SOLUTION MANUAL g
Canadian Income Taxation 26th Edition
g g g g
by William Buckwold, All Chapters 1 - 23
g g g g g g g
,TABLE OF CONTENTS
a a
Chapter1gTaxation-
ItsgRolegingDecisiongMakinggChapter2gFundamentalsg
ofgTaxgPlanning
Chapterg3gLiabilitygforaTax,gIncomegDetermination,gandgAdministrationgofgthegIncomegTaxgSystemgCha
pterg4gIncomegfromgEmployment
Chapterg5gIncomegfromgBusiness
Chapterg6gThegAcquisition,gUse,gandgDisposalgofgDepreciablegPropertygChapter
7gIncomegfromaProperty
Chapter8gGainsgandgLossesgongthegDispositiongofgCapitalgProperty-CapitalgGains
Chapterg9gOthergIncome,gOthergDeductions,gandgSpecialgRulesgforaCompletinggNetgIncomegforgTaxgPurposesgCha
pterg10gIndividuals:gDeterminationgofgTaxablegIncomegandgTaxesgPayable
Chapterg11gCorporations-AngIntroduction
Chapterg12gOrganization,gCapitalgStructures,gandgIncomegDistributionsgofgCorporationsgCh
apterg13gThegCanadian-ControlledgPrivategCorporation
Chapterg14gMultiplegCorporationsgandgTheirgReorganizationg
Chapterg15gPartnerships
Chapterg16gLimitedgPartnershipsgandgJointgVenturesgC
hapterg17gTrusts
Chapterg18gBusinessgAcquisitionsgandgDivestitures-
AssetsgversusgSharesgChapterg19gBusinessgAcquisitionsgandgDivestitures-Tax-
DeferredgSalesgChapterg20gDomesticgandgInternationalgBusinessgExpansion
Chapterg21gTaxgAspectsgofgCorporategFinancinggChapt
erg22gIntroductiongtogGST/HST
Chapterg23gBusinessgValuations
, CHAPTERg1
TAXATION―gITSgROLEgINgBUSINESSgDECISIONgMAKING
ReviewgQuestions
1. Ifgincomegtaxgisgimposedgafteraprofitsghavegbeengdetermined,gwhygisgtaxationgrelevantgtogbusinessg
dgecisiongmaking?
2. Mostabusinessgdecisionsginvolvegthegevaluationgofgalternativegcoursesgofgaction.gForgexample,gagm
agrketinggmanagergmaygbegresponsiblegforgchoosinggagstrategyaforgestablishinggsalesgingnewageogr
apghicalgterritories.gBrieflygexplainghowgthegtaxgfactorgcangbegangintegralgpartgofgthisgdecision.
3. Whatgaregthegfundamentalgvariablesgofgthegincomegtaxgsystemgthatgdecision-
makersgshouldgbegfamiliargwithgsogthatgtheygcangapplygtaxgissuesgtogtheirgareasgofgresponsibility?
4. Whatgisgang―after-tax‖gapproachgtogdecisiongmaking?
SolutionsgtogReviewgQuestions
R1-
1 Oncegprofitgisgdetermined,gthegIncomegTaxgActgdeterminesgthegamountgofgincomegtaxgthatgresults.
gHowever,gatgallglevelsgofgmanagement,galternativegcoursesgofgactiongaregevaluated.Ingmanygcases,gt
hgegchoicegofgonegalternativegovergthegothergmaygaffectgbothgthegamountgandgthegtiminggofgfuturegta
xesgongincomeageneratedgfromgthatgactivity.gTherefore,gthegpersongmakinggthosegdecisionsghasgagdi
rectgignputgintogfuturegafter-
taxgcashg flow.gObviously,gdecisionsgthatgreducegorgpostponegthegpaymentgofgtaxgaffectgthegultimategrg
eturngonginvestmentgand,gingturn,gthegvaluegofgthegenterprise.gIncludingathegtaxgvariablegasgagpartgofgtg
hegformalgdecisiongprocessgwillgultimatelygleadgtogimprovedgafter-taxgcashgflow.
R1-
2 Expansiongcangbegachievedgingnewggeographicgareasgthroughgdirectgselling,gorgbygestablishinggagf
ogrmalgpresencegingthegnewgterritorygwithgagbranchgofficegoraagseparategcorporation.gThegnewgterrito
riegsgmaygalsogcrossgprovincialgorginternationalgboundaries.gProvincialgincomegtaxgratesgvarygamon
gstgtghegprovinces.gThegamountgofgincomegthatgisgsubjectgtogtaxgingthegnewgprovincegwillgbegdifferen
tgforgegachgofgthegthreegalternativesgmentionedgabove.gForgexample,gwithgdirectgselling,gnonegofgtheg
incomegisgtaxedgingthegnewaprovince,gbutgwithaagseparategcorporation,gallgofgthegincomegisgtaxedgingt
hegnewgpgrovince.gBecausegthegtaxgcostgisgdifferentgingeachgcase,gtaxationgisgagrelevantgpartgofgthegd
ecisiongandgmustgbegincludedginganygcost-
benefitganalysisgthatgcomparesgthegthreegalternativesg[Reg.g400-g402.1].
R1-
3 Agbasicgunderstandinggofgthegfollowinggvariablesgwillgsignificantlygstrengthengagdecisiongmaker'
sgabilitygtogapplygtaxgissuesgtogtheiraareagofgresponsibility.
TypesgofgIncome - Employment,gBusiness,gProperty,gCapitalggains
TaxablegEntities - Individuals,gCorporations,gTrusts
, AlternativegBusiness - Corporation,gProprietorship,gPartnership,gLimited
Structures partnership,gJointgarrangement,gIncomegtrust
TaxgJurisdictions - Federal,gProvincial,gForeign
R1-
4 Allgcashgflowgdecisions,gwhetherarelatedgtogrevenues,gexpenses,gassetgacquisitionsgorgdivestitures
,gorgdebtgandgequitygrestructuring,gwillgimpactgthegamountgandgtiminggofgthegtaxgcost.gTherefore,gca
shgflowgexistsgonlygongangafterataxgbasis,gand,gthegtaxgimpactsgwhetheraorgnotgthegultimategresultgofg
thegdecisiongisgsuccessful.gAngafter-taxgapproachgtogdecision-makinggrequiresgeachgdecision-
makergtogthinka"after-
tax"gforgeverygdecisiongatgthetimegthegdecisiongisgbeinggmade,gand,gtogconsidergalternativegcoursesgo
fgactiongtogminimizethegtaxgcost,gingtheasamegwaygthatgdecisionsgaregmadegregardinggothergtypesgofg
cogsts.
Failureg tog applyg anagafter-
taxgapproachgatgthegtimeg thatg decisionsg aregmadegmaygprovideinaccurateginformationgforgevaluation,gand,gregs
ultgingagpermanentlyginefficientgtaxgstructure.
CHAPTERg2
FUNDAMENTALSgOFgTAXgPLANNING
ReviewgQuestions
1. ―Taxgplanninggandgtaxgavoidancegmeangthegsamegthing.‖gIsgthisgstatementgtrue?gExplain.
2. Whatgdistinguishesgtaxgevasiongfromgtaxgavoidancegandgtaxgplanning?
3. DoesgCanadagRevenuegAgencygdealgwithgallgtaxgavoidancegactivitiesgingthegsamegway?gExplain.
4. Thegpurposegofgtaxgplanninggisgtogreducegorgdefergthegtaxgcostsgassociatedgwithgfinancialgtransacti
ogns.gWhatgaregtheggeneralgtypesgofgtaxgplanningaactivities?gBrieflygexplainghowgeachgofgthemgmay
aregducegorgdeferathegtaxgcost.
5. ―Itgisgalwaysgbettergtogpaygtaxglatergrathergthangsooner.‖gIsgthisgstatementgtrue?gExplain.
6. Whenacorporategtaxgratesgareg13%gandgtaxgratesgforgindividualsgareg40%,gisgitgalwaysgbettergforath
egindividualgtogtransferatheirgbusinessgtogaacorporation?
7. ―Asglonggasgallgofgthegincomegtaxgrulesgaregknown,gagtaxgplangcangbegdevelopedgwithgcertainty.‖gI
sgthisgstatementgtrue?gExplain.
8. Whatgbasicgskillsgaregrequiredgtogdevelopgaggoodataxgplan?
9. Anaentrepreneurgisgdevelopinggagnewgbusinessgventuregandgisgplanninggtograisegequitygcapitalgfrom
gindividualginvestors.gTheiraadvisergindicatesgthatgthegventuregcouldgbegstructuredgasgagcorporationg
(gi.e.,gsharesgaregissuedgtogtheginvestors)gorgasgaglimitedgpartnershipg (i.e.,g partnershipg unitsg areg sol
d).
Canadian Income Taxation 26th Edition
g g g g
by William Buckwold, All Chapters 1 - 23
g g g g g g g
,TABLE OF CONTENTS
a a
Chapter1gTaxation-
ItsgRolegingDecisiongMakinggChapter2gFundamentalsg
ofgTaxgPlanning
Chapterg3gLiabilitygforaTax,gIncomegDetermination,gandgAdministrationgofgthegIncomegTaxgSystemgCha
pterg4gIncomegfromgEmployment
Chapterg5gIncomegfromgBusiness
Chapterg6gThegAcquisition,gUse,gandgDisposalgofgDepreciablegPropertygChapter
7gIncomegfromaProperty
Chapter8gGainsgandgLossesgongthegDispositiongofgCapitalgProperty-CapitalgGains
Chapterg9gOthergIncome,gOthergDeductions,gandgSpecialgRulesgforaCompletinggNetgIncomegforgTaxgPurposesgCha
pterg10gIndividuals:gDeterminationgofgTaxablegIncomegandgTaxesgPayable
Chapterg11gCorporations-AngIntroduction
Chapterg12gOrganization,gCapitalgStructures,gandgIncomegDistributionsgofgCorporationsgCh
apterg13gThegCanadian-ControlledgPrivategCorporation
Chapterg14gMultiplegCorporationsgandgTheirgReorganizationg
Chapterg15gPartnerships
Chapterg16gLimitedgPartnershipsgandgJointgVenturesgC
hapterg17gTrusts
Chapterg18gBusinessgAcquisitionsgandgDivestitures-
AssetsgversusgSharesgChapterg19gBusinessgAcquisitionsgandgDivestitures-Tax-
DeferredgSalesgChapterg20gDomesticgandgInternationalgBusinessgExpansion
Chapterg21gTaxgAspectsgofgCorporategFinancinggChapt
erg22gIntroductiongtogGST/HST
Chapterg23gBusinessgValuations
, CHAPTERg1
TAXATION―gITSgROLEgINgBUSINESSgDECISIONgMAKING
ReviewgQuestions
1. Ifgincomegtaxgisgimposedgafteraprofitsghavegbeengdetermined,gwhygisgtaxationgrelevantgtogbusinessg
dgecisiongmaking?
2. Mostabusinessgdecisionsginvolvegthegevaluationgofgalternativegcoursesgofgaction.gForgexample,gagm
agrketinggmanagergmaygbegresponsiblegforgchoosinggagstrategyaforgestablishinggsalesgingnewageogr
apghicalgterritories.gBrieflygexplainghowgthegtaxgfactorgcangbegangintegralgpartgofgthisgdecision.
3. Whatgaregthegfundamentalgvariablesgofgthegincomegtaxgsystemgthatgdecision-
makersgshouldgbegfamiliargwithgsogthatgtheygcangapplygtaxgissuesgtogtheirgareasgofgresponsibility?
4. Whatgisgang―after-tax‖gapproachgtogdecisiongmaking?
SolutionsgtogReviewgQuestions
R1-
1 Oncegprofitgisgdetermined,gthegIncomegTaxgActgdeterminesgthegamountgofgincomegtaxgthatgresults.
gHowever,gatgallglevelsgofgmanagement,galternativegcoursesgofgactiongaregevaluated.Ingmanygcases,gt
hgegchoicegofgonegalternativegovergthegothergmaygaffectgbothgthegamountgandgthegtiminggofgfuturegta
xesgongincomeageneratedgfromgthatgactivity.gTherefore,gthegpersongmakinggthosegdecisionsghasgagdi
rectgignputgintogfuturegafter-
taxgcashg flow.gObviously,gdecisionsgthatgreducegorgpostponegthegpaymentgofgtaxgaffectgthegultimategrg
eturngonginvestmentgand,gingturn,gthegvaluegofgthegenterprise.gIncludingathegtaxgvariablegasgagpartgofgtg
hegformalgdecisiongprocessgwillgultimatelygleadgtogimprovedgafter-taxgcashgflow.
R1-
2 Expansiongcangbegachievedgingnewggeographicgareasgthroughgdirectgselling,gorgbygestablishinggagf
ogrmalgpresencegingthegnewgterritorygwithgagbranchgofficegoraagseparategcorporation.gThegnewgterrito
riegsgmaygalsogcrossgprovincialgorginternationalgboundaries.gProvincialgincomegtaxgratesgvarygamon
gstgtghegprovinces.gThegamountgofgincomegthatgisgsubjectgtogtaxgingthegnewgprovincegwillgbegdifferen
tgforgegachgofgthegthreegalternativesgmentionedgabove.gForgexample,gwithgdirectgselling,gnonegofgtheg
incomegisgtaxedgingthegnewaprovince,gbutgwithaagseparategcorporation,gallgofgthegincomegisgtaxedgingt
hegnewgpgrovince.gBecausegthegtaxgcostgisgdifferentgingeachgcase,gtaxationgisgagrelevantgpartgofgthegd
ecisiongandgmustgbegincludedginganygcost-
benefitganalysisgthatgcomparesgthegthreegalternativesg[Reg.g400-g402.1].
R1-
3 Agbasicgunderstandinggofgthegfollowinggvariablesgwillgsignificantlygstrengthengagdecisiongmaker'
sgabilitygtogapplygtaxgissuesgtogtheiraareagofgresponsibility.
TypesgofgIncome - Employment,gBusiness,gProperty,gCapitalggains
TaxablegEntities - Individuals,gCorporations,gTrusts
, AlternativegBusiness - Corporation,gProprietorship,gPartnership,gLimited
Structures partnership,gJointgarrangement,gIncomegtrust
TaxgJurisdictions - Federal,gProvincial,gForeign
R1-
4 Allgcashgflowgdecisions,gwhetherarelatedgtogrevenues,gexpenses,gassetgacquisitionsgorgdivestitures
,gorgdebtgandgequitygrestructuring,gwillgimpactgthegamountgandgtiminggofgthegtaxgcost.gTherefore,gca
shgflowgexistsgonlygongangafterataxgbasis,gand,gthegtaxgimpactsgwhetheraorgnotgthegultimategresultgofg
thegdecisiongisgsuccessful.gAngafter-taxgapproachgtogdecision-makinggrequiresgeachgdecision-
makergtogthinka"after-
tax"gforgeverygdecisiongatgthetimegthegdecisiongisgbeinggmade,gand,gtogconsidergalternativegcoursesgo
fgactiongtogminimizethegtaxgcost,gingtheasamegwaygthatgdecisionsgaregmadegregardinggothergtypesgofg
cogsts.
Failureg tog applyg anagafter-
taxgapproachgatgthegtimeg thatg decisionsg aregmadegmaygprovideinaccurateginformationgforgevaluation,gand,gregs
ultgingagpermanentlyginefficientgtaxgstructure.
CHAPTERg2
FUNDAMENTALSgOFgTAXgPLANNING
ReviewgQuestions
1. ―Taxgplanninggandgtaxgavoidancegmeangthegsamegthing.‖gIsgthisgstatementgtrue?gExplain.
2. Whatgdistinguishesgtaxgevasiongfromgtaxgavoidancegandgtaxgplanning?
3. DoesgCanadagRevenuegAgencygdealgwithgallgtaxgavoidancegactivitiesgingthegsamegway?gExplain.
4. Thegpurposegofgtaxgplanninggisgtogreducegorgdefergthegtaxgcostsgassociatedgwithgfinancialgtransacti
ogns.gWhatgaregtheggeneralgtypesgofgtaxgplanningaactivities?gBrieflygexplainghowgeachgofgthemgmay
aregducegorgdeferathegtaxgcost.
5. ―Itgisgalwaysgbettergtogpaygtaxglatergrathergthangsooner.‖gIsgthisgstatementgtrue?gExplain.
6. Whenacorporategtaxgratesgareg13%gandgtaxgratesgforgindividualsgareg40%,gisgitgalwaysgbettergforath
egindividualgtogtransferatheirgbusinessgtogaacorporation?
7. ―Asglonggasgallgofgthegincomegtaxgrulesgaregknown,gagtaxgplangcangbegdevelopedgwithgcertainty.‖gI
sgthisgstatementgtrue?gExplain.
8. Whatgbasicgskillsgaregrequiredgtogdevelopgaggoodataxgplan?
9. Anaentrepreneurgisgdevelopinggagnewgbusinessgventuregandgisgplanninggtograisegequitygcapitalgfrom
gindividualginvestors.gTheiraadvisergindicatesgthatgthegventuregcouldgbegstructuredgasgagcorporationg
(gi.e.,gsharesgaregissuedgtogtheginvestors)gorgasgaglimitedgpartnershipg (i.e.,g partnershipg unitsg areg sol
d).
