alternative Business - hp Corporation, Proprietorship, Partnership, hp hp


Limited Structures
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Tax Jurisdictions hp - Federal, Provincial, Foreign hp hp




R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions
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or divestitures, or debt and equity restructuring, will impact the amount and
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timing of the tax cost. Therefore, cash flow exists only on an after tax basis, and,
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the tax impacts whether or not the ultimate result of the decision is
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successful.
h p An after-tax approach to decision-making requires each
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decision-maker to think "after-tax" for every decision at the time the decision is
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being made, and, to consider alternative courses of action to minimize the tax
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cost, in the same way that decisions are made regarding other types of costs.
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Failure to apply an after-tax approach at the time that decisions are
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made may provide inaccurate information for evaluation, and, result in a
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permanently inefficient tax structure.
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, . 2
Instructor Solutions Manual Chapter One
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