Solution Manual for Canadian Income Taxation 26th Edition by William Buckwold ISBN:9780070876606 All Chapters Fully Covered Complete Newest Version
SOLUTION MANUAL FOR -CANADIAN INCOME TAXATION 25th EDITION BY WILLIAM BUCKWOLD, JOAN KITUNEN, MATHEW ROMAN/ COMPLETE 'ULTIMATE GUIDE A+
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Solution Manual for Canadian Income
Taxation 2024-2025 25th Edition by William
Buckwold, Joan Kitunen, Matthew Roman
CHAPTER 1
TAXATION― ITS ROLE IN BUSINESS DECISION
MAKING
Review Questions
1. If income tax is imposed after profits have been determined, why is
taxation relevant to business decision making?
2. 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.
3. 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?
4. 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.
R1-2 Expansion can be achieved in new geographic areas through direct
selling, or by establishing a formal presence in the new territory with a
branch office or a separate corporation. The new territories may also
, cross provincial or international boundaries. Provincial income tax
rates vary amongst the provinces. The amount of income that is
subject to tax in the new province will be different for each of the three
alternatives mentioned above. For example, with direct selling, none
of the income is taxed in the new province, but with a separate
corporation, all of the income is taxed in the new province. Because
the tax cost is different in each case, taxation is a relevant part of the
decision and must be included in any cost-benefit analysis that
compares the three alternatives [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.
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?
7. ―As long as all of the income tax rules are known, a tax plan can be
developed with certainty.‖ Is this statement true? Explain.
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 transactionin 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.
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,
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