Buckwold,jKitunen,jRomanjandjIqbal,jCanadianjIncomejTaxation,j2022-2023jEd.
SolutionjManualjforjCanadianjIncomejTaxationj2022-
2023j25thjEditionjbyjWilliamjBuckwold,jJoanjKitunen,jMatthewjRoman
CHAPTERj1
TAXATION―jITSjROLEjINjBUSINESSjDECISIONjMAKING
ReviewjQuestions
1. Ifjincomejtaxjisjimposedjafterjprofitsjhavejbeenjdetermined,jwhyjisjtaxationjrelevantjtojbusin
essjdecisionjmaking?
2. Mostjbusinessjdecisionsjinvolvejthejevaluationjofjalternativejcoursesjofjaction.jForjexample
,jajmarketingjmanagerjmayjbejresponsiblejforjchoosingjajstrategyjforjestablishingjsalesjinjn
ewjgeographicaljterritories.jBrieflyjexplainjhowjthejtaxjfactorjcanjbejanjintegraljpartjofjthisjde
cision.
3. Whatjarejthejfundamentaljvariablesjofjthejincomejtaxjsystemjthatjdecision-
makersjshouldjbejfamiliarjwithjsojthatjtheyjcanjapplyjtaxjissuesjtojtheirjareasjofjresponsibilit
y?
4. Whatjisjanj―after-tax‖japproachjtojdecisionjmaking?
Copyrightj©j2022jMcGraw-HilljEducationjLtd. 1
InstructorjSolutionsjManualjChapterjOne
, Buckwold,jKitunen,jRomanjandjIqbal,jCanadianjIncomejTaxation,j2022-2023jEd.
SolutionsjtojReviewjQuestions
R1-
1j Oncejprofitjisjdetermined,jthejIncomejTaxjActjdeterminesjthejamountjofjincomejtaxjthatjres
ults.jHowever,jatjalljlevelsjofjmanagement,jalternativejcoursesjofjactionjarejevaluated.jInjma
nyjcases,jthejchoicejofjonejalternativejoverjthejotherjmayjaffectjbothjthejamountjandjthejtimin
gjofjfuturejtaxesjonjincomejgeneratedjfromjthatjactivity.jTherefore,jthejpersonjmakingjthosejd
ecisionsjhasjajdirectjinputjintojfuturejafter-
taxjcashjflow.j Obviously,jdecisionsjthatjreducejorjpostponejthejpaymentjofjtaxjaffectjthejultim
atejreturnjonjinvestmentjand,jinjturn,jthejvaluejofjthejenterprise.jIncludingjthejtaxjvariablejasja
jpartjofjthejformaljdecisionjprocessjwilljultimatelyjleadjtojimprovedjafter-taxjcashjflow.
R1-
2jExpansionjcanjbejachievedjinjnewjgeographicjareasjthroughjdirectjselling,jorjbyjestablishin
gjajformaljpresencejinjthejnewjterritoryjwithjajbranchjofficejorjajseparatejcorporation.jThejne
wjterritoriesjmayjalsojcrossjprovincialjorjinternationaljboundaries.jProvincialjincomejtaxjrates
jvaryjamongstjthejprovinces.jThejamountjofjincomejthatjisjsubjectjtojtaxjinjthejnewjprovincejw
illjbejdifferentjforjeachjofjthejthreejalternativesjmentionedjabove.jForjexample,jwithjdirectjselli
ng,jnonejofjthejincomejisjtaxedjinjthejnewjprovince,jbutjwithjajseparatejcorporation,jalljofjtheji
ncomejisjtaxedjinjthejnewjprovince.jBecausejthejtaxjcostjisjdifferentjinjeachjcase,jtaxationjisja
jrelevantjpartjofjthejdecisionjandjmustjbejincludedjinjanyjcost-
benefitjanalysisjthatjcomparesjthejthreejalternativesj[Reg.j400-402.1].
R1-
3jAjbasicjunderstandingjofjthejfollowingjvariablesjwilljsignificantlyjstrengthenjajdecisionjmak
er'sjabilityjtojapplyjtaxjissuesjtojtheirjareajofjresponsibility.
TypesjofjIncome - Employment,jBusiness,jProperty,jCapitaljgains
TaxablejEntities - Individuals,jCorporations,jTrusts
AlternativejBusiness - Corporation,jProprietorship,jPartnership,jLimited
Structures partnership,jJointjarrangement,jIncomejtrust
TaxjJurisdictions - Federal,jProvincial,jForeign
R1-
4jAlljcashjflowjdecisions,jwhetherjrelatedjtojrevenues,jexpenses,jassetjacquisitionsjorjdivesti
tures,jorjdebtjandjequityjrestructuring,jwilljimpactjthejamountjandjtimingjofjthejtaxjcost.jTheref
ore,jcashjflowjexistsjonlyjonjanjafterjtaxjbasis,jand,jthejtaxjimpactsjwhetherj orj notj thej ultimat
ej resultj ofj thej decisionj isj successful.j Anj after-taxj approachj tojdecision-
makingjrequiresjeachjdecision-makerjtojthinkj"after-
tax"jforjeveryjdecisionjatjthejtimejthejdecisionjisjbeingjmade,jand,jtojconsiderjalternativejcour
sesjofjactionjtojminimizejthejtaxjcost,jinjthejsamejwayjthatjdecisionsjarejmadejregardingjothe
rjtypesjofjcosts.
Failurej toj applyj anj after-
taxj approachj atj thej timej thatj decisionsj arej madej mayj providejinaccuratejinformationjforjevaluation,ja
nd,jresultjinjajpermanentlyjinefficientjtaxjstructure.
,Copyrightj©j2022jMcGraw-HilljEducationjLtd. 2
InstructorjSolutionsjManualjChapterjOne
,
SolutionjManualjforjCanadianjIncomejTaxationj2022-
2023j25thjEditionjbyjWilliamjBuckwold,jJoanjKitunen,jMatthewjRoman
CHAPTERj1
TAXATION―jITSjROLEjINjBUSINESSjDECISIONjMAKING
ReviewjQuestions
1. Ifjincomejtaxjisjimposedjafterjprofitsjhavejbeenjdetermined,jwhyjisjtaxationjrelevantjtojbusin
essjdecisionjmaking?
2. Mostjbusinessjdecisionsjinvolvejthejevaluationjofjalternativejcoursesjofjaction.jForjexample
,jajmarketingjmanagerjmayjbejresponsiblejforjchoosingjajstrategyjforjestablishingjsalesjinjn
ewjgeographicaljterritories.jBrieflyjexplainjhowjthejtaxjfactorjcanjbejanjintegraljpartjofjthisjde
cision.
3. Whatjarejthejfundamentaljvariablesjofjthejincomejtaxjsystemjthatjdecision-
makersjshouldjbejfamiliarjwithjsojthatjtheyjcanjapplyjtaxjissuesjtojtheirjareasjofjresponsibilit
y?
4. Whatjisjanj―after-tax‖japproachjtojdecisionjmaking?
Copyrightj©j2022jMcGraw-HilljEducationjLtd. 1
InstructorjSolutionsjManualjChapterjOne
, Buckwold,jKitunen,jRomanjandjIqbal,jCanadianjIncomejTaxation,j2022-2023jEd.
SolutionsjtojReviewjQuestions
R1-
1j Oncejprofitjisjdetermined,jthejIncomejTaxjActjdeterminesjthejamountjofjincomejtaxjthatjres
ults.jHowever,jatjalljlevelsjofjmanagement,jalternativejcoursesjofjactionjarejevaluated.jInjma
nyjcases,jthejchoicejofjonejalternativejoverjthejotherjmayjaffectjbothjthejamountjandjthejtimin
gjofjfuturejtaxesjonjincomejgeneratedjfromjthatjactivity.jTherefore,jthejpersonjmakingjthosejd
ecisionsjhasjajdirectjinputjintojfuturejafter-
taxjcashjflow.j Obviously,jdecisionsjthatjreducejorjpostponejthejpaymentjofjtaxjaffectjthejultim
atejreturnjonjinvestmentjand,jinjturn,jthejvaluejofjthejenterprise.jIncludingjthejtaxjvariablejasja
jpartjofjthejformaljdecisionjprocessjwilljultimatelyjleadjtojimprovedjafter-taxjcashjflow.
R1-
2jExpansionjcanjbejachievedjinjnewjgeographicjareasjthroughjdirectjselling,jorjbyjestablishin
gjajformaljpresencejinjthejnewjterritoryjwithjajbranchjofficejorjajseparatejcorporation.jThejne
wjterritoriesjmayjalsojcrossjprovincialjorjinternationaljboundaries.jProvincialjincomejtaxjrates
jvaryjamongstjthejprovinces.jThejamountjofjincomejthatjisjsubjectjtojtaxjinjthejnewjprovincejw
illjbejdifferentjforjeachjofjthejthreejalternativesjmentionedjabove.jForjexample,jwithjdirectjselli
ng,jnonejofjthejincomejisjtaxedjinjthejnewjprovince,jbutjwithjajseparatejcorporation,jalljofjtheji
ncomejisjtaxedjinjthejnewjprovince.jBecausejthejtaxjcostjisjdifferentjinjeachjcase,jtaxationjisja
jrelevantjpartjofjthejdecisionjandjmustjbejincludedjinjanyjcost-
benefitjanalysisjthatjcomparesjthejthreejalternativesj[Reg.j400-402.1].
R1-
3jAjbasicjunderstandingjofjthejfollowingjvariablesjwilljsignificantlyjstrengthenjajdecisionjmak
er'sjabilityjtojapplyjtaxjissuesjtojtheirjareajofjresponsibility.
TypesjofjIncome - Employment,jBusiness,jProperty,jCapitaljgains
TaxablejEntities - Individuals,jCorporations,jTrusts
AlternativejBusiness - Corporation,jProprietorship,jPartnership,jLimited
Structures partnership,jJointjarrangement,jIncomejtrust
TaxjJurisdictions - Federal,jProvincial,jForeign
R1-
4jAlljcashjflowjdecisions,jwhetherjrelatedjtojrevenues,jexpenses,jassetjacquisitionsjorjdivesti
tures,jorjdebtjandjequityjrestructuring,jwilljimpactjthejamountjandjtimingjofjthejtaxjcost.jTheref
ore,jcashjflowjexistsjonlyjonjanjafterjtaxjbasis,jand,jthejtaxjimpactsjwhetherj orj notj thej ultimat
ej resultj ofj thej decisionj isj successful.j Anj after-taxj approachj tojdecision-
makingjrequiresjeachjdecision-makerjtojthinkj"after-
tax"jforjeveryjdecisionjatjthejtimejthejdecisionjisjbeingjmade,jand,jtojconsiderjalternativejcour
sesjofjactionjtojminimizejthejtaxjcost,jinjthejsamejwayjthatjdecisionsjarejmadejregardingjothe
rjtypesjofjcosts.
Failurej toj applyj anj after-
taxj approachj atj thej timej thatj decisionsj arej madej mayj providejinaccuratejinformationjforjevaluation,ja
nd,jresultjinjajpermanentlyjinefficientjtaxjstructure.
,Copyrightj©j2022jMcGraw-HilljEducationjLtd. 2
InstructorjSolutionsjManualjChapterjOne
,
