m
m
, m
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 m
m
m
, m
CHAPTER 1 m
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
m m m m m m
ReviewmQuestions
1. Ifmincomemtaxmismimposedmaftermprofitsmhavembeenmdetermined,mwhymismtaxationmrelevantmtom
businessmdecisionmmaking?mmm
2. Mostmbusinessmdecisionsminvolvemthemevaluationmofmalternativemcoursesmofmaction.mFormexa
mple,mammarketingmmanagermmaymbemresponsiblemformchoosingmam strategym formestablishin
gmsalesm inmnewmgeographicalm territories.mBrieflymexplainm howmthemtaxm factormcanmbemanmin
tegralmpartmofmthismdecision.mmm
3. Whatmaremthemfundamentalmvariablesmofmthemincomemtaxm systemm thatm decision-
makersmshouldmbemfamiliarmwithmsomthatmtheymcanmapplymtaxmissuesmtomtheirmareasmofmrespon
sibility?mmm
4. Whatmismanm―after-tax‖mapproachmtomdecisionmmaking?mmm
1
mmm
m
m
, m
SolutionsmtomReviewmQuestions
R1-
1mOncemprofitmismdetermined,mthemIncomemTaxmActmdeterminesmthemamountmofmincomemtaxmth
atmresults.m However,m atm allm levelsm ofm management,m alternativem coursesm ofm actionm arem evalu
ated.mInm manym cases,m them choicem ofm onem alternativem overm them otherm maym affectm bothm the
m amountmandmthemtimingmofmfuturemtaxesmonmincomemgeneratedmfromm thatm activity.m Therefor
e,m thempersonmmakingmthosemdecisionsmhasmamdirectminputm intom futurem after-
taxm cashm flow.mObviously,m decisionsm thatm reducem orm postponem them paymentm ofm taxm affectm t
hem ultimatem returnmonm investmentm and,m inm turn,m them valuem ofm them enterprise.m Includingm them
taxm variablem asm am partmofmthemformalmdecisionmprocessmwillmultimatelymleadmtomimprovedmafter
-taxmcashmflow.mmm
R1-
2mExpansionmcanmbemachievedminmnewmgeographicmareasmthroughmdirectmselling,morm bymesta
blishingmamformalmpresenceminmthemnewmterritorymwithmambranchmofficemormamseparatemcorporat
ion.mThemnewmterritoriesmmaymalsomcrossmprovincialmorminternationalmboundaries.mProvincialmi
ncomemtaxmratesmvarymamongstmthemprovinces.mThemamountmofmincomemthatmismsubjectmtomtax
minmthemnewmprovincemwillmbemdifferentmformeachmofmthemthreemalternativesmmentionedmabove.m
Formexample,mwithmdirectmselling,mnonemofmthemincomemismtaxedminmthemnewmprovince,mbutmwit
hmamseparatemcorporation,mallmofmthemincomemismtaxedminmthemnewmprovince.mBecausem them ta
xm costm ism differentm inm eachm case,m taxationm ism am relevantm partm ofm them decisionmandmmustmb
emincludedminmanymcost-benefitmanalysismthatmcomparesmthem threem alternativesm[Reg.m400-
402.1].mmm
R1-
3mAmbasicmunderstandingmofmthemfollowingmvariablesmwillmsignificantlymstrengthenmamdecisionm
maker'smabilitymtomapplymtaxmissuesmtomtheirmareamofmresponsibility.mmm
TypesmofmIncome -
Employment,mBusiness,mProperty,mCapitalmgainsmT
axablemEntities - Individuals,mCorporations,mTrustsmmm
AlternativemBusiness - Corporation,mProprietorship,mPartnership,mLimitedmmm
Structures
partnership,mJointmarrangement,mIncomemtrustmTax
m Jurisdictions -m Federal,mProvincial,mForeignmmm
R1-
4mAllmcashmflowmdecisions,mwhethermrelatedmtomrevenues,mexpenses,massetmacquisitionsmormdi
vestitures,mormdebtmandmequitymrestructuring,mwillmimpactmthemamountmandmtimingmofmthemtaxmc
ost.m Therefore,m cashm flowm existsm onlym onm anm afterm taxm basis,m and,m them taxm impactsm wheth
ermormnotmthemultimatemresultmofmthemdecisionmismsuccessful.mAnmafter-
taxmapproachmtomdecision-mmakingmrequiresmeachmdecision-makermtomthinkm"after-
tax"mformeverymdecisionmatmthemtimemthemdecisionmismbeingmmade,mand,mtomconsidermalternativ
emcoursesmofmactionmtomminimizemthemtaxmcost,minmthemsamemwaymthatmdecisionsmaremmademre
gardingmothermtypesmofmcosts.mmm
Failurem tom applym anm after-
taxm approachm atm them timem thatm decisionsm arem madem maym provideminaccurateminformationmformev
aluation,mand,mresultminmampermanentlyminefficientmtaxmstructure.mmm
m
m
m
, m
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 m
m
m
, m
CHAPTER 1 m
TAXATION― ITS ROLE IN BUSINESS DECISION MAKING
m m m m m m
ReviewmQuestions
1. Ifmincomemtaxmismimposedmaftermprofitsmhavembeenmdetermined,mwhymismtaxationmrelevantmtom
businessmdecisionmmaking?mmm
2. Mostmbusinessmdecisionsminvolvemthemevaluationmofmalternativemcoursesmofmaction.mFormexa
mple,mammarketingmmanagermmaymbemresponsiblemformchoosingmam strategym formestablishin
gmsalesm inmnewmgeographicalm territories.mBrieflymexplainm howmthemtaxm factormcanmbemanmin
tegralmpartmofmthismdecision.mmm
3. Whatmaremthemfundamentalmvariablesmofmthemincomemtaxm systemm thatm decision-
makersmshouldmbemfamiliarmwithmsomthatmtheymcanmapplymtaxmissuesmtomtheirmareasmofmrespon
sibility?mmm
4. Whatmismanm―after-tax‖mapproachmtomdecisionmmaking?mmm
1
mmm
m
m
, m
SolutionsmtomReviewmQuestions
R1-
1mOncemprofitmismdetermined,mthemIncomemTaxmActmdeterminesmthemamountmofmincomemtaxmth
atmresults.m However,m atm allm levelsm ofm management,m alternativem coursesm ofm actionm arem evalu
ated.mInm manym cases,m them choicem ofm onem alternativem overm them otherm maym affectm bothm the
m amountmandmthemtimingmofmfuturemtaxesmonmincomemgeneratedmfromm thatm activity.m Therefor
e,m thempersonmmakingmthosemdecisionsmhasmamdirectminputm intom futurem after-
taxm cashm flow.mObviously,m decisionsm thatm reducem orm postponem them paymentm ofm taxm affectm t
hem ultimatem returnmonm investmentm and,m inm turn,m them valuem ofm them enterprise.m Includingm them
taxm variablem asm am partmofmthemformalmdecisionmprocessmwillmultimatelymleadmtomimprovedmafter
-taxmcashmflow.mmm
R1-
2mExpansionmcanmbemachievedminmnewmgeographicmareasmthroughmdirectmselling,morm bymesta
blishingmamformalmpresenceminmthemnewmterritorymwithmambranchmofficemormamseparatemcorporat
ion.mThemnewmterritoriesmmaymalsomcrossmprovincialmorminternationalmboundaries.mProvincialmi
ncomemtaxmratesmvarymamongstmthemprovinces.mThemamountmofmincomemthatmismsubjectmtomtax
minmthemnewmprovincemwillmbemdifferentmformeachmofmthemthreemalternativesmmentionedmabove.m
Formexample,mwithmdirectmselling,mnonemofmthemincomemismtaxedminmthemnewmprovince,mbutmwit
hmamseparatemcorporation,mallmofmthemincomemismtaxedminmthemnewmprovince.mBecausem them ta
xm costm ism differentm inm eachm case,m taxationm ism am relevantm partm ofm them decisionmandmmustmb
emincludedminmanymcost-benefitmanalysismthatmcomparesmthem threem alternativesm[Reg.m400-
402.1].mmm
R1-
3mAmbasicmunderstandingmofmthemfollowingmvariablesmwillmsignificantlymstrengthenmamdecisionm
maker'smabilitymtomapplymtaxmissuesmtomtheirmareamofmresponsibility.mmm
TypesmofmIncome -
Employment,mBusiness,mProperty,mCapitalmgainsmT
axablemEntities - Individuals,mCorporations,mTrustsmmm
AlternativemBusiness - Corporation,mProprietorship,mPartnership,mLimitedmmm
Structures
partnership,mJointmarrangement,mIncomemtrustmTax
m Jurisdictions -m Federal,mProvincial,mForeignmmm
R1-
4mAllmcashmflowmdecisions,mwhethermrelatedmtomrevenues,mexpenses,massetmacquisitionsmormdi
vestitures,mormdebtmandmequitymrestructuring,mwillmimpactmthemamountmandmtimingmofmthemtaxmc
ost.m Therefore,m cashm flowm existsm onlym onm anm afterm taxm basis,m and,m them taxm impactsm wheth
ermormnotmthemultimatemresultmofmthemdecisionmismsuccessful.mAnmafter-
taxmapproachmtomdecision-mmakingmrequiresmeachmdecision-makermtomthinkm"after-
tax"mformeverymdecisionmatmthemtimemthemdecisionmismbeingmmade,mand,mtomconsidermalternativ
emcoursesmofmactionmtomminimizemthemtaxmcost,minmthemsamemwaymthatmdecisionsmaremmademre
gardingmothermtypesmofmcosts.mmm
Failurem tom applym anm after-
taxm approachm atm them timem thatm decisionsm arem madem maym provideminaccurateminformationmformev
aluation,mand,mresultminmampermanentlyminefficientmtaxmstructure.mmm
m
m
