SOLUTION MANUAL o
Canadian Income Taxation 26th Edition
o o o o
by William Buckwold, All Chapters 1 - 23
o o o o o o o
,TABLE OF CONTENTS
a a
Chapter1oTaxation-
ItsoRoleoinoDecisionoMakingoChapter2oFundamentalso
ofoTaxoPlanning
Chaptero3oLiabilityoforaTax,oIncomeoDetermination,oandoAdministrationoofotheoIncomeoTaxoSystemoCha
ptero4oIncomeofromoEmployment
Chaptero5oIncomeofromoBusiness
Chaptero6oTheoAcquisition,oUse,oandoDisposaloofoDepreciableoPropertyoChapter
7oIncomeofromaProperty
Chapter8oGainsoandoLossesoonotheoDispositionoofoCapitaloProperty-CapitaloGains
Chaptero9oOtheroIncome,oOtheroDeductions,oandoSpecialoRulesoforaCompletingoNetoIncomeoforoTaxoPurposesoCha
ptero10oIndividuals:oDeterminationoofoTaxableoIncomeoandoTaxesoPayable
Chaptero11oCorporations-AnoIntroduction
Chaptero12oOrganization,oCapitaloStructures,oandoIncomeoDistributionsoofoCorporationsoCh
aptero13oTheoCanadian-ControlledoPrivateoCorporation
Chaptero14oMultipleoCorporationsoandoTheiroReorganizationo
Chaptero15oPartnerships
Chaptero16oLimitedoPartnershipsoandoJointoVenturesoC
haptero17oTrusts
Chaptero18oBusinessoAcquisitionsoandoDivestitures-
AssetsoversusoSharesoChaptero19oBusinessoAcquisitionsoandoDivestitures-Tax-
DeferredoSalesoChaptero20oDomesticoandoInternationaloBusinessoExpansion
Chaptero21oTaxoAspectsoofoCorporateoFinancingoChapt
ero22oIntroductionotooGST/HST
Chaptero23oBusinessoValuations
, CHAPTERo1
TAXATION―oITSoROLEoINoBUSINESSoDECISIONoMAKING
ReviewoQuestions
1. Ifoincomeotaxoisoimposedoafteraprofitsohaveobeenodetermined,owhyoisotaxationorelevantotoobusinesso
doecisionomaking?
2. Mostabusinessodecisionsoinvolveotheoevaluationoofoalternativeocoursesoofoaction.oForoexample,oaom
aorketingomanageromayobeoresponsibleoforochoosingoaostrategyaforoestablishingosalesoinonewageogr
apohicaloterritories.oBrieflyoexplainohowotheotaxofactorocanobeoanointegralopartoofothisodecision.
3. Whatoareotheofundamentalovariablesoofotheoincomeotaxosystemothatodecision-
makersoshouldobeofamiliarowithosoothatotheyocanoapplyotaxoissuesotootheiroareasooforesponsibility?
4. Whatoisoano―after-tax‖oapproachotoodecisionomaking?
SolutionsotooReviewoQuestions
R1-
1 Onceoprofitoisodetermined,otheoIncomeoTaxoActodeterminesotheoamountoofoincomeotaxothatoresults.
oHowever,oatoallolevelsoofomanagement,oalternativeocoursesoofoactionoareoevaluated.Inomanyocases,ot
hoeochoiceoofooneoalternativeooverotheootheromayoaffectobothotheoamountoandotheotimingoofofutureota
xesoonoincomeageneratedofromothatoactivity.oTherefore,otheopersonomakingothoseodecisionsohasoaodi
rectoionputointoofutureoafter-
taxocasho flow.oObviously,odecisionsothatoreduceooropostponeotheopaymentoofotaxoaffectotheoultimateoro
eturnoonoinvestmentoand,oinoturn,otheovalueoofotheoenterprise.oIncludingatheotaxovariableoasoaopartoofoto
heoformalodecisionoprocessowilloultimatelyoleadotooimprovedoafter-taxocashoflow.
R1-
2 Expansionocanobeoachievedoinonewogeographicoareasothroughodirectoselling,oorobyoestablishingoaof
oormalopresenceoinotheonewoterritoryowithoaobranchoofficeooraaoseparateocorporation.oTheonewoterrito
rieosomayoalsoocrossoprovincialoorointernationaloboundaries.oProvincialoincomeotaxoratesovaryoamon
gstotoheoprovinces.oTheoamountoofoincomeothatoisosubjectotootaxoinotheonewoprovinceowillobeodifferen
toforoeoachoofotheothreeoalternativesomentionedoabove.oForoexample,owithodirectoselling,ononeoofotheo
incomeoisotaxedoinotheonewaprovince,obutowithaaoseparateocorporation,oalloofotheoincomeoisotaxedoinot
heonewoporovince.oBecauseotheotaxocostoisodifferentoinoeachocase,otaxationoisoaorelevantopartoofotheod
ecisionoandomustobeoincludedoinoanyocost-
benefitoanalysisothatocomparesotheothreeoalternativeso[Reg.o400-o402.1].
R1-
3 Aobasicounderstandingoofotheofollowingovariablesowillosignificantlyostrengthenoaodecisionomaker'
soabilityotooapplyotaxoissuesotootheiraareaooforesponsibility.
TypesoofoIncome - Employment,oBusiness,oProperty,oCapitalogains
TaxableoEntities - Individuals,oCorporations,oTrusts
, AlternativeoBusiness - Corporation,oProprietorship,oPartnership,oLimited
Structures partnership,oJointoarrangement,oIncomeotrust
TaxoJurisdictions - Federal,oProvincial,oForeign
R1-
4 Allocashoflowodecisions,owhetherarelatedotoorevenues,oexpenses,oassetoacquisitionsoorodivestitures
,oorodebtoandoequityorestructuring,owilloimpactotheoamountoandotimingoofotheotaxocost.oTherefore,oca
shoflowoexistsoonlyoonoanoafterataxobasis,oand,otheotaxoimpactsowhetheraoronototheoultimateoresultoofo
theodecisionoisosuccessful.oAnoafter-taxoapproachotoodecision-makingorequiresoeachodecision-
makerotoothinka"after-
tax"oforoeveryodecisionoatothetimeotheodecisionoisobeingomade,oand,otooconsideroalternativeocoursesoo
foactionotoominimizetheotaxocost,oinotheasameowayothatodecisionsoareomadeoregardingootherotypesoofo
coosts.
Failureo too applyo anaoafter-
taxoapproachoatotheotimeo thato decisionso areomadeomayoprovideinaccurateoinformationoforoevaluation,oand,oreos
ultoinoaopermanentlyoinefficientotaxostructure.
CHAPTERo2
FUNDAMENTALSoOFoTAXoPLANNING
ReviewoQuestions
1. ―Taxoplanningoandotaxoavoidanceomeanotheosameothing.‖oIsothisostatementotrue?oExplain.
2. Whatodistinguishesotaxoevasionofromotaxoavoidanceoandotaxoplanning?
3. DoesoCanadaoRevenueoAgencyodealowithoallotaxoavoidanceoactivitiesoinotheosameoway?oExplain.
4. Theopurposeoofotaxoplanningoisotooreduceoorodeferotheotaxocostsoassociatedowithofinancialotransacti
oons.oWhatoareotheogeneralotypesoofotaxoplanningaactivities?oBrieflyoexplainohowoeachoofothemomay
areoduceoorodeferatheotaxocost.
5. ―Itoisoalwaysobetterotoopayotaxolateroratherothanosooner.‖oIsothisostatementotrue?oExplain.
6. Whenacorporateotaxoratesoareo13%oandotaxoratesoforoindividualsoareo40%,oisoitoalwaysobetteroforath
eoindividualotootransferatheirobusinessotooaacorporation?
7. ―Asolongoasoalloofotheoincomeotaxorulesoareoknown,oaotaxoplanocanobeodevelopedowithocertainty.‖oI
sothisostatementotrue?oExplain.
8. Whatobasicoskillsoareorequiredotoodevelopoaogoodataxoplan?
9. Anaentrepreneuroisodevelopingoaonewobusinessoventureoandoisoplanningotooraiseoequityocapitalofrom
oindividualoinvestors.oTheiraadviseroindicatesothatotheoventureocouldobeostructuredoasoaocorporationo
(oi.e.,osharesoareoissuedotootheoinvestors)ooroasoaolimitedopartnershipo (i.e.,o partnershipo unitso areo sol
d).
