Solutions Manual for Canadian Income Taxation 27th Edition (2024/2025) by William Buckwold, Joan Kitunen, Matthew Roman & Abraham Iqbal | 2026/2027 Latest Update | Complete Chapter Solutions & Explanations | Verified Answers | Graded A+ Taxation Study Gu

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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
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CHAPTER 2 fr




FUNDAMENTALS OF TAX PLANNING fr fr fr




Review Questions
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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? Ex
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plain.

4. The purpose of tax planning is to reduce or defer the tax costs associated with financial tra
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nsactions. What are the general types of tax planning activities? Briefly explain how each
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of them may reduce or 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 t
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he individual 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 certaint
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y.‖ Is this statement true? Explain.
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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 capit
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al from individual investors. Their adviser indicates that the venture could be structured as
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a corporation (i.e., shares are issued to the investors) or as a limited partnership (i.e., partn
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ership units are sold). Both structures provide limited liability for the investors. Should the en
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trepreneur consider the tax positions of the individual investors? Explain. W ithout dealing w
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ith specific tax rules, what general tax factors should an investor consider before making an in
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vestment?

10. What is a tax avoidance transaction? fr fr fr fr fr




11. ―If a transaction (or a series of transactions) that results in a tax benefit was not undertaken prim
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arily for bona fide business, investment, or family purposes, the general anti-
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avoidance rule will apply and eliminate the tax benefit.‖ Is this statement true? Explain.
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. 1
Instructor Solutions Manual Chapter Two
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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
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Solutions to Review Questions fr fr fr




R2-
1 There is a distinction between tax planning and tax avoidance. Tax planning is the proc
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ess of arranging financial transactions in a manner that reduces or defers the tax cost and th
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at arrangement is provided for in the Income Tax Act or is not specifically prohibited. In other
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words, the arrangement is chosen from a reasonably clear set of options within the Act.
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In contrast, tax avoidance involves a transaction or series of transactions, the main purpose of
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which is to avoid or reduce the tax otherwise payable. While each transaction in the process
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may be legal by itself, the series of transactions cause a result not intended by the tax system
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.

R2-
2 Both tax planning and tax avoidance activities clearly present the full facts of each trans
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action, allowing them to be scrutinized by CRA. In comparison, tax evasion involves knowin
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gly excluding or altering the facts with the intention to deceive. Failing to report an amount o
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f revenue known to exist or deducting a false expense are examples of tax evasion.
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R2-
3 CRA does not deal with all tax avoidance transactions in the same way. In general, CRA
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attempts to divide tax avoidance transactions between those that are an abuse of the tax s
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ystem and those that are not. When an action is abusive, CRA will attempt to deny the resul
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ting benefits by applying one of the anti-avoidance rules in the Income Tax Act.
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R2-4 There are three general types of tax planning activities:
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 Shifting income from one time-period to another. fr fr fr fr fr fr


 Transferring income to another entity. fr fr fr fr


 Converting the nature of income from one type to another. fr fr fr fr fr fr fr fr fr




Shifting income to another time- fr fr fr fr


period can be a benefit if it results in a lower rate of tax applying to the income. Even if a lowe
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r rate of tax is not achieved, a benefit may be gained from delaying the payment of tax to a fut
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ure time-period. fr




Shifting income to an alternate taxpayer (for example, from an individual to a corporation) m
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ay beneficially alter the amount and timing of the tax.
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There are several types of income within the tax system such as employment income, busin
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ess income, capital gains and so on. Each type of income is governed by a different set of r
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ules. For some types of income, the timing, the amount of income recognized, and the effec
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tive tax rate is different from other types. By converting one type of income to another, a ben
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efit may be gained if the timing of income recognition, the amount recognized, and/or the eff
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ective tax rate is favorable. fr fr fr fr




R2-
5 The statement is not true. Paying tax later may be an advantage because it delays the t
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ax cost and frees up cash for other purposes. However, the delay may result in a higher rate
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of tax in the future year compared to the current year. In such circumstances, there is a trad
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e-off between the timing of the tax and the amount of tax payable.
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R2-
. 2
Instructor Solutions Manual Chapter Two
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