,Solution manual for Cana
J J J
dian Income Taxation 202
J J J
22023 25th Edition by Willi
J J J J
am Buckwold, Joan Kitun
J J J
en, Matthew Roman
J J
,CHAPTER 1 J
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
J J J J J J
ReviewJQuestions
1. IfJincomeJtaxJisJimposedJafterJprofitsJhaveJbeenJdetermined,JwhyJisJtaxationJrelevantJtoJbusi
nessJdecisionJmaking?
2. MostJbusinessJdecisionsJinvolveJtheJevaluationJofJalternativeJcoursesJofJaction.JForJexampl
e,JaJmarketingJmanagerJmayJbeJresponsibleJforJchoosingJaJstrategyJ forJestablishingJ salesJ i
nJ newJ geographicalJ territories.J BrieflyJ explainJ howJ theJ taxJ factorJ canJbeJanJintegralJpartJof
JthisJdecision.
3. WhatJareJtheJfundamentalJvariablesJofJtheJincomeJtaxJsystemJ thatJ decision-
makersJ shouldJbeJfamiliarJwithJsoJthatJtheyJcanJapplyJtaxJissuesJtoJtheirJareasJofJresponsibil
ity?
4. WhatJisJanJ―after-tax‖JapproachJtoJdecisionJmaking?
1
, SolutionsJtoJReviewJQuestions
R1-
1JOnceJprofitJisJdetermined,JtheJIncomeJTaxJActJdeterminesJtheJamountJofJincomeJtaxJthatJre
sults.JHowever,JatJallJlevelsJofJmanagement,JalternativeJcoursesJofJactionJareJevaluated.JInJ
manyJ cases,J theJ choiceJ ofJ oneJ alternativeJ overJ theJ otherJ mayJ affectJ bothJ theJ amountJand
JtheJtimingJofJ futureJtaxesJ onJincomeJgeneratedJfromJthatJ activity.JTherefore,JtheJ personJ ma
kingJ thoseJ decisionsJ hasJ aJ directJ inputJ intoJ futureJ after-
taxJ cashJ flow.JObviously,JdecisionsJthatJreduceJorJpostponeJtheJpaymentJofJtaxJaffectJtheJulti
mateJreturnJonJ investmentJ and,JinJturn,JtheJvalueJofJtheJenterprise.JIncludingJ theJtaxJvariableJ
asJaJpartJ ofJtheJformalJdecisionJprocessJwillJultimatelyJleadJtoJimprovedJafter-taxJcashJflow.
R1-
2JExpansionJcanJbeJachievedJinJnewJgeographicJareasJthroughJdirectJselling,JorJbyJestablishi
ngJaJformalJpresenceJinJtheJnewJterritoryJwithJaJbranchJofficeJorJaJseparateJcorporation.JTheJn
ewJterritoriesJmayJalsoJcrossJprovincialJorJinternationalJboundaries.JProvincialJincomeJtaxJrat
esJvaryJamongstJtheJprovinces.JTheJamountJofJincomeJthatJisJsubjectJtoJtaxJinJtheJnewJprovin
ceJwillJbeJdifferentJforJeachJofJtheJthreeJalternativesJmentionedJabove.JForJexample,JwithJdire
ctJselling,JnoneJofJtheJincomeJisJtaxedJinJtheJnewJprovince,JbutJwithJaJseparateJcorporation,Jal
lJofJtheJincomeJisJtaxedJinJtheJnewJprovince.JBecauseJtheJtaxJcostJisJ differentJinJeachJcase,Jta
xationJ isJaJrelevantJpartJofJtheJdecisionJ andJmustJbeJincludedJinJanyJcost-
benefitJanalysisJthatJcomparesJtheJ threeJalternativesJ[Reg.J400-402.1].
R1-
3JAJbasicJunderstandingJofJtheJfollowingJvariablesJwillJsignificantlyJstrengthenJaJdecisionJmak
er'sJabilityJtoJapplyJtaxJissuesJtoJtheirJareaJofJresponsibility.
TypesJofJIncome -
Employment,JBusiness,JProperty,JCapitalJgainsJTax
ableJEntities - Individuals,JCorporations,JTrusts
AlternativeJBusiness - Corporation,JProprietorship,JPartnership,JLimited
Structures
partnership,JJointJarrangement,JIncomeJtrustJTaxJ
Jurisdictions -J Federal,JProvincial,JForeign
R1-
4JAllJcashJflowJdecisions,JwhetherJrelatedJtoJrevenues,Jexpenses,JassetJacquisitionsJorJdivest
itures,JorJdebtJandJequityJrestructuring,JwillJimpactJtheJamountJandJtimingJofJtheJtaxJcost.J The
refore,J cashJ flowJ existsJ onlyJ onJ anJ afterJ taxJ basis,J and,J theJ taxJ impactsJ whetherJorJnotJtheJ
ultimateJresultJofJtheJdecisionJisJsuccessful.JAnJafter-taxJapproachJtoJdecision-
JmakingJrequiresJeachJdecision-makerJtoJthinkJ"after-
tax"JforJeveryJdecisionJatJtheJtimeJtheJdecisionJisJbeingJmade,Jand,JtoJconsiderJalternativeJco
ursesJofJactionJtoJminimizeJtheJtaxJcost,JinJtheJsameJwayJthatJdecisionsJareJmadeJregardingJo
therJtypesJofJcosts.
FailureJtoJapplyJanJafter-
2
J J J
dian Income Taxation 202
J J J
22023 25th Edition by Willi
J J J J
am Buckwold, Joan Kitun
J J J
en, Matthew Roman
J J
,CHAPTER 1 J
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
J J J J J J
ReviewJQuestions
1. IfJincomeJtaxJisJimposedJafterJprofitsJhaveJbeenJdetermined,JwhyJisJtaxationJrelevantJtoJbusi
nessJdecisionJmaking?
2. MostJbusinessJdecisionsJinvolveJtheJevaluationJofJalternativeJcoursesJofJaction.JForJexampl
e,JaJmarketingJmanagerJmayJbeJresponsibleJforJchoosingJaJstrategyJ forJestablishingJ salesJ i
nJ newJ geographicalJ territories.J BrieflyJ explainJ howJ theJ taxJ factorJ canJbeJanJintegralJpartJof
JthisJdecision.
3. WhatJareJtheJfundamentalJvariablesJofJtheJincomeJtaxJsystemJ thatJ decision-
makersJ shouldJbeJfamiliarJwithJsoJthatJtheyJcanJapplyJtaxJissuesJtoJtheirJareasJofJresponsibil
ity?
4. WhatJisJanJ―after-tax‖JapproachJtoJdecisionJmaking?
1
, SolutionsJtoJReviewJQuestions
R1-
1JOnceJprofitJisJdetermined,JtheJIncomeJTaxJActJdeterminesJtheJamountJofJincomeJtaxJthatJre
sults.JHowever,JatJallJlevelsJofJmanagement,JalternativeJcoursesJofJactionJareJevaluated.JInJ
manyJ cases,J theJ choiceJ ofJ oneJ alternativeJ overJ theJ otherJ mayJ affectJ bothJ theJ amountJand
JtheJtimingJofJ futureJtaxesJ onJincomeJgeneratedJfromJthatJ activity.JTherefore,JtheJ personJ ma
kingJ thoseJ decisionsJ hasJ aJ directJ inputJ intoJ futureJ after-
taxJ cashJ flow.JObviously,JdecisionsJthatJreduceJorJpostponeJtheJpaymentJofJtaxJaffectJtheJulti
mateJreturnJonJ investmentJ and,JinJturn,JtheJvalueJofJtheJenterprise.JIncludingJ theJtaxJvariableJ
asJaJpartJ ofJtheJformalJdecisionJprocessJwillJultimatelyJleadJtoJimprovedJafter-taxJcashJflow.
R1-
2JExpansionJcanJbeJachievedJinJnewJgeographicJareasJthroughJdirectJselling,JorJbyJestablishi
ngJaJformalJpresenceJinJtheJnewJterritoryJwithJaJbranchJofficeJorJaJseparateJcorporation.JTheJn
ewJterritoriesJmayJalsoJcrossJprovincialJorJinternationalJboundaries.JProvincialJincomeJtaxJrat
esJvaryJamongstJtheJprovinces.JTheJamountJofJincomeJthatJisJsubjectJtoJtaxJinJtheJnewJprovin
ceJwillJbeJdifferentJforJeachJofJtheJthreeJalternativesJmentionedJabove.JForJexample,JwithJdire
ctJselling,JnoneJofJtheJincomeJisJtaxedJinJtheJnewJprovince,JbutJwithJaJseparateJcorporation,Jal
lJofJtheJincomeJisJtaxedJinJtheJnewJprovince.JBecauseJtheJtaxJcostJisJ differentJinJeachJcase,Jta
xationJ isJaJrelevantJpartJofJtheJdecisionJ andJmustJbeJincludedJinJanyJcost-
benefitJanalysisJthatJcomparesJtheJ threeJalternativesJ[Reg.J400-402.1].
R1-
3JAJbasicJunderstandingJofJtheJfollowingJvariablesJwillJsignificantlyJstrengthenJaJdecisionJmak
er'sJabilityJtoJapplyJtaxJissuesJtoJtheirJareaJofJresponsibility.
TypesJofJIncome -
Employment,JBusiness,JProperty,JCapitalJgainsJTax
ableJEntities - Individuals,JCorporations,JTrusts
AlternativeJBusiness - Corporation,JProprietorship,JPartnership,JLimited
Structures
partnership,JJointJarrangement,JIncomeJtrustJTaxJ
Jurisdictions -J Federal,JProvincial,JForeign
R1-
4JAllJcashJflowJdecisions,JwhetherJrelatedJtoJrevenues,Jexpenses,JassetJacquisitionsJorJdivest
itures,JorJdebtJandJequityJrestructuring,JwillJimpactJtheJamountJandJtimingJofJtheJtaxJcost.J The
refore,J cashJ flowJ existsJ onlyJ onJ anJ afterJ taxJ basis,J and,J theJ taxJ impactsJ whetherJorJnotJtheJ
ultimateJresultJofJtheJdecisionJisJsuccessful.JAnJafter-taxJapproachJtoJdecision-
JmakingJrequiresJeachJdecision-makerJtoJthinkJ"after-
tax"JforJeveryJdecisionJatJtheJtimeJtheJdecisionJisJbeingJmade,Jand,JtoJconsiderJalternativeJco
ursesJofJactionJtoJminimizeJtheJtaxJcost,JinJtheJsameJwayJthatJdecisionsJareJmadeJregardingJo
therJtypesJofJcosts.
FailureJtoJapplyJanJafter-
2
