,Solution manual for Cana
m m m
dian Income Taxation 202
m m m
22023 25th Edition by Will
m m m m
iam Buckwold, Joan Kitun
m m m
en, Matthew Roman
m m
,CHAPTER 1 m
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
m m m m m m
ReviewmQuestions
1. Ifmincomemtax mis mimposedmaftermprofits mhavembeenmdetermined,mwhy mismtaxationmrelevantmto
mbusiness mdecisionmmaking?
2. Mostmbusiness mdecisions minvolvemthemevaluationmofmalternativemcourses mofmaction.mFormexa
mple,mammarketingmmanagermmaymbemresponsiblemformchoosingmamstrategym formestablishing
m salesm inm newm geographicalm territories.m Briefly m explainm how m them tax m factorm canmbemanmin
tegralmpartmofmthis mdecision.
3. Whatmaremthemfundamentalmvariables mofmthemincomemtaxmsystemm thatm decision-
makersm shouldmbemfamiliarmwithmsomthatmtheymcanmapply mtaxmissuesmtomtheirmareas mofmrespo
nsibility?
4. Whatmis manm―after-tax‖mapproachmtomdecisionmmaking?
1
, SolutionsmtomReviewmQuestions
R1-
1mOncemprofitmis mdetermined,mthemIncomemTax mActmdetermines mthemamountmofmincomemtax mt
hatmresults.mHowever,matmallmlevels mofmmanagement,malternativemcoursesmofmactionmaremeval
uated.mInm many m cases,m them choicem ofm onem alternativem overm them otherm maym affectm bothm t
hem amountmandmthemtimingmofm futuremtaxesm onmincomemgeneratedmfrom mthatm activity.mThere
fore,mthem personm makingm thosem decisionsm hasm am directm inputm intom futurem after-
tax m cashm flow.mObviously,mdecisions mthatmreducemormpostponemthempaymentmofmtax maffectmth
emultimatemreturnmonm investmentm and,minmturn,mthemvaluemofmthementerprise.mIncludingm themta
x mvariablemas mampartm ofmthemformalmdecisionmprocess mwillmultimately mleadmtomimprovedmafter-
tax mcashmflow.
R1-
2mExpansionmcanmbemachievedminmnewmgeographic mareasmthroughmdirectmselling,mormbymesta
blishingmamformalmpresenceminmthemnewmterritorymwithmambranchmofficemormamseparatemcorpora
tion.mThemnewmterritories mmay malsomcross mprovincialmorminternationalmboundaries.mProvincialm
incomemtaxmratesmvary mamongstmthemprovinces.mThemamountmofmincomemthatmismsubjectmtomta
x minmthemnewmprovincemwillmbemdifferentmformeachmofmthemthreemalternatives mmentionedmabove
.mFormexample,mwithmdirectmselling,mnonemofmthemincomemismtaxedminmthemnewmprovince,mbutm
withmamseparatemcorporation,mallmofmthemincomemis mtaxedminmthemnewmprovince.mBecausemthe
mtax mcostmism differentminmeachmcase,mtaxationm is mamrelevantmpartmofmthemdecisionm andmmustm
bemincludedminmany mcost-benefitmanalysis mthatmcompares mthem threemalternatives m[Reg.m400-
402.1].
R1-
3mAmbasic munderstandingmofmthemfollowingmvariables mwillmsignificantly mstrengthenmamdecision
mmaker's mability mtomapply mtax missues mtomtheirmareamofmresponsibility.
Types mofmIncome -
Employment,mBusiness,mProperty,mCapitalmgains mT
axablemEntities - Individuals,mCorporations,mTrusts
AlternativemBusiness - Corporation,mProprietorship,mPartnership,mLimited
Structures
partnership,mJointmarrangement,mIncomemtrustmTa
x mJurisdictions -m Federal,mProvincial,mForeign
R1-
4mAllmcashmflowmdecisions,mwhethermrelatedmtomrevenues,mexpenses,massetmacquisitions mormd
ivestitures,mormdebtmandmequity mrestructuring,mwillmimpactmthemamountmandmtimingmofmthemtax m
cost.m Therefore,m cashm flowm exists m only m onm anm afterm tax m basis,m and,m them tax m impacts m whe
thermormnotmthemultimatemresultmofmthemdecisionmis msuccessful.mAnmafter-
tax mapproachmtomdecision-mmakingmrequires meachmdecision-makermtomthink m"after-
tax"mformeverymdecisionmatmthemtimemthemdecisionmis mbeingmmade,mand,mtomconsidermalternativ
emcourses mofmactionmtomminimizemthemtax mcost,minmthemsamemwaymthatmdecisionsmaremmademr
egardingmothermtypes mofmcosts.
2
m m m
dian Income Taxation 202
m m m
22023 25th Edition by Will
m m m m
iam Buckwold, Joan Kitun
m m m
en, Matthew Roman
m m
,CHAPTER 1 m
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
m m m m m m
ReviewmQuestions
1. Ifmincomemtax mis mimposedmaftermprofits mhavembeenmdetermined,mwhy mismtaxationmrelevantmto
mbusiness mdecisionmmaking?
2. Mostmbusiness mdecisions minvolvemthemevaluationmofmalternativemcourses mofmaction.mFormexa
mple,mammarketingmmanagermmaymbemresponsiblemformchoosingmamstrategym formestablishing
m salesm inm newm geographicalm territories.m Briefly m explainm how m them tax m factorm canmbemanmin
tegralmpartmofmthis mdecision.
3. Whatmaremthemfundamentalmvariables mofmthemincomemtaxmsystemm thatm decision-
makersm shouldmbemfamiliarmwithmsomthatmtheymcanmapply mtaxmissuesmtomtheirmareas mofmrespo
nsibility?
4. Whatmis manm―after-tax‖mapproachmtomdecisionmmaking?
1
, SolutionsmtomReviewmQuestions
R1-
1mOncemprofitmis mdetermined,mthemIncomemTax mActmdetermines mthemamountmofmincomemtax mt
hatmresults.mHowever,matmallmlevels mofmmanagement,malternativemcoursesmofmactionmaremeval
uated.mInm many m cases,m them choicem ofm onem alternativem overm them otherm maym affectm bothm t
hem amountmandmthemtimingmofm futuremtaxesm onmincomemgeneratedmfrom mthatm activity.mThere
fore,mthem personm makingm thosem decisionsm hasm am directm inputm intom futurem after-
tax m cashm flow.mObviously,mdecisions mthatmreducemormpostponemthempaymentmofmtax maffectmth
emultimatemreturnmonm investmentm and,minmturn,mthemvaluemofmthementerprise.mIncludingm themta
x mvariablemas mampartm ofmthemformalmdecisionmprocess mwillmultimately mleadmtomimprovedmafter-
tax mcashmflow.
R1-
2mExpansionmcanmbemachievedminmnewmgeographic mareasmthroughmdirectmselling,mormbymesta
blishingmamformalmpresenceminmthemnewmterritorymwithmambranchmofficemormamseparatemcorpora
tion.mThemnewmterritories mmay malsomcross mprovincialmorminternationalmboundaries.mProvincialm
incomemtaxmratesmvary mamongstmthemprovinces.mThemamountmofmincomemthatmismsubjectmtomta
x minmthemnewmprovincemwillmbemdifferentmformeachmofmthemthreemalternatives mmentionedmabove
.mFormexample,mwithmdirectmselling,mnonemofmthemincomemismtaxedminmthemnewmprovince,mbutm
withmamseparatemcorporation,mallmofmthemincomemis mtaxedminmthemnewmprovince.mBecausemthe
mtax mcostmism differentminmeachmcase,mtaxationm is mamrelevantmpartmofmthemdecisionm andmmustm
bemincludedminmany mcost-benefitmanalysis mthatmcompares mthem threemalternatives m[Reg.m400-
402.1].
R1-
3mAmbasic munderstandingmofmthemfollowingmvariables mwillmsignificantly mstrengthenmamdecision
mmaker's mability mtomapply mtax missues mtomtheirmareamofmresponsibility.
Types mofmIncome -
Employment,mBusiness,mProperty,mCapitalmgains mT
axablemEntities - Individuals,mCorporations,mTrusts
AlternativemBusiness - Corporation,mProprietorship,mPartnership,mLimited
Structures
partnership,mJointmarrangement,mIncomemtrustmTa
x mJurisdictions -m Federal,mProvincial,mForeign
R1-
4mAllmcashmflowmdecisions,mwhethermrelatedmtomrevenues,mexpenses,massetmacquisitions mormd
ivestitures,mormdebtmandmequity mrestructuring,mwillmimpactmthemamountmandmtimingmofmthemtax m
cost.m Therefore,m cashm flowm exists m only m onm anm afterm tax m basis,m and,m them tax m impacts m whe
thermormnotmthemultimatemresultmofmthemdecisionmis msuccessful.mAnmafter-
tax mapproachmtomdecision-mmakingmrequires meachmdecision-makermtomthink m"after-
tax"mformeverymdecisionmatmthemtimemthemdecisionmis mbeingmmade,mand,mtomconsidermalternativ
emcourses mofmactionmtomminimizemthemtax mcost,minmthemsamemwaymthatmdecisionsmaremmademr
egardingmothermtypes mofmcosts.
2
