Solution Manual for Canadian Income Taxation 2024/2025 26th Edition by William Buckwold, Joan Kitunen, Matthew Roman, Abraham Iqbal

CanadianIncomeTaxation,2024/2025:
PlanningandDecision
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Making26thEdition
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ByWilliamBuckwold

CompleteChapterSolutionsManual


**AllChaptersincluded

, Buckwold, Kitunen, Romanand Iqbal, Canadian Income Taxation, 2023-2024 Ed.
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CHAPTER1 h
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TAXATION―ITSROLEINBUSINESSDECISIONMAKING h
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ReviewQuestions
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1. If income tax is imposed after profits have been determined, why is taxation relevant to
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business decision making?
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2. Most business decisions involve the evaluation of alternative courses of action. For example,
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a marketing manager may be responsible for choosing a strategy for establishing
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salesinnewgeographicalterritories.Brieflyexplain howthetaxfactorcanbean integral part of
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thisdecision.
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3. What are the fundamental variables of the income taxsystem that decision-makers shouldbe
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familiarwithsothattheycanapplytaxissuestotheirareasofresponsibility?
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4. Whatisan―after-tax‖approachtodecisionmaking?
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. 1

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. vh vh vh vh vh vh vh vh vh




SolutionstoReviewQuestions h
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R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that results.
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However,atalllevelsofmanagement,alternative coursesofaction areevaluated.In manycases,
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the choice of one alternative over the other may affect both the amount andthe timing of future
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taxes on income generated from that activity. Therefore, the person making those decisions has
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a direct input into future after-tax cash flow. Obviously, decisions that reduce or postpone the
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payment of tax affect the ultimate return oninvestment and, in turn, the value of the enterprise.
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Including the tax variable as a part of the formal decision process will ultimately lead to improved
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after-taxcashflow.
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R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing a
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formal presence in the new territory with a branch office or a separate corporation. The new
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territories mayalsocross provincialor international boundaries. Provincialincome taxrates vary
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amongst the provinces. The amount of income that is subject to tax in the new province will be
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differentfor eachof thethreealternatives mentionedabove. Forexample, withdirect selling,none
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of theincomeistaxed in thenewprovince, but witha separatecorporation, allof theincomeistaxedin
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the new province. Because thetax cost is different in eachcase, taxation is a relevant part of the
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decision and 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 decision maker's
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abilitytoapplytaxissues totheirareaof responsibility.
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Typesof Income vh vh - Employment,Business,Property,Capital vh vh vh




gainsTaxableEntities
vh vh - Individuals,Corporations,Trusts vh vh




AlternativeBusiness vh - Corporation, Proprietorship, Partnership, vh vh




LimitedStructures vh partnership,Jointarrangement,Incometrust vh vh vh vh




TaxJurisdictions vh - Federal,Provincial,Foreign vh vh




R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
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divestitures, or debt and equity restructuring, will impact the amount and timing of the tax cost.
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Therefore,cashflowexistsonlyonanaftertaxbasis,and,thetaximpactswhetherornot the ultimate
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result of the decision is successful. 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 thedecision is beingmade, and, to
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consider alternative courses of action to minimize the tax cost, in the same way that decisions
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aremaderegardingothertypesof costs.
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Failure to apply an after-tax approach at the time that decisions are made may
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provideinaccurateinformationforevaluation,and,resultinapermanentlyinefficienttax
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structure.
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. 2
Instructor SolutionsManual Chapter One
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, Buckwold, Kitunen, Romanand Iqbal, CanadianIncome Taxation, 2023-2024 Ed. vh vh vh vh vh vh vh vh vh




CHAPTER2 h
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FUNDAMENTALSOFTAXPLANNING h
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ReviewQuestions
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1. ―Taxplanningandtaxavoidancemeanthesamething.‖Isthisstatementtrue?Explain.
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2. Whatdistinguishestaxevasionfromtaxavoidanceandtaxplanning?
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3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
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Explain.
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4. The purpose of tax planning is to reduce or defer the tax costs associated with financial
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transactions. What are the general types of tax planning activities? Briefly explain how each
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of them mayreduce or defer the taxcost.
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5. ―Itisalwaysbettertopaytaxlaterratherthansooner.‖Isthisstatementtrue?Explain.
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6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always betterfor the
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individual to transfer their businessto acorporation?
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7. ―As long as all of the income tax rules are known, a tax plan can be developed with certainty.‖
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Is this statement true? Explain.
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8. Whatbasicskillsarerequiredtodevelopagoodtaxplan? vh vh vh vh vh vh vh vh vh vh




9. An entrepreneur is developing a new business venture and is planning to raise equity capital
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from individual investors. Their adviser indicates that the venture could be structured as a
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corporation (i.e., shares are issued to the investors) or as a limited partnership (i.e.,
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partnership units are sold). Both structures provide limited liability for the investors. Should
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the entrepreneur consider the tax positions of the individual investors? Explain. Without
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dealing with specifictax rules, what generaltax factorsshouldan investorconsider before making
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an investment?
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10. Whatisataxavoidancetransaction? vh vh vh vh vh




11. ―If a transaction (or a series of transactions) that results in a tax benefit was not undertaken
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primarily for bona fide business, investment, or family purposes, the general anti- avoidance
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rulewillapplyandeliminatethetaxbenefit.‖Isthisstatementtrue?Explain.
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. 1
Instructor SolutionsManual Chapter Two
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