SOLUTION MANUAL
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
W W
Chapter1WTaxation-ItsWRoleWinWDecisionWMaking
Chapter2WFundamentalsWofWTaxWPlanning
ChapterW3WLiabilityWforWTax,WIncomeWDetermination,WandWAdministrationWofWtheWIncomeWTaxWSystem
ChapterW4WIncomeWfromWEmployment
ChapterW5WIncomeWfromWBusiness
ChapterW6WTheWAcquisition,WUse,WandWDisposalWofWDepreciableWProperty
Chapter7WIncomeWfromWProperty
Chapter8WGainsWandWLossesWonWtheWDispositionWofWCapitalWProperty-CapitalWGains
ChapterW9WOtherWIncome,WOtherWDeductions,WandWSpecialWRulesWforWCompletingWNetWIncomeWforWTaxWPurposes
ChapterW10WIndividuals:WDeterminationWofWTaxableWIncomeWandWTaxesWPayable
ChapterW11WCorporations-AnWIntroduction
ChapterW12WOrganization,WCapitalWStructures,WandWIncomeWDistributionsWofWCorporations
ChapterW13WTheWCanadian-ControlledWPrivateWCorporation
ChapterW14WMultipleWCorporationsWandWTheirWReorganization
ChapterW15WPartnerships
ChapterW16WLimitedWPartnershipsWandWJointWVentures
ChapterW17WTrusts
ChapterW18WBusinessWAcquisitionsWandWDivestitures-AssetsWversusWShares
ChapterW19WBusinessWAcquisitionsWandWDivestitures-Tax-DeferredWSales
ChapterW20WDomesticWandWInternationalWBusinessWExpansion
ChapterW21WTaxWAspectsWofWCorporateWFinancing
ChapterW22WIntroductionWtoWGST/HST
ChapterW23WBusinessWValuations
, CHAPTER 1 W
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
W W W W W W
ReviewWQuestions
1. IfWincomeWtaxWisWimposedWafterWprofitsWhaveWbeenWdetermined,WwhyWisWtaxationWrelevantWtoWbus
inessWdecisionWmaking?
2. MostWbusinessWdecisionsWinvolveWtheWevaluationWofWalternativeWcoursesWofWaction.WForWexample
,WaWmarketingWmanagerWmayWbeWresponsibleWforWchoosingWaWstrategyWforWestablishingWsalesWinW
newWgeographicalWterritories.WBrieflyWexplainWhowWtheWtaxWfactorWcanWbeWanWintegralWpartWofWth
isWdecision.
3. WhatWareWtheWfundamentalWvariablesWofWtheWincomeWtaxWsystemWthatWdecision-
makersWshouldWbeWfamiliarWwithWsoWthatWtheyWcanWapplyWtaxWissuesWtoWtheirWareasWofWresponsibi
lity?
4. WhatWisWanW―after-tax‖WapproachWtoWdecisionWmaking?
SolutionsWtoWReviewWQuestions
R1-
1WOnceWprofitWisWdetermined,WtheWIncomeWTaxWActWdeterminesWtheWamountWofWincomeWtaxWthatWr
esults.WHowever,WatWallWlevelsWofWmanagement,WalternativeWcoursesWofWactionWareWevaluated.WInW
manyWcases,WtheWchoiceWofWoneWalternativeWoverWtheWotherWmayWaffectWbothWtheWamountWandWthe
WtimingWofWfutureWtaxesWonWincomeWgeneratedWfromWthatWactivity.WTherefore,WtheWpersonWmaking
WthoseWdecisionsWhasWaWdirectWinputWintoWfutureWafter-
taxWcashW flow.WObviously,WdecisionsWthatWreduceWorWpostponeWtheWpaymentWofWtaxWaffectWtheWult
imateWreturnWonWinvestmentWand,WinWturn,WtheWvalueWofWtheWenterprise.WIncludingWtheWtaxWvariabl
eWasWaWpartWofWtheWformalWdecisionWprocessWwillWultimatelyWleadWtoWimprovedWafter-
taxWcashWflow.
R1-
2WExpansionWcanWbeWachievedWinWnewWgeographicWareasWthroughWdirectWselling,WorWbyWestablishi
ngWaWformalWpresenceWinWtheWnewWterritoryWwithWaWbranchWofficeWorWaWseparateWcorporation.WThe
WnewWterritoriesWmayWalsoWcrossWprovincialWorWinternationalWboundaries.WProvincialWincomeWtaxWr
atesWvaryWamongstWtheWprovinces.WTheWamountWofWincomeWthatWisWsubjectWtoWtaxWinWtheWnewWpro
vinceWwillWbeWdifferentWforWeachWofWtheWthreeWalternativesWmentionedWabove.WForWexample,Wwith
WdirectWselling,WnoneWofWtheWincomeWisWtaxedWinWtheWnewWprovince,WbutWwithWaWseparateWcorporat
ion,WallWofWtheWincomeWisWtaxedWinWtheWnewWprovince.WBecauseWtheWtaxWcostWisWdifferentWinWeach
Wcase,WtaxationWisWaWrelevantWpartWofWtheWdecisionWandWmustWbeWincludedWinWanyWcost-
benefitWanalysisWthatWcomparesWtheWthreeWalternativesW[Reg.W400-402.1].
R1-
3WAWbasicWunderstandingWofWtheWfollowingWvariablesWwillWsignificantlyWstrengthenWaWdecisionWma
ker'sWabilityWtoWapplyWtaxWissuesWtoWtheirWareaWofWresponsibility.
, TypesWofWIncome - Employment,WBusiness,WProperty,WCapitalWgains
TaxableWEntities - Individuals,WCorporations,WTrusts
AlternativeWBusiness - Corporation,WProprietorship,WPartnership,WLimited
Structures partnership,WJointWarrangement,WIncomeWtrust
TaxWJurisdictions - Federal,WProvincial,WForeign
R1-
4WAllWcashWflowWdecisions,WwhetherWrelatedWtoWrevenues,Wexpenses,WassetWacquisitionsWorWdivestit
ures,WorWdebtWandWequityWrestructuring,WwillWimpactWtheWamountWandWtimingWofWtheWtaxWcost.W Th
erefore,W cashW flowW existsW onlyW onW anW afterW taxW basis,W and,W theW taxWimpactsW whetherWorWnotWthe
WultimateWresultWofWtheWdecisionWisWsuccessful.WAnWafter-taxWapproachWtoWdecision-
makingWrequiresWeachWdecision-makerWtoWthinkW"after-
tax"WforWeveryWdecisionWatWtheWtimeWtheWdecisionWisWbeingWmade,Wand,WtoWconsiderWalternativeWco
ursesWofWactionWtoWminimizeWtheWtaxWcost,WinWtheWsameWwayWthatWdecisionsWareWmadeWregardingW
otherWtypesWofWcosts.
FailureW toW applyW anW after-
taxW approachW atW theW timeW thatW decisionsW areW madeW mayW provideWinaccurateWinformationWforWevaluation,W
and,WresultWinWaWpermanentlyWinefficientWtaxWstructure.
CHAPTER 2 W
FUNDAMENTALS OF TAX PLANNINGW W W
ReviewWQuestions
1. ―TaxWplanningWandWtaxWavoidanceWmeanWtheWsameWthing.‖WIsWthisWstatementWtrue?WExplain.
2. WhatWdistinguishesWtaxWevasionWfromWtaxWavoidanceWandWtaxWplanning?
3. DoesWCanadaWRevenueWAgencyWdealWwithWallWtaxWavoidanceWactivitiesWinWtheWsameWway?WExpl
ain.
4. TheWpurposeWofWtaxWplanningWisWtoWreduceWorWdeferWtheWtaxWcostsWassociatedWwithWfinancialWtra
nsactions.WWhatWareWtheWgeneralWtypesWofWtaxWplanningWactivities?WBrieflyWexplainWhowWeachWo
fWthemWmayWreduceWorWdeferWtheWtaxWcost.
5. ―ItWisWalwaysWbetterWtoWpayWtaxWlaterWratherWthanWsooner.‖WIsWthisWstatementWtrue?WExplain.
6. WhenWcorporateWtaxWratesWareW13%WandWtaxWratesWforWindividualsWareW40%,WisWitWalwaysWbetter
WforWtheWindividualWtoWtransferW theirWbusinessWtoWaWcorporation?
7. ―AsWlongWasWallWofWtheWincomeWtaxWrulesWareWknown,WaWtaxWplanWcanWbeWdevelopedWwithWcert
ainty.‖WIsWthisWstatementWtrue?WExplain.
