Canadian Income Taxation, 2024/2025:
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Planning and Decision j j
Making26th Edition
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By William Buckwold
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Complete Chapter Solutions Manual
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** All Chapters included
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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed.
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CHAPTER 1 j
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING j j j j j j
Review Questions
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1. If income tax is imposed after profits have been determined, why is taxation relevant to
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business decision making?
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2. Most business decisions involve the evaluation of alternative courses of action. For
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example, a marketing manager may be responsible for choosing a strategy for establishing
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sales in new geographical territories. Briefly explain how the tax factor can bean integral part of
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this decision.
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3. What are the fundamental variables of the income tax system that decision-makers shouldbe
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familiar with so that they can apply tax issues to their areas of responsibility?
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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, 2023-2024 Ed. j j j j j j j j j
Solutions to Review Questions j j j
R1-1 Once profit is determined, the Income Tax Act determines the amount of income tax that
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results. However, at all levels of management, alternative courses of action are evaluated.In
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many cases, the choice of one alternative over the other may affect both the amount and the
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timing of future taxes on income generated from that activity. Therefore, the person making
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those decisions has a direct input into future after-tax cash flow. Obviously, decisions that
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reduce or postpone the payment of tax affect the ultimate return on investment and, in turn,
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the value of the enterprise. Including the tax variable as a part of the formal decision process
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will ultimately lead to improved after-tax cash flow.
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R1-2 Expansion can be achieved in new geographic areas through direct selling, or by establishing
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a formal presence in the new territory with a branch office or a separate corporation. The new
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territories may also cross provincial or international boundaries. Provincial income tax rates
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vary amongst the provinces. The amount of income that is subject to tax in the new province
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will be different for each of the three alternatives mentioned above. For example, with direct
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selling, none of the income is taxed in the newprovince, but with a separate corporation, all of
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the income is taxed in the new province. Because the tax cost is different in each case, taxation
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is a relevant part of the decision and must be included in any cost-benefit analysis that
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compares the three alternatives [Reg. 400-402.1].
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R1-3 A basic understanding of the following variables will significantly strengthen a decision
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maker's ability to apply tax issues to their area of responsibility.
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Types of Income j j - Employment, Business, Property, Capital j j j
j gainsTaxable Entities j j - Individuals, Corporations, Trusts j j
Alternative Business j - Corporation, Proprietorship, Partnership, j j
LimitedStructures j j partnership, Joint arrangement, Income trust j j j j
Tax Jurisdictions j - Federal, Provincial, Foreign j j
R1-4 All cash flow decisions, whether related to revenues, expenses, asset acquisitions or
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divestitures, or debt and equity restructuring, will impact the amount and timing of the tax
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cost. Therefore, cash flow exists only on an after tax basis, and, the tax impacts whether ornot
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the ultimate result of the decision is successful. An after-tax approach to decision-making
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requires each decision-maker to think "after-tax" for every decision at thetime the decision is
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being made, and, to consider alternative courses of action to minimize the tax cost, in the
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same way that decisions are made regarding other types of costs.
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Failure to apply an after-tax approach at the time that decisions are made may
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provideinaccurate information for evaluation, and, result in a permanently inefficient tax
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structure.
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. 2
Instructor Solutions Manual Chapter One
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, Buckwold, Kitunen, Roman and Iqbal, Canadian Income Taxation, 2023-2024 Ed. j j j j j j j j j
CHAPTER 2 j
FUNDAMENTALS OF TAX PLANNING j j j
Review Questions
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1. ―Tax planning and tax avoidance mean the same thing.‖ Is this statement true? Explain.
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2. What distinguishes tax evasion from tax avoidance and tax planning?
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3. Does Canada Revenue Agency deal with all tax avoidance activities in the same way?
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Explain.
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4. The purpose of tax planning is to reduce or defer the tax costs associated with financial
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transactions. What are the general types of tax planning activities? Briefly explain how
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each of them may reduce or defer the tax cost.
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5. ―It is always better to pay tax later rather than sooner.‖ Is this statement true? Explain.
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6. When corporate tax rates are 13% and tax rates for individuals are 40%, is it always betterfor
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the individual to transfer their business to a corporation?
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7. ―As long as all of the income tax rules are known, a tax plan can be developed with
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certainty.‖ Is this statement true? Explain.
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8. What basic skills are required to develop a good tax plan?
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9. An entrepreneur is developing a new business venture and is planning to raise equity
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capital from individual investors. Their adviser indicates that the venture could be
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structured as a corporation (i.e., shares are issued to the investors) or as a limited
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partnership (i.e., partnership units are sold). Both structures provide limited liability for
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the investors. Should the entrepreneur consider the tax positions of the individual
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investors? Explain. Without dealing with specific tax rules, what general tax factors should an
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investorconsider before making an investment?
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10. What is a tax avoidance transaction?
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11. ―If a transaction (or a series of transactions) that results in a tax benefit was not
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undertaken primarily for bona fide business, investment, or family purposes, the general
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anti- avoidance rule will apply and eliminate the tax benefit.‖ Is this statement true? Explain.
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. 1
Instructor Solutions Manual Chapter Two
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