Solution Manual for Canadian Income Taxation: Planning and Decision Making 2024/2025 27th Edition by Abraham Iqbal, William Buckwold, Joan Kitunen and Matthew Roman isbn-9781266002724 All Chapters Latest Guide

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-
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2024 Ed.
CHAPTER 1 2s




TAXATION― ITS ROLE IN BUSINESS DECISION MAKING 2s 2s 2s 2s 2s 2s




Review Questions
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1. If income tax is imposed after profits have been determined, why is taxation relevant t
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o business decision making?
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2. Most business decisions involve the evaluation of alternative courses of action. For ex
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ample, a marketing manager may be responsible for choosing a strategy for establishi
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ng sales in new geographical territories. Briefly explain how the tax factor can be an inte
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gral part of this decision.
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3. What are the fundamental variables of the income tax system that decision-
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makers should be familiar with so that they can apply tax issues to their areas of resp
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onsibility?

4. What is an ―after-tax‖ approach to decision making?
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. 1
Instructor Solutions Manual Chapter One
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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-
2s 2s 2s 2s 2s 2s 2s 2s

2024 Ed.

Solutions to Review Questions
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R1-
1 Once profit is determined, the Income Tax Act determines the amount of income tax
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that results. However, at all levels of management, alternative courses of action are ev
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aluated. In many cases, the choice of one alternative over the other may affect both the a
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mount and the timing of future taxes on income generated from that activity. Therefore,
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the person making those decisions has a direct input into future after-
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tax cash flow. Obviously, decisions that reduce or postpone the payment of tax affect t
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he ultimate return on investment and, in turn, the value of the enterprise. Including the
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tax variable as a part of the formal decision process will ultimately lead to improved aft
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er-tax cash flow. 2s 2s




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2 Expansion can be achieved in new geographic areas through direct selling, or by est
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ablishing a formal presence in the new territory with a branch office or a separate corp
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oration. The new territories may also cross provincial or international boundaries. Provi
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ncial income tax rates vary amongst the provinces. The amount of income that is subje
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ct to tax in the new province will be different for each of the three alternatives mention
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ed above. For example, with direct selling, none of the income is taxed in the new pro
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vince, but with a separate corporation, all of the income is taxed in the new province.
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Because the tax cost is different in each case, taxation is a relevant part of the decision a
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nd must be included in any cost-
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benefit analysis that compares the three alternatives [Reg. 400-402.1].
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3 A basic understanding of the following variables will significantly strengthen a decisio
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n maker's ability to apply tax issues to their area of responsibility.
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Types of Income 2s 2s -

Employment, Business, Property, Capital gains Ta 2s 2s 2s 2s 2s




xable Entities 2s - Individuals, Corporations, Trusts 2s 2s




Alternative Business 2s -
Corporation, Proprietorship, Partnership, Limited Str 2s 2s 2s 2s


uctures partnership, Joint arrangement, Income trust 2s 2s 2s 2s




Tax Jurisdictions2s - Federal, Provincial, Foreign 2s 2s




R1-
4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
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sdivestitures, or debt and equity restructuring, will impact the amount and timing of the t
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ax cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whet
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her or not the ultimate result of the decision is successful. An after-
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tax approach to decision-making requires each decision-maker to think "after-
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tax" for every decision at the time the decision is being made, and, to consider alternati
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ve courses of action to minimize the tax cost, in the same way that decisions are mad
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e regarding other types of costs.
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Failure to apply an after- 2s 2s 2s 2s


tax approach at the time that decisions are made may provide inaccurate informati
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on for evaluation, and, result in a permanently inefficient tax structure.
2s 2s 2s 2s 2s 2s 2s 2s 2s 2s

, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-
2s 2s 2s 2s 2s 2s 2s 2s

2024 Ed.
CHAPTER 1 2s




TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
2s 2s 2s 2s 2s 2s




. 2
Instructor Solutions Manual Chapter One
2s 2s 2s 2s