Created By: Test Bank
Solution Manual for Canadian Income Taxation, 2023/2024:
Planning and Decision Making 26th Edition By William
Buckwold Complete Chapter Solutions Manual are included
(Ch 1 to 23) A+
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.
A+
,Created By: Test Bank
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 Taxable Entities
- Individuals, Corporations, Trusts
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.
Failure to apply an after-tax approach at the time that decisions are made may provide inaccurate
information for evaluation, and, result in a permanently inefficient tax structure.
CHAPTER 2
FUNDAMENTALS OF TAX PLANNING
A+
,Created By: Test Bank
Review Questions
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.
A+
, Created By: Test Bank
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 transaction in 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.
A+
Solution Manual for Canadian Income Taxation, 2023/2024:
Planning and Decision Making 26th Edition By William
Buckwold Complete Chapter Solutions Manual are included
(Ch 1 to 23) A+
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.
A+
,Created By: Test Bank
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 Taxable Entities
- Individuals, Corporations, Trusts
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.
Failure to apply an after-tax approach at the time that decisions are made may provide inaccurate
information for evaluation, and, result in a permanently inefficient tax structure.
CHAPTER 2
FUNDAMENTALS OF TAX PLANNING
A+
,Created By: Test Bank
Review Questions
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.
A+
, Created By: Test Bank
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 transaction in 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.
A+
