SolutionManualforCanadianIncomeTaxation
i i i i i i
26th E
ii i
ditionbyWilliamBuckwold
i i i i
Allchapters1-23 Covered
i i i
,TABLEiOFiCONTENT
Chapteri1iTaxationiItsiRoleiiniDecisioniMakingi Chapteri2iFun
damentalsiofiTaxiPlanning
Chapteri3iLiabilityiforiTax,iIncomeiDetermination,iandiAdministrationiofitheiIncomeiTaxiSystemi Chapteri4iIncomeifr
omiEmployment
Chapteri5iIncomeifromiBusiness
Chapteri6iTheiAcquisition,iUse,iandiDisposaliofiDepreciableiPropertyi Chapteri7iIncom
eifromiProperty
Chapteri8iGainsiandiLossesionitheiDispositioniofiCapitaliProperty-CapitaliGains
Chapteri9iOtheriIncome,iOtheriDeductions,iandiSpecialiRulesiforiCompletingiNetiIncomeiforiTaxiPurposesi Chapteri10iIndi
viduals:iDeterminationiofiTaxableiIncomeiandiTaxesiPayable
Chapteri11iCorporations-AniIntroduction
Chapteri12iOrganization,iCapitaliStructures,iandiIncomeiDistributionsiofiCorporationsi Chapteri13iTheiCa
nadian-ControllediPrivateiCorporation
Chapteri14iMultipleiCorporationsiandiTheiriReorganizationi Chapteri15iPart
nerships
Chapteri16iLimitediPartnershipsiandiJointiVenturesi Chapteri
17iTrusts
Chapteri18iBusinessiAcquisitionsiandiDivestitures-
AssetsiversusiSharesi Chapteri19iBusinessiAcquisitionsiandiDivestitures-Tax-
DeferrediSalesi Chapteri20iDomesticiandiInternationaliBusinessiExpansion
Chapteri21iTaxiAspectsiofiCorporateiFinancingi Chapteri22iIn
troductionitoiGST/HST
Chapteri23iBusinessiValuations
Chapteri1
Taxationi–iIt’siRoleiiniBusinessiDecisioniMaking
ReviewiQuestions
1. Ifi incomei taxi isi imposedi afteri profitsi havei beeni determined,i whyi isi taxationi relevanti toi businessid
ecisionimaking?
2. Mostibusinessidecisionsiinvolveitheievaluationiofialternativeicoursesiofiaction.iForiexample,i ai marketin
gi manageri mayi bei responsiblei fori choosingi ai strategyi fori establishingi salesi ini newigeographicalit
erritories.iBrieflyiexplainihowitheitaxifactoricanibeianiintegraliparti ofithisi decision.
3. Whatiareitheifundamentalivariablesiofitheiincomeitaxisystemithatidecision-
makersishouldi bei familiariwithisoithatitheyicaniapplyitaxiissuesitoitheiriareasiofiresponsibility?
4. Whatiisiani“after-tax”iapproachitoidecisionimaking?
,SolutionsitoiReviewiQuestions
R1-
1i Oncei profiti isi determined,i thei Incomei Taxi Acti determinesi thei amounti ofi incomei taxi thati results.i
However,i ati alli levelsi ofi management,i alternativei coursesi ofi actioni arei evaluated.i Ini manyi cases,i thei c
hoicei ofi onei alternativei overi thei otheri mayi affecti bothi theiamounti andi thei timingi ofi futurei taxesi oni inc
omei generatedi fromi thati activity.i Therefore,i thei personi makingi thosei decisionsi hasi ai directi inputi intoi
futurei after-
taxi cashi flow.i Obviously,i decisionsi thati reduceiori postponeitheipaymenti ofi taxi affecti thei ultimateiret
urni oni investmenti and,i initurn,i theivaluei ofitheienterprise.iIncludingitheitaxivariableiasi aipartiofitheiform
alidecisioniprocessi williultimatelyileaditoiimprovediafter-taxicashiflow.
R1-
2iExpansionicanibeiachievedi ininewigeographiciareasithroughidirectiselling,ioribyiestablishingiai formali
presenceiinithei newi territoryiwithiaibranchi officeiori aiseparateicorporation.iTheinewi territoriesi mayi als
oi crossi provinciali ori internationali boundaries.i Provinciali incomeitaxiratesi varyiamongsti theiprovinces.i T
hei amounti ofi incomei thati isisubjecti toi taxi inithei newi provincei willibeidifferentifori eachi ofi thei threeialter
nativesi mentionedi above.i Fori example,i withidirecti selling,i nonei ofi thei incomei isi taxedi ini thei newi provi
nce,i buti withi ai separatei corporation,i alli ofi thei incomei isi taxedi ini thei newi province.i Becausei thei taxi
costi isi differenti ini eachi case,i taxationi isi ai relevanti parti ofi thei decisioni andi musti bei includedi ini anyi c
ost-benefiti analysisi thaticomparesitheithreeialternativesi[Reg.i400-402.1].
R1-
3iAi basici understandingi ofi theifollowingi variablesi willi significantlyi strengtheni ai decisioni maker'siabilit
yitoiapplyitaxiissuesitoitheiriareaiofiresponsibility.
TypesiofiIncome -
Employment,iBusiness,iProperty,iCapitaligainsi Taxablei
Entities - Individuals,iCorporations,iTrusts
AlternativeiBusiness -
Corporation,iProprietorship,iPartnership,iLimitedi Structures
partnership,iJointiarrangement,iIncomeitrust
TaxiJurisdictions - Federal,iProvincial,iForeign
R1-
4i Alli cashi flowi decisions,i whetheri relatedi toi revenues,i expenses,i asseti acquisitionsi ori divestitures,i o
ri debti andi equityi restructuring,i willi impacti thei amounti andi timingi ofi thei taxi cost.iTherefore,icashiflowi
existsionlyionianiafteritaxibasis,iand,itheitaxiimpactsiwhetheriorinoti thei ultimatei resultiofi thei decisioni is
i successful.i Ani after-taxi approachi toii decision-i makingi requiresi eachi decision-makeri toi thinki "after-
tax"i fori everyi decisioni ati thei timei thei decisioniisibeingimade,iand,itoiconsiderialternativeicoursesi ofiac
tionitoiminimizeitheitaxicost,i initheisameiwayithatidecisionsiareimadeiregardingiotheritypesiofi costs.
Failurei toi applyi ani after-
taxi approachi ati thei timei thati decisionsi arei madei mayi providei inaccurateiinformationiforievaluatio
n,iand,iresultiiniaipermanentlyiinefficientitaxistructure.
, CHAPTERi2
FUNDAMENTALSiOFiTAXiPLANNING
ReviewiQuestions
1. “Taxiplanningianditaxiavoidanceimeanitheisameithing.”iIsithisistatementitrue?iExplain.
2. Whatidistinguishesitaxievasionifromitaxiavoidanceianditaxiplanning?
3. Doesi CanadaiRevenueiAgencyideali withi alli taxi avoidanceiactivitiesi ini thei sameiway?i Explain.
4. Thei purposei ofi taxi planningi isi toi reducei ori deferi thei taxi costsi associatedi withi financiali transactio
ns.iWhatiareithei generali typesiofitaxiplanningiactivities?iBrieflyiexplainihowi eachi ofithemimayireduc
eiorideferitheitaxicost.
5. “Itiisialwaysibetteritoipayitaxilateriratherithanisooner.”iIsithisistatementitrue?iExplain.
6. Whenicorporateitaxiratesiarei13%ianditaxiratesiforiindividualsiarei40%,iisiitialwaysibetterifori theiindiv
idualitoitransferitheiribusinessitoiaicorporation?
7. “Asii longii asii allii ofii theii incomeiitaxiirulesii areiiknown,iiaiitaxii planii canii beii developedii with
certainty.”iIsithisistatementitrue?iExplain.
8. Whatibasiciskillsiareirequireditoidevelopiaigooditaxiplan?
9. Anientrepreneuri isi developingi ai newibusinessiiventurei andiisiiplanningi toi raisei equityi capitali from
i individuali investors.i Theiri adviseri indicatesi thati thei venturei couldi bei structuredi asi ai corporationi (i
.e.,i sharesi arei issuedi toi thei investors)i ori asi ai limitedi partnershipi (i.e.,ipartnershipi unitsiareisold).iBothi
structuresiprovideilimitedi liabilityiforithei investors.i Shouldi thei entrepreneuri consideri thei taxi positions
i ofi thei individuali investors?i Explain.i Withouti dealingi withi specifici taxi rules,i whati generali taxi factorsi
shouldi ani investori consideribeforeimakingianiinvestment?
10. Whatiisiaitaxiavoidanceitransaction?
11. “Ifiaitransactioni (oriaiseriesiofitransactions)ithati resultsi iniaitaxibenefitiwasinoti undertakeni primarilyi f
ori bonai fidei business,i investment,i ori familyi purposes,i thei generali anti-
i avoidanceiruleiwilliapplyiandieliminateitheitaxibenefit.”iIsi thisistatementitrue?iExplain.
i i i i i i
26th E
ii i
ditionbyWilliamBuckwold
i i i i
Allchapters1-23 Covered
i i i
,TABLEiOFiCONTENT
Chapteri1iTaxationiItsiRoleiiniDecisioniMakingi Chapteri2iFun
damentalsiofiTaxiPlanning
Chapteri3iLiabilityiforiTax,iIncomeiDetermination,iandiAdministrationiofitheiIncomeiTaxiSystemi Chapteri4iIncomeifr
omiEmployment
Chapteri5iIncomeifromiBusiness
Chapteri6iTheiAcquisition,iUse,iandiDisposaliofiDepreciableiPropertyi Chapteri7iIncom
eifromiProperty
Chapteri8iGainsiandiLossesionitheiDispositioniofiCapitaliProperty-CapitaliGains
Chapteri9iOtheriIncome,iOtheriDeductions,iandiSpecialiRulesiforiCompletingiNetiIncomeiforiTaxiPurposesi Chapteri10iIndi
viduals:iDeterminationiofiTaxableiIncomeiandiTaxesiPayable
Chapteri11iCorporations-AniIntroduction
Chapteri12iOrganization,iCapitaliStructures,iandiIncomeiDistributionsiofiCorporationsi Chapteri13iTheiCa
nadian-ControllediPrivateiCorporation
Chapteri14iMultipleiCorporationsiandiTheiriReorganizationi Chapteri15iPart
nerships
Chapteri16iLimitediPartnershipsiandiJointiVenturesi Chapteri
17iTrusts
Chapteri18iBusinessiAcquisitionsiandiDivestitures-
AssetsiversusiSharesi Chapteri19iBusinessiAcquisitionsiandiDivestitures-Tax-
DeferrediSalesi Chapteri20iDomesticiandiInternationaliBusinessiExpansion
Chapteri21iTaxiAspectsiofiCorporateiFinancingi Chapteri22iIn
troductionitoiGST/HST
Chapteri23iBusinessiValuations
Chapteri1
Taxationi–iIt’siRoleiiniBusinessiDecisioniMaking
ReviewiQuestions
1. Ifi incomei taxi isi imposedi afteri profitsi havei beeni determined,i whyi isi taxationi relevanti toi businessid
ecisionimaking?
2. Mostibusinessidecisionsiinvolveitheievaluationiofialternativeicoursesiofiaction.iForiexample,i ai marketin
gi manageri mayi bei responsiblei fori choosingi ai strategyi fori establishingi salesi ini newigeographicalit
erritories.iBrieflyiexplainihowitheitaxifactoricanibeianiintegraliparti ofithisi decision.
3. Whatiareitheifundamentalivariablesiofitheiincomeitaxisystemithatidecision-
makersishouldi bei familiariwithisoithatitheyicaniapplyitaxiissuesitoitheiriareasiofiresponsibility?
4. Whatiisiani“after-tax”iapproachitoidecisionimaking?
,SolutionsitoiReviewiQuestions
R1-
1i Oncei profiti isi determined,i thei Incomei Taxi Acti determinesi thei amounti ofi incomei taxi thati results.i
However,i ati alli levelsi ofi management,i alternativei coursesi ofi actioni arei evaluated.i Ini manyi cases,i thei c
hoicei ofi onei alternativei overi thei otheri mayi affecti bothi theiamounti andi thei timingi ofi futurei taxesi oni inc
omei generatedi fromi thati activity.i Therefore,i thei personi makingi thosei decisionsi hasi ai directi inputi intoi
futurei after-
taxi cashi flow.i Obviously,i decisionsi thati reduceiori postponeitheipaymenti ofi taxi affecti thei ultimateiret
urni oni investmenti and,i initurn,i theivaluei ofitheienterprise.iIncludingitheitaxivariableiasi aipartiofitheiform
alidecisioniprocessi williultimatelyileaditoiimprovediafter-taxicashiflow.
R1-
2iExpansionicanibeiachievedi ininewigeographiciareasithroughidirectiselling,ioribyiestablishingiai formali
presenceiinithei newi territoryiwithiaibranchi officeiori aiseparateicorporation.iTheinewi territoriesi mayi als
oi crossi provinciali ori internationali boundaries.i Provinciali incomeitaxiratesi varyiamongsti theiprovinces.i T
hei amounti ofi incomei thati isisubjecti toi taxi inithei newi provincei willibeidifferentifori eachi ofi thei threeialter
nativesi mentionedi above.i Fori example,i withidirecti selling,i nonei ofi thei incomei isi taxedi ini thei newi provi
nce,i buti withi ai separatei corporation,i alli ofi thei incomei isi taxedi ini thei newi province.i Becausei thei taxi
costi isi differenti ini eachi case,i taxationi isi ai relevanti parti ofi thei decisioni andi musti bei includedi ini anyi c
ost-benefiti analysisi thaticomparesitheithreeialternativesi[Reg.i400-402.1].
R1-
3iAi basici understandingi ofi theifollowingi variablesi willi significantlyi strengtheni ai decisioni maker'siabilit
yitoiapplyitaxiissuesitoitheiriareaiofiresponsibility.
TypesiofiIncome -
Employment,iBusiness,iProperty,iCapitaligainsi Taxablei
Entities - Individuals,iCorporations,iTrusts
AlternativeiBusiness -
Corporation,iProprietorship,iPartnership,iLimitedi Structures
partnership,iJointiarrangement,iIncomeitrust
TaxiJurisdictions - Federal,iProvincial,iForeign
R1-
4i Alli cashi flowi decisions,i whetheri relatedi toi revenues,i expenses,i asseti acquisitionsi ori divestitures,i o
ri debti andi equityi restructuring,i willi impacti thei amounti andi timingi ofi thei taxi cost.iTherefore,icashiflowi
existsionlyionianiafteritaxibasis,iand,itheitaxiimpactsiwhetheriorinoti thei ultimatei resultiofi thei decisioni is
i successful.i Ani after-taxi approachi toii decision-i makingi requiresi eachi decision-makeri toi thinki "after-
tax"i fori everyi decisioni ati thei timei thei decisioniisibeingimade,iand,itoiconsiderialternativeicoursesi ofiac
tionitoiminimizeitheitaxicost,i initheisameiwayithatidecisionsiareimadeiregardingiotheritypesiofi costs.
Failurei toi applyi ani after-
taxi approachi ati thei timei thati decisionsi arei madei mayi providei inaccurateiinformationiforievaluatio
n,iand,iresultiiniaipermanentlyiinefficientitaxistructure.
, CHAPTERi2
FUNDAMENTALSiOFiTAXiPLANNING
ReviewiQuestions
1. “Taxiplanningianditaxiavoidanceimeanitheisameithing.”iIsithisistatementitrue?iExplain.
2. Whatidistinguishesitaxievasionifromitaxiavoidanceianditaxiplanning?
3. Doesi CanadaiRevenueiAgencyideali withi alli taxi avoidanceiactivitiesi ini thei sameiway?i Explain.
4. Thei purposei ofi taxi planningi isi toi reducei ori deferi thei taxi costsi associatedi withi financiali transactio
ns.iWhatiareithei generali typesiofitaxiplanningiactivities?iBrieflyiexplainihowi eachi ofithemimayireduc
eiorideferitheitaxicost.
5. “Itiisialwaysibetteritoipayitaxilateriratherithanisooner.”iIsithisistatementitrue?iExplain.
6. Whenicorporateitaxiratesiarei13%ianditaxiratesiforiindividualsiarei40%,iisiitialwaysibetterifori theiindiv
idualitoitransferitheiribusinessitoiaicorporation?
7. “Asii longii asii allii ofii theii incomeiitaxiirulesii areiiknown,iiaiitaxii planii canii beii developedii with
certainty.”iIsithisistatementitrue?iExplain.
8. Whatibasiciskillsiareirequireditoidevelopiaigooditaxiplan?
9. Anientrepreneuri isi developingi ai newibusinessiiventurei andiisiiplanningi toi raisei equityi capitali from
i individuali investors.i Theiri adviseri indicatesi thati thei venturei couldi bei structuredi asi ai corporationi (i
.e.,i sharesi arei issuedi toi thei investors)i ori asi ai limitedi partnershipi (i.e.,ipartnershipi unitsiareisold).iBothi
structuresiprovideilimitedi liabilityiforithei investors.i Shouldi thei entrepreneuri consideri thei taxi positions
i ofi thei individuali investors?i Explain.i Withouti dealingi withi specifici taxi rules,i whati generali taxi factorsi
shouldi ani investori consideribeforeimakingianiinvestment?
10. Whatiisiaitaxiavoidanceitransaction?
11. “Ifiaitransactioni (oriaiseriesiofitransactions)ithati resultsi iniaitaxibenefitiwasinoti undertakeni primarilyi f
ori bonai fidei business,i investment,i ori familyi purposes,i thei generali anti-
i avoidanceiruleiwilliapplyiandieliminateitheitaxibenefit.”iIsi thisistatementitrue?iExplain.
