TESTBANK V
V
Canadian Income Taxation 2022 2023 25th
V V V V
Canadian Edition Buckwold
V V V
, Stuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyV MaterialStuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyVMaterial
Medconnoisseurlibraries.com
CHAPTERV1
TAXATION―VITSVROLEVINVBUSINESSVDECISIONVMAKING
ReviewVQuestions
1. IfVincomeVtaxVisVimposedVafterVprofitsVhaveVbeenVdetermined,VwhyVisVtaxationVreleva
ntVtoVbusinessVdecisionVmaking?
2. MostVbusinessVdecisionsVinvolveVtheVevaluationVofValternativeVcoursesVofVaction.VForV
example,VaVmarketingVmanagerVmayVbeVresponsibleVforVchoosingVaVstrategyV forV est
ablishingV salesV inV newV geographicalV territories.V BrieflyV explainV howV theV taxV factor
V canVbeVanVintegralVpartVofVthisVdecision.
3. WhatV areV theV fundamentalV variablesV ofV theV incomeV taxV systemV thatV decision-
makersVshouldVbeVfamiliarVwithVsoVthatVtheyVcanVapplyVtaxVissuesVtoVtheirVareasVofV
responsibility?
4. WhatVisVanV―after-tax‖VapproachVtoVdecisionVmaking?
1
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SolutionsVtoVReviewVQuestions
R1-
1VOnceVprofitVisVdetermined,VtheVIncomeVTaxVActVdeterminesVtheVamountVofVincomeVt
axVthatVresults.VHowever,VatVallVlevelsVofVmanagement,ValternativeVcoursesVofVactionV
areVevaluated.V InV manyV cases,V theV choiceV ofV oneV alternativeV overV theV otherV may
V affectV bothV theV amountVandV theV timingV ofV futureV taxesV onV incomeV generatedV fro
mV thatV activity.V Therefore,V theVpersonV makingV thoseV decisionsV hasV aV directV input
V intoV futureV after-
taxV cashV flow.VObviously,VdecisionsVthatVreduceVorVpostponeVtheVpaymentVofVtaxVaffe
ctVtheVultimateVreturnV onV investmentV and,V inV turn,V theV valueV ofV theV enterprise.V Inclu
dingV theV taxV variableV asV aV partVofVtheVformalVdecisionVprocessVwillVultimatelyVleadVto
VimprovedVafter-taxVcashVflow.
R1-
2VExpansionVcanVbeVachievedVinVnewVgeographicVareasVthroughVdirectVselling,VorVbyV
establishingVaVformalVpresenceVinVtheVnewVterritoryVwithVaVbranchVofficeVorVaVseparat
eVcorporation.VTheVnewVterritoriesVmayValsoVcrossVprovincialVorVinternationalVboundarie
s.VProvincialVincomeVtaxVratesVvaryVamongstVtheVprovinces.VTheVamountVofVincomeVth
atVisVsubjectVtoVtaxVinVtheVnewVprovinceVwillVbeVdifferentVforVeachVofVtheVthreeValtern
ativesVmentionedVabove.VForVexample,VwithVdirectVselling,VnoneVofVtheVincomeVisVtaxe
dVinVtheVnewVprovince,VbutVwithVaVseparateVcorporation,VallVofVtheVincomeVisVtaxedVin
VtheVnewVprovince.VBecauseV theV taxV costV isV differentV inV eachV case,V taxationV isV aVr
elevantV partV ofV theV decisionVandVmustVbeVincludedVinVanyVcost-
benefitVanalysisVthatVcomparesVtheV threeValternativesV [Reg.V400-402.1].
R1-
3VAVbasicVunderstandingVofVtheVfollowingVvariablesVwillVsignificantlyVstrengthenVaVdeci
sionVmaker'sVabilityVtoVapplyVtaxVissuesVtoVtheirVareaVofVresponsibility.
TypesVofVIncome -
Employment,VBusiness,VProperty,VCapitalVgainsV
TaxableVEntities - Individuals,VCorporations,VTrusts
AlternativeVBusiness - Corporation,VProprietorship,VPartnership,VLimited
Structures
partnership,VJointVarrangement,VIncomeVtrustVT
axVJurisdictions -V Federal,VProvincial,VForeign
R1-
4VAllVcashVflowVdecisions,VwhetherVrelatedVtoVrevenues,Vexpenses,VassetVacquisitionsV
orVdivestitures,VorVdebtVandVequityVrestructuring,VwillVimpactVtheVamountVandVtimingVof
VtheVtaxVcost.V Therefore,V cashV flowV existsV onlyV onV anV afterV taxV basis,V and,V theV tax
V impactsV whetherVorVnotVtheVultimateVresultVofVtheVdecisionVisVsuccessful.VAnVafter-
taxVapproachVtoVdecision-VmakingVrequiresVeachVdecision-makerVtoVthinkV"after-
tax"VforVeveryVdecisionVatVtheVtimeVtheVdecisionVisVbeingVmade,Vand,VtoVconsiderValte
rnativeVcoursesVofVactionVtoVminimizeVtheVtaxVcost,VinVtheVsameVwayVthatVdecisionsVa
reVmadeVregardingVotherVtypesVofVcosts.
FailureVtoVapplyVanVafter-
taxVapproachVatVtheVtimeVthatV decisionsVareVmadeVmayVprovideV inaccurateVinformat
ionVforVevaluation,Vand,VresultVinVaVpermanentlyVinefficientVtaxVstructure.
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V
Canadian Income Taxation 2022 2023 25th
V V V V
Canadian Edition Buckwold
V V V
, Stuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyV MaterialStuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyVMaterial
Medconnoisseurlibraries.com
CHAPTERV1
TAXATION―VITSVROLEVINVBUSINESSVDECISIONVMAKING
ReviewVQuestions
1. IfVincomeVtaxVisVimposedVafterVprofitsVhaveVbeenVdetermined,VwhyVisVtaxationVreleva
ntVtoVbusinessVdecisionVmaking?
2. MostVbusinessVdecisionsVinvolveVtheVevaluationVofValternativeVcoursesVofVaction.VForV
example,VaVmarketingVmanagerVmayVbeVresponsibleVforVchoosingVaVstrategyV forV est
ablishingV salesV inV newV geographicalV territories.V BrieflyV explainV howV theV taxV factor
V canVbeVanVintegralVpartVofVthisVdecision.
3. WhatV areV theV fundamentalV variablesV ofV theV incomeV taxV systemV thatV decision-
makersVshouldVbeVfamiliarVwithVsoVthatVtheyVcanVapplyVtaxVissuesVtoVtheirVareasVofV
responsibility?
4. WhatVisVanV―after-tax‖VapproachVtoVdecisionVmaking?
1
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PageV1
VofV987
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36
, Stuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyV MaterialStuvia.comV-
VTheVMarketplaceVtoVBuyVandVSellVyourVStudyVMaterial
Medconnoisseurlibraries.com
SolutionsVtoVReviewVQuestions
R1-
1VOnceVprofitVisVdetermined,VtheVIncomeVTaxVActVdeterminesVtheVamountVofVincomeVt
axVthatVresults.VHowever,VatVallVlevelsVofVmanagement,ValternativeVcoursesVofVactionV
areVevaluated.V InV manyV cases,V theV choiceV ofV oneV alternativeV overV theV otherV may
V affectV bothV theV amountVandV theV timingV ofV futureV taxesV onV incomeV generatedV fro
mV thatV activity.V Therefore,V theVpersonV makingV thoseV decisionsV hasV aV directV input
V intoV futureV after-
taxV cashV flow.VObviously,VdecisionsVthatVreduceVorVpostponeVtheVpaymentVofVtaxVaffe
ctVtheVultimateVreturnV onV investmentV and,V inV turn,V theV valueV ofV theV enterprise.V Inclu
dingV theV taxV variableV asV aV partVofVtheVformalVdecisionVprocessVwillVultimatelyVleadVto
VimprovedVafter-taxVcashVflow.
R1-
2VExpansionVcanVbeVachievedVinVnewVgeographicVareasVthroughVdirectVselling,VorVbyV
establishingVaVformalVpresenceVinVtheVnewVterritoryVwithVaVbranchVofficeVorVaVseparat
eVcorporation.VTheVnewVterritoriesVmayValsoVcrossVprovincialVorVinternationalVboundarie
s.VProvincialVincomeVtaxVratesVvaryVamongstVtheVprovinces.VTheVamountVofVincomeVth
atVisVsubjectVtoVtaxVinVtheVnewVprovinceVwillVbeVdifferentVforVeachVofVtheVthreeValtern
ativesVmentionedVabove.VForVexample,VwithVdirectVselling,VnoneVofVtheVincomeVisVtaxe
dVinVtheVnewVprovince,VbutVwithVaVseparateVcorporation,VallVofVtheVincomeVisVtaxedVin
VtheVnewVprovince.VBecauseV theV taxV costV isV differentV inV eachV case,V taxationV isV aVr
elevantV partV ofV theV decisionVandVmustVbeVincludedVinVanyVcost-
benefitVanalysisVthatVcomparesVtheV threeValternativesV [Reg.V400-402.1].
R1-
3VAVbasicVunderstandingVofVtheVfollowingVvariablesVwillVsignificantlyVstrengthenVaVdeci
sionVmaker'sVabilityVtoVapplyVtaxVissuesVtoVtheirVareaVofVresponsibility.
TypesVofVIncome -
Employment,VBusiness,VProperty,VCapitalVgainsV
TaxableVEntities - Individuals,VCorporations,VTrusts
AlternativeVBusiness - Corporation,VProprietorship,VPartnership,VLimited
Structures
partnership,VJointVarrangement,VIncomeVtrustVT
axVJurisdictions -V Federal,VProvincial,VForeign
R1-
4VAllVcashVflowVdecisions,VwhetherVrelatedVtoVrevenues,Vexpenses,VassetVacquisitionsV
orVdivestitures,VorVdebtVandVequityVrestructuring,VwillVimpactVtheVamountVandVtimingVof
VtheVtaxVcost.V Therefore,V cashV flowV existsV onlyV onV anV afterV taxV basis,V and,V theV tax
V impactsV whetherVorVnotVtheVultimateVresultVofVtheVdecisionVisVsuccessful.VAnVafter-
taxVapproachVtoVdecision-VmakingVrequiresVeachVdecision-makerVtoVthinkV"after-
tax"VforVeveryVdecisionVatVtheVtimeVtheVdecisionVisVbeingVmade,Vand,VtoVconsiderValte
rnativeVcoursesVofVactionVtoVminimizeVtheVtaxVcost,VinVtheVsameVwayVthatVdecisionsVa
reVmadeVregardingVotherVtypesVofVcosts.
FailureVtoVapplyVanVafter-
taxVapproachVatVtheVtimeVthatV decisionsVareVmadeVmayVprovideV inaccurateVinformat
ionVforVevaluation,Vand,VresultVinVaVpermanentlyVinefficientVtaxVstructure.
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VTheVMarketplaceVtoVBuyVandVSellVyourVStudyVMaterial
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