, Buckwold,nKitunen,nRomannandnIqbal,nCanadiannIncomenTaxation,n2023-2024nEd.
CHAPTER 1 n
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
n n n n n n
ReviewnQuestions
1. Ifnincomentaxnisnimposednafternprofitsnhavenbeenndetermined,nwhynisntaxationnrelevantntonb
usinessndecisionnmaking?
2. Mostnbusinessndecisionsninvolventhenevaluationnofnalternativencoursesnofnaction.nFornexam
ple,nanmarketingnmanagernmaynbenresponsiblenfornchoosingnanstrategynfornestablishingnsal
esninnnewngeographicalnterritories.nBrieflynexplainnhownthentaxnfactorncannbenannintegralnpartn
ofnthisndecision.
3. Whatnarenthenfundamentalnvariablesnofnthenincomentaxnsystemnthatndecision-
makersnshouldnbenfamiliarnwithnsonthatntheyncannapplyntaxnissuesntontheirnareasnofnresponsib
ility?
4. Whatnisnann“after-tax”napproachntondecisionnmaking?
InstructornSolutionsnManualnChapternOne
, Buckwold,nKitunen,nRomannandnIqbal,nCanadiannIncomenTaxation,n2023-2024nEd.
Copyrightn©n2023nMcGrawnHillnLtd. 1
InstructornSolutionsnManualnChapternOne
, Buckwold,nKitunen,nRomannandnIqbal,nCanadiannIncomenTaxation,n2023-2024nEd.
CHAPTER 1 n
SolutionsntonReviewnQuestions
R1-
1nOncenprofitnisndetermined,nthenIncomenTaxnActndeterminesnthenamountnofnincomentaxnthatn
results.nHowever,natnallnlevelsnofnmanagement,nalternativencoursesnofnactionnarenevaluated.nI
nnmanyncases,nthenchoicenofnonenalternativenovernthenothernmaynaffectnbothnthenamountnandnt
hentimingnofnfuturentaxesnonnincomengeneratednfromnthatnactivity.nTherefore,nthenpersonnma
kingnthosendecisionsnhasnandirectninputnintonfuturenafter-
taxncashnflow.nObviously,ndecisionsnthatnreducenornpostponenthenpaymentnofntaxnaffectnthenu
ltimatenreturnnonninvestmentnand,ninnturn,nthenvaluenofnthenenterprise.nIncludingnthentaxnvaria
blenasnanpartnofnthenformalndecisionnprocessnwillnultimatelynleadntonimprovednafter-
taxncashnflow.
R1-
2nExpansionncannbenachievedninnnewngeographicnareasnthroughndirectnselling,nornbynestabli
shingnanformalnpresenceninnthennewnterritorynwithnanbranchnofficenornanseparatencorporation.n
Thennewnterritoriesnmaynalsoncrossnprovincialnorninternationalnboundaries.nProvincialnincom
entaxnratesnvarynamongstnthenprovinces.nThenamountnofnincomenthatnisnsubjectntontaxninnthen
newnprovincenwillnbendifferentnforneachnofnthenthreenalternativesnmentionednabove.nFornexam
ple,nwithndirectnselling,nnonenofnthenincomenisntaxedninnthennewnprovince,nbutnwithnanseparaten
corporation,nallnofnthenincomenisntaxedninnthennewnprovince.nBecausenthentaxncostnisndifferentn
inneachncase,ntaxationnisnanrelevantnpartnofnthendecisionnandnmustnbenincludedninnanyncost-
benefitnanalysisnthatncomparesnthenthreenalternativesn[Reg.n400-402.1].
R1-
3n An basicn understandingn ofn then followingn variablesn willn significantlyn strengthenn an decisionnma
ker'snabilityntonapplyntaxnissuesntontheirnareanofnresponsibility.
TypesnofnIncome -
Employment,nBusiness,nProperty,nCapitalngainsnTax
ablenEntities - Individuals,nCorporations,nTrusts
AlternativenBusiness -
Corporation,nProprietorship,nPartnership,nLimitednStr
uctures partnership,nJointnarrangement,nIncomentrust
TaxnJurisdictions - Federal,nProvincial,nForeign
R1-
4nAllncashnflowndecisions,nwhethernrelatedntonrevenues,nexpenses,nassetnacquisitionsnorndiv
estitures,norndebtnandnequitynrestructuring,nwillnimpactnthenamountnandntimingnofnthentaxncost
.nTherefore,ncashnflownexistsnonlynonnannafterntaxnbasis,nand,nthentaxnimpactsnwhethernornnotnt
henultimatenresultnofnthendecisionnisnsuccessful.nAnnafter-taxnapproachntondecision-
makingnrequiresneachndecision-makerntonthinkn"after-
tax"nforneveryndecisionnatnthentimenthendecisionnisnbeingnmade,nand,ntonconsidernalternativenc
oursesnofnactionntonminimizenthentaxncost,ninnthensamenwaynthatndecisionsnarenmadenregardin
gnotherntypesnofncosts.
Failuren ton applyn ann after-
taxn approachn atn then timen thatn decisionsn aren maden mayn provideninaccurateninformationnforneval
InstructornSolutionsnManualnChapternOne
CHAPTER 1 n
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
n n n n n n
ReviewnQuestions
1. Ifnincomentaxnisnimposednafternprofitsnhavenbeenndetermined,nwhynisntaxationnrelevantntonb
usinessndecisionnmaking?
2. Mostnbusinessndecisionsninvolventhenevaluationnofnalternativencoursesnofnaction.nFornexam
ple,nanmarketingnmanagernmaynbenresponsiblenfornchoosingnanstrategynfornestablishingnsal
esninnnewngeographicalnterritories.nBrieflynexplainnhownthentaxnfactorncannbenannintegralnpartn
ofnthisndecision.
3. Whatnarenthenfundamentalnvariablesnofnthenincomentaxnsystemnthatndecision-
makersnshouldnbenfamiliarnwithnsonthatntheyncannapplyntaxnissuesntontheirnareasnofnresponsib
ility?
4. Whatnisnann“after-tax”napproachntondecisionnmaking?
InstructornSolutionsnManualnChapternOne
, Buckwold,nKitunen,nRomannandnIqbal,nCanadiannIncomenTaxation,n2023-2024nEd.
Copyrightn©n2023nMcGrawnHillnLtd. 1
InstructornSolutionsnManualnChapternOne
, Buckwold,nKitunen,nRomannandnIqbal,nCanadiannIncomenTaxation,n2023-2024nEd.
CHAPTER 1 n
SolutionsntonReviewnQuestions
R1-
1nOncenprofitnisndetermined,nthenIncomenTaxnActndeterminesnthenamountnofnincomentaxnthatn
results.nHowever,natnallnlevelsnofnmanagement,nalternativencoursesnofnactionnarenevaluated.nI
nnmanyncases,nthenchoicenofnonenalternativenovernthenothernmaynaffectnbothnthenamountnandnt
hentimingnofnfuturentaxesnonnincomengeneratednfromnthatnactivity.nTherefore,nthenpersonnma
kingnthosendecisionsnhasnandirectninputnintonfuturenafter-
taxncashnflow.nObviously,ndecisionsnthatnreducenornpostponenthenpaymentnofntaxnaffectnthenu
ltimatenreturnnonninvestmentnand,ninnturn,nthenvaluenofnthenenterprise.nIncludingnthentaxnvaria
blenasnanpartnofnthenformalndecisionnprocessnwillnultimatelynleadntonimprovednafter-
taxncashnflow.
R1-
2nExpansionncannbenachievedninnnewngeographicnareasnthroughndirectnselling,nornbynestabli
shingnanformalnpresenceninnthennewnterritorynwithnanbranchnofficenornanseparatencorporation.n
Thennewnterritoriesnmaynalsoncrossnprovincialnorninternationalnboundaries.nProvincialnincom
entaxnratesnvarynamongstnthenprovinces.nThenamountnofnincomenthatnisnsubjectntontaxninnthen
newnprovincenwillnbendifferentnforneachnofnthenthreenalternativesnmentionednabove.nFornexam
ple,nwithndirectnselling,nnonenofnthenincomenisntaxedninnthennewnprovince,nbutnwithnanseparaten
corporation,nallnofnthenincomenisntaxedninnthennewnprovince.nBecausenthentaxncostnisndifferentn
inneachncase,ntaxationnisnanrelevantnpartnofnthendecisionnandnmustnbenincludedninnanyncost-
benefitnanalysisnthatncomparesnthenthreenalternativesn[Reg.n400-402.1].
R1-
3n An basicn understandingn ofn then followingn variablesn willn significantlyn strengthenn an decisionnma
ker'snabilityntonapplyntaxnissuesntontheirnareanofnresponsibility.
TypesnofnIncome -
Employment,nBusiness,nProperty,nCapitalngainsnTax
ablenEntities - Individuals,nCorporations,nTrusts
AlternativenBusiness -
Corporation,nProprietorship,nPartnership,nLimitednStr
uctures partnership,nJointnarrangement,nIncomentrust
TaxnJurisdictions - Federal,nProvincial,nForeign
R1-
4nAllncashnflowndecisions,nwhethernrelatedntonrevenues,nexpenses,nassetnacquisitionsnorndiv
estitures,norndebtnandnequitynrestructuring,nwillnimpactnthenamountnandntimingnofnthentaxncost
.nTherefore,ncashnflownexistsnonlynonnannafterntaxnbasis,nand,nthentaxnimpactsnwhethernornnotnt
henultimatenresultnofnthendecisionnisnsuccessful.nAnnafter-taxnapproachntondecision-
makingnrequiresneachndecision-makerntonthinkn"after-
tax"nforneveryndecisionnatnthentimenthendecisionnisnbeingnmade,nand,ntonconsidernalternativenc
oursesnofnactionntonminimizenthentaxncost,ninnthensamenwaynthatndecisionsnarenmadenregardin
gnotherntypesnofncosts.
Failuren ton applyn ann after-
taxn approachn atn then timen thatn decisionsn aren maden mayn provideninaccurateninformationnforneval
InstructornSolutionsnManualnChapternOne
