Test Bank for Canadian Income Taxation Planning and Decision Making 27th Edition by Buckwold
Solution Manual For Canadian Income Taxation 25th Edition by Buckwold, Kitunen, Roman, Consists of 23 Chapters, ISBN : 978-1260881202
Solution Manual for Canadian Income Taxation 25th Edition by Buckwold, Kitunen, Roman Consists of 23 Complete Chapters, ISBN: 9781260881202
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Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
Solution Manual for Canadian Income
Taxation 25th Editionby William Buckwold,
Joan Kitunen, Matthew Roman-latest-2024-
2025
CHAPTER 1
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
Review Questions
If income tax is imposed after profits have been determined, why is taxation relevant to business decision making?
Most business decisions involve the evaluation of alternative courses of action. For example, a marketing manager may be
responsible for choosing a strategy for establishing sales in new geographical territories. Briefly explain how the tax factor
can be an integral part of this decision.
What are the fundamental variables of the income tax system that decision-makers should be familiar with so that they can
apply tax issues to their areas of responsibility?
What is an ―after-tax‖ approach to decision making?
Solutions to Review Questions
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
results. However, at all levels of management, alternative courses of action are evaluated.
In many cases, the choice of one alternative over the other may affect both the amount
and the timing of future taxes on income generated from that activity. Therefore, the
person making those decisions has a direct input into future after-tax cash flow.
Obviously, decisions that reduce or postpone the payment of tax affect the ultimate return
on investment and, in turn, the value of the enterprise. Including the tax variable as a part
of the formal decision process will ultimately lead to improved after-tax cash flow.
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
[Reg. 400-402.1].
R1-3 A basic understanding of the following variables will significantly strengthen a decision
maker's ability to apply tax issues to their area of responsibility.
Types of Income - Employment, Business, Property, Capital gains
Alternative Business - Corporation, Proprietorship, Partnership, Limited
Structures partnership, Joint arrangement, Income trust
Tax Jurisdictions - Federal, Provincial, Foreign
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
divestitures, or debt and equity restructuring, will impact the amount and timing of the tax
cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether
or not the ultimate result of the decision is successful. An after-tax approach to decision-
making requires each decision-maker to think "after-tax" for every decision at the time the
decision is being made, and, to consider alternative courses of action to minimize the tax
cost, in the same way that decisions are made regarding other types of costs.
Failure to apply an after-tax approach at the time that decisions are made may provide
inaccurate information for evaluation, and, result in a permanently inefficient tax structure.
CHAPTER 2
FUNDAMENTALS OF TAX PLANNING
Review Questions
1. ―Tax planning and tax avoidance mean the same thing.‖ Is this statement true? Explain.
2. What distinguishes tax evasion from tax avoidance and tax planning?
3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
Explain.
4. The purpose of tax planning is to reduce or defer the tax costs associated with financial
transactions. What are the general types of tax planning activities? Briefly explain how
each of them may reduce or defer the tax cost.
5. ―It is always better to pay tax later rather than sooner.‖ Is this statement true? Explain.
6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always
better for the individual to transfer their business to a corporation?
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
8. What basic skills are required to develop a good tax plan?
9. An entrepreneur is developing a new business venture and is planning to raise equity
capital from individual investors. Their adviser indicates that the venture could be
structured as a corporation (i.e., shares are issued to the investors) or as a limited
partnership (i.e., partnership units are sold). Both structures provide limited liability for
the investors. Should the entrepreneur consider the tax positions of the individual
investors? Explain. Without dealing with specific tax rules, what general tax factors
should an investor consider before making an investment?
10. What is a tax avoidance transaction?
11. ―If a transaction (or a series of transactions) that results in a tax benefit was not
undertaken primarily for bona fide business, investment, or family purposes, the general
anti-avoidance rule will apply and eliminate the tax benefit.‖ Is this statement true?
Explain.
Solutions to Review Questions
R2-1 There is a distinction between tax planning and tax avoidance. Tax planning is the
process of arranging financial transactions in a manner that reduces or defers the tax cost
and that arrangement is provided for in the Income Tax Act or is not specifically
prohibited. In other words, the arrangement is chosen from a reasonably clear set of
options within the Act.
In contrast, tax avoidance involves a transaction or series of transactions, the main
purpose of which is to avoid or reduce the tax otherwise payable. While each transaction
in the process may be legal by itself, the series of transactions cause a result not intended
by the tax system.
R2-2 Both tax planning and tax avoidance activities clearly present the full facts of each
transaction, allowing them to be scrutinized by CRA. In comparison, tax evasion involves
knowingly excluding or altering the facts with the intention to deceive. Failing to report an
amount of revenue known to exist or deducting a false expense are examples of tax
evasion.
R2-3 CRA does not deal with all tax avoidance transactions in the same way. In general, CRA
attempts to divide tax avoidance transactions between those that are an abuse of the tax
system and those that are not. When an action is abusive, CRA will attempt to deny the
resulting benefits by applying one of the anti-avoidance rules in the Income Tax Act.
R2-4 There are three general types of tax planning activities:
Shifting income from one time-period to another.
Transferring income to another entity.
Converting the nature of income from one type to another.
Shifting income to another time-period can be a benefit if it results in a lower rate of tax
applying to the income. Even if a lower rate of tax is not achieved, a benefit may be
gained from delaying the payment of tax to a future time-period.
, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2024-2025 Ed.
Shifting income to an alternate taxpayer (for example, from an
individual to a corporation) may beneficially alter the amount and timing
of the tax.
There are several types of income within the tax system such as
employment income, business income, capital gains and so on. Each
type of income is governed by a different set of rules. For some types of
income, the timing, the amount of income recognized, and the effective
tax rate is different from other types. By converting one type of income
to another, a benefit may be gained if the timing of income recognition,
the amount recognized, and/or the effective tax rate is favorable.
R2-5 The statement is not true. Paying tax later may be an advantage because
it delays the tax cost and frees up cash for other purposes. However,
the delay may result in a higher rate of tax in the future year compared
to the current year. In such circumstances, there is a trade-off between
the timing of the tax and the amount of tax payable.
R2-6 There is not always an advantage to transfer income to a
corporation when the corporate tax rate is lower than that of the
individual shareholder. While an immediate lower tax rate results,
remember that the corporation may be required to distribute some or all
of its after-tax income to the shareholder, which causes a second
level of tax. Whether or not an advantage is achieved depends on the
amount of that second level of tax and when it occurs. Other factors
may also be relevant such as the tax treatment of a possible business
failure or sale.
R2-7 The statement is not true. Knowing the tax rules is, of course, a major
element in the tax planning process, but it does not guarantee the
expected outcome. Planning means that certain steps are taken now in
preparation for certain activities that may occur in the future. However,
those anticipated activities might not occur and the desired tax result
may not be achieved. Tax planning also requires that one must
anticipate and speculate on possible future scenarios and relate them
to the current tax planning steps. Those scenarios are never certain.
R2-8 To develop a good tax plan, one must be able to:
Understand the fundamentals of the income tax system.
Anticipate the complete cycle of transactions.
Develop optional methods of achieving the desired business result
and analyze each of their tax implications.
Speculate on possible future scenarios and assess their likelihood.
Measure the time value of money.
Place the tax issue in perspective by applying common sense
and sound business judgement.
Understand the tax position of other parties involved in the transaction.
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