k
CHAPTER k1
Instructor kSolutions kManual kChapter
k kOne
,k Buckwold, kKitunen, kRoman kand kIqbal, kCanadian kIncome kTaxation, k2022-
TAXATION―
2023 kEd.
kITS kROLE kIN kBUSINESS kDECISION kMAKING
k
Review kQuestions
1. If kincome ktax kis kimposed kafter kprofits khave kbeen kdetermined, kwhy kis ktaxation
krelevant kto kbusiness kdecision kmaking? k
2. Most kbusiness kdecisions kinvolve kthe kevaluation kof kalternative kcourses kof kaction.
kFor kexample, ka kmarketing kmanager kmay kbe kresponsible kfor kchoosing ka kstrategy
kfor kestablishing k sales k in k new k geographical k territories. k Briefly k explain k how k the
k tax k factor k can kbe kan kintegral kpart kof kthis kdecision. k
3. What kare kthe kfundamental kvariables kof kthe kincome ktax ksystem kthat k decision-
makers kshould kbe kfamiliar kwith kso kthat kthey kcan kapply ktax kissues kto ktheir kareas kof
kresponsibility? k
4. What kis kan k―after-tax‖ kapproach kto kdecision kmaking? k
Instructor kSolutions kManual kChapter
k kOne
,k
1
Instructor kSolutions kManual kChapter
k kOne
, k Buckwold, kKitunen, kRoman kand kIqbal, kCanadian kIncome kTaxation, k2022-
2023 kEd.
k
Solutions kto kReview kQuestions
R1-1 kOnce kprofit kis kdetermined, kthe kIncome kTax kAct kdetermines kthe kamount kof kincome
ktax kthat kresults. kHowever, kat kall klevels kof kmanagement, kalternative kcourses kof
kaction kare kevaluated. kIn k many k cases, k the k choice k of k one k alternative k over k the
k other k may k affect k both k the k amount kand k the k timing k of k future k taxes k on
k income k generated k from k that k activity. k Therefore, k the kperson kmaking kthose
kdecisions khas ka kdirect kinput kinto kfuture kafter-tax k cash k flow. kObviously, kdecisions
kthat kreduce kor kpostpone kthe kpayment kof ktax kaffect kthe kultimate kreturn kon
k investment k and, k in k turn, kthe k value k of k the k enterprise. k Including k the ktax k variable k as
k a k part kof kthe kformal kdecision kprocess kwill kultimately klead kto kimproved kafter-tax
kcash kflow. k
R1-2 kExpansion kcan kbe kachieved kin knew kgeographic kareas kthrough kdirect kselling, kor kby
kestablishing ka kformal kpresence kin kthe knew kterritory kwith ka kbranch koffice kor ka
kseparate kcorporation. kThe knew kterritories kmay kalso kcross kprovincial kor kinternational
kboundaries. kProvincial kincome ktax krates kvary kamongst kthe kprovinces. kThe kamount
kof kincome kthat kis ksubject kto ktax kin kthe knew kprovince kwill kbe kdifferent kfor keach kof
kthe kthree kalternatives kmentioned kabove. kFor kexample, kwith kdirect kselling, knone kof
kthe kincome kis ktaxed kin kthe knew kprovince, kbut kwith ka kseparate kcorporation, kall kof
kthe kincome kis ktaxed kin kthe knew kprovince. kBecause kthe ktax kcost kis kdifferent kin
keach kcase, ktaxation kis ka krelevant kpart kof k the kdecision kand kmust kbe kincluded kin
kany kcost-benefit kanalysis kthat kcompares kthe kthree kalternatives k[Reg. k400-402.1]. k
R1-3 kA kbasic kunderstanding kof kthe kfollowing kvariables kwill ksignificantly kstrengthen ka
kdecision kmaker's kability kto kapply ktax kissues kto ktheir karea kof kresponsibility. k
Types kof kIncome k - k Employment, kBusiness, kProperty, kCapital kgains k
Taxable kEntities k - k Individuals, kCorporations, kTrusts k
Alternative kBusiness k - k Corporation, kProprietorship, kPartnership, kLimited
k
Structures k partnership, kJoint karrangement, kIncome ktrust k
Tax kJurisdictions k - k Federal, kProvincial, kForeign k
R1-4 kAll kcash kflow kdecisions, kwhether krelated kto krevenues, kexpenses, kasset kacquisitions
kor kdivestitures, kor kdebt kand kequity krestructuring, kwill kimpact kthe kamount kand ktiming
kof kthe ktax kcost. k Therefore, k cash k flow k exists k only k on k an k after k tax k basis, k and, k the
k tax k impacts k whether kor knot kthe kultimate kresult kof kthe kdecision kis ksuccessful. kAn
kafter-tax kapproach kto kdecision- kmaking krequires keach kdecision-maker kto kthink k"after-
tax" kfor kevery kdecision kat kthe ktime kthe kdecision kis kbeing kmade, kand, kto kconsider
kalternative kcourses kof kaction kto kminimize kthe ktax kcost, kin kthe ksame kway kthat
kdecisions kare kmade kregarding kother ktypes kof kcosts. k
Failure k to k apply k an k after-tax k approach k at k the k time k that k decisions k are k made
k may k provide kinaccurate kinformation kfor kevaluation, kand, kresult kin ka kpermanently
kinefficient ktax kstructure. k
Instructor kSolutions kManual kChapter
k kOne
CHAPTER k1
Instructor kSolutions kManual kChapter
k kOne
,k Buckwold, kKitunen, kRoman kand kIqbal, kCanadian kIncome kTaxation, k2022-
TAXATION―
2023 kEd.
kITS kROLE kIN kBUSINESS kDECISION kMAKING
k
Review kQuestions
1. If kincome ktax kis kimposed kafter kprofits khave kbeen kdetermined, kwhy kis ktaxation
krelevant kto kbusiness kdecision kmaking? k
2. Most kbusiness kdecisions kinvolve kthe kevaluation kof kalternative kcourses kof kaction.
kFor kexample, ka kmarketing kmanager kmay kbe kresponsible kfor kchoosing ka kstrategy
kfor kestablishing k sales k in k new k geographical k territories. k Briefly k explain k how k the
k tax k factor k can kbe kan kintegral kpart kof kthis kdecision. k
3. What kare kthe kfundamental kvariables kof kthe kincome ktax ksystem kthat k decision-
makers kshould kbe kfamiliar kwith kso kthat kthey kcan kapply ktax kissues kto ktheir kareas kof
kresponsibility? k
4. What kis kan k―after-tax‖ kapproach kto kdecision kmaking? k
Instructor kSolutions kManual kChapter
k kOne
,k
1
Instructor kSolutions kManual kChapter
k kOne
, k Buckwold, kKitunen, kRoman kand kIqbal, kCanadian kIncome kTaxation, k2022-
2023 kEd.
k
Solutions kto kReview kQuestions
R1-1 kOnce kprofit kis kdetermined, kthe kIncome kTax kAct kdetermines kthe kamount kof kincome
ktax kthat kresults. kHowever, kat kall klevels kof kmanagement, kalternative kcourses kof
kaction kare kevaluated. kIn k many k cases, k the k choice k of k one k alternative k over k the
k other k may k affect k both k the k amount kand k the k timing k of k future k taxes k on
k income k generated k from k that k activity. k Therefore, k the kperson kmaking kthose
kdecisions khas ka kdirect kinput kinto kfuture kafter-tax k cash k flow. kObviously, kdecisions
kthat kreduce kor kpostpone kthe kpayment kof ktax kaffect kthe kultimate kreturn kon
k investment k and, k in k turn, kthe k value k of k the k enterprise. k Including k the ktax k variable k as
k a k part kof kthe kformal kdecision kprocess kwill kultimately klead kto kimproved kafter-tax
kcash kflow. k
R1-2 kExpansion kcan kbe kachieved kin knew kgeographic kareas kthrough kdirect kselling, kor kby
kestablishing ka kformal kpresence kin kthe knew kterritory kwith ka kbranch koffice kor ka
kseparate kcorporation. kThe knew kterritories kmay kalso kcross kprovincial kor kinternational
kboundaries. kProvincial kincome ktax krates kvary kamongst kthe kprovinces. kThe kamount
kof kincome kthat kis ksubject kto ktax kin kthe knew kprovince kwill kbe kdifferent kfor keach kof
kthe kthree kalternatives kmentioned kabove. kFor kexample, kwith kdirect kselling, knone kof
kthe kincome kis ktaxed kin kthe knew kprovince, kbut kwith ka kseparate kcorporation, kall kof
kthe kincome kis ktaxed kin kthe knew kprovince. kBecause kthe ktax kcost kis kdifferent kin
keach kcase, ktaxation kis ka krelevant kpart kof k the kdecision kand kmust kbe kincluded kin
kany kcost-benefit kanalysis kthat kcompares kthe kthree kalternatives k[Reg. k400-402.1]. k
R1-3 kA kbasic kunderstanding kof kthe kfollowing kvariables kwill ksignificantly kstrengthen ka
kdecision kmaker's kability kto kapply ktax kissues kto ktheir karea kof kresponsibility. k
Types kof kIncome k - k Employment, kBusiness, kProperty, kCapital kgains k
Taxable kEntities k - k Individuals, kCorporations, kTrusts k
Alternative kBusiness k - k Corporation, kProprietorship, kPartnership, kLimited
k
Structures k partnership, kJoint karrangement, kIncome ktrust k
Tax kJurisdictions k - k Federal, kProvincial, kForeign k
R1-4 kAll kcash kflow kdecisions, kwhether krelated kto krevenues, kexpenses, kasset kacquisitions
kor kdivestitures, kor kdebt kand kequity krestructuring, kwill kimpact kthe kamount kand ktiming
kof kthe ktax kcost. k Therefore, k cash k flow k exists k only k on k an k after k tax k basis, k and, k the
k tax k impacts k whether kor knot kthe kultimate kresult kof kthe kdecision kis ksuccessful. kAn
kafter-tax kapproach kto kdecision- kmaking krequires keach kdecision-maker kto kthink k"after-
tax" kfor kevery kdecision kat kthe ktime kthe kdecision kis kbeing kmade, kand, kto kconsider
kalternative kcourses kof kaction kto kminimize kthe ktax kcost, kin kthe ksame kway kthat
kdecisions kare kmade kregarding kother ktypes kof kcosts. k
Failure k to k apply k an k after-tax k approach k at k the k time k that k decisions k are k made
k may k provide kinaccurate kinformation kfor kevaluation, kand, kresult kin ka kpermanently
kinefficient ktax kstructure. k
Instructor kSolutions kManual kChapter
k kOne
