SOLUTION MANUAL
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
a a
Chapter1aTaxation-ItsaRoleainaDecisionaMaking
Chapter2aFundamentalsaofaTaxaPlanning
Chaptera3aLiabilityaforaTax,aIncomeaDetermination,aandaAdministrationaofatheaIncomeaTaxaSystem
Chaptera4aIncomeafromaEmployment
Chaptera5aIncomeafromaBusiness
Chaptera6aTheaAcquisition,aUse,aandaDisposalaofaDepreciableaProperty
Chapter7aIncomeafromaProperty
Chapter8aGainsaandaLossesaonatheaDispositionaofaCapitalaProperty-CapitalaGains
Chaptera9aOtheraIncome,aOtheraDeductions,aandaSpecialaRulesaforaCompletingaNetaIncomeaforaTaxaPurposes
Chaptera10aIndividuals:aDeterminationaofaTaxableaIncomeaandaTaxesaPayable
Chaptera11aCorporations-AnaIntroduction
Chaptera12aOrganization,aCapitalaStructures,aandaIncomeaDistributionsaofaCorporations
Chaptera13aTheaCanadian-ControlledaPrivateaCorporation
Chaptera14aMultipleaCorporationsaandaTheiraReorganization
Chaptera15aPartnerships
Chaptera16aLimitedaPartnershipsaandaJointaVentures
Chaptera17aTrusts
Chaptera18aBusinessaAcquisitionsaandaDivestitures-AssetsaversusaShares
Chaptera19aBusinessaAcquisitionsaandaDivestitures-Tax-DeferredaSales
Chaptera20aDomesticaandaInternationalaBusinessaExpansion
Chaptera21aTaxaAspectsaofaCorporateaFinancing
Chaptera22aIntroductionatoaGST/HST
Chaptera23aBusinessaValuations
, CHAPTERa1
TAXATION―aITSaROLEaINaBUSINESSaDECISIONaMAKING
ReviewaQuestions
1. Ifaincomeataxaisaimposedaafteraprofitsahaveabeenadetermined,awhyaisataxationarelevantatoabusinessad
ecisionamaking?
2. Mostabusinessadecisionsainvolveatheaevaluationaofaalternativeacoursesaofaaction.aForaexample,aaama
rketingamanageramayabearesponsibleaforachoosingaaastrategyaforaestablishingasalesainanewageograp
hicalaterritories.aBrieflyaexplainahowatheataxafactoracanabeaanaintegralapartaofathisadecision.
3. Whataareatheafundamentalavariablesaofatheaincomeataxasystemathatadecision-
makersashouldabeafamiliarawithasoathatatheyacanaapplyataxaissuesatoatheiraareasaofaresponsibility?
4. Whataisaana―after-tax‖aapproachatoadecisionamaking?
SolutionsatoaReviewaQuestions
R1-
1aOnceaprofitaisadetermined,atheaIncomeaTaxaActadeterminesatheaamountaofaincomeataxathataresults.a
However,aataallalevelsaofamanagement,aalternativeacoursesaofaactionaareaevaluated.aInamanyacases,ath
eachoiceaofaoneaalternativeaoveratheaotheramayaaffectabothatheaamountaandatheatimingaofafutureataxesa
onaincomeageneratedafromathataactivity.aTherefore,atheapersonamakingathoseadecisionsahasaaadirectai
nputaintoafutureaafter-
taxacasha flow.aObviously,adecisionsathatareduceaorapostponeatheapaymentaofataxaaffectatheaultimatear
eturnaonainvestmentaand,ainaturn,atheavalueaofatheaenterprise.aIncludingatheataxavariableaasaaapartaofat
heaformaladecisionaprocessawillaultimatelyaleadatoaimprovedaafter-taxacashaflow.
R1-
2aExpansionacanabeaachievedainanewageographicaareasathroughadirectaselling,aorabyaestablishingaaafo
rmalapresenceainatheanewaterritoryawithaaabranchaofficeaoraaaseparateacorporation.aTheanewaterritorie
samayaalsoacrossaprovincialaorainternationalaboundaries.aProvincialaincomeataxaratesavaryaamongstat
heaprovinces.aTheaamountaofaincomeathataisasubjectatoataxainatheanewaprovinceawillabeadifferentaforae
achaofatheathreeaalternativesamentionedaabove.aForaexample,awithadirectaselling,anoneaofatheaincomea
isataxedainatheanewaprovince,abutawithaaaseparateacorporation,aallaofatheaincomeaisataxedainatheanewap
rovince.aBecauseatheataxacostaisadifferentainaeachacase,ataxationaisaaarelevantapartaofatheadecisionaand
amustabeaincludedainaanyacost-benefitaanalysisathatacomparesatheathreeaalternativesa[Reg.a400-
402.1].
R1-
3aAabasicaunderstandingaofatheafollowingavariablesawillasignificantlyastrengthenaaadecisionamaker'sa
abilityatoaapplyataxaissuesatoatheiraareaaofaresponsibility.
TypesaofaIncome - Employment,aBusiness,aProperty,aCapitalagains
TaxableaEntities - Individuals,aCorporations,aTrusts
, AlternativeaBusiness - Corporation,aProprietorship,aPartnership,aLimited
Structures partnership,aJointaarrangement,aIncomeatrust
TaxaJurisdictions - Federal,aProvincial,aForeign
R1-
4aAllacashaflowadecisions,awhetherarelatedatoarevenues,aexpenses,aassetaacquisitionsaoradivestitures,a
oradebtaandaequityarestructuring,awillaimpactatheaamountaandatimingaofatheataxacost.a Therefore,a casha
flowa existsa onlya ona ana aftera taxa basis,a and,a thea taxa impactsa whetheraoranotatheaultimatearesultaofathea
decisionaisasuccessful.aAnaafter-taxaapproachatoadecision-makingarequiresaeachadecision-
makeratoathinka"after-
tax"aforaeveryadecisionaatatheatimeatheadecisionaisabeingamade,aand,atoaconsideraalternativeacoursesaof
aactionatoaminimizeatheataxacost,ainatheasameawayathatadecisionsaareamadearegardingaotheratypesaofaco
sts.
Failurea toa applya ana after-
taxa approacha ata thea timea thata decisionsa area madea maya provideainaccurateainformationaforaevaluation,aand,are
sultainaaapermanentlyainefficientataxastructure.
CHAPTERa2
FUNDAMENTALSaOFaTAXaPLANNING
ReviewaQuestions
1. ―Taxaplanningaandataxaavoidanceameanatheasameathing.‖aIsathisastatementatrue?aExplain.
2. Whatadistinguishesataxaevasionafromataxaavoidanceaandataxaplanning?
3. DoesaCanadaaRevenueaAgencyadealawithaallataxaavoidanceaactivitiesainatheasameaway?aExplain.
4. Theapurposeaofataxaplanningaisatoareduceaoradeferatheataxacostsaassociatedawithafinancialatransactio
ns.aWhataareatheageneralatypesaofataxaplanningaactivities?aBrieflyaexplainahowaeachaofathemamayare
duceaoradeferatheataxacost.
5. ―Itaisaalwaysabetteratoapayataxalateraratherathanasooner.‖aIsathisastatementatrue?aExplain.
6. Whenacorporateataxaratesaarea13%aandataxaratesaforaindividualsaarea40%,aisaitaalwaysabetteraforathea
individualatoatransferatheirabusinessatoaaacorporation?
7. ―Asalongaasaallaofatheaincomeataxarulesaareaknown,aaataxaplanacanabeadevelopedawithacertainty.‖aIs
athisastatementatrue?aExplain.
8. Whatabasicaskillsaarearequiredatoadevelopaaagoodataxaplan?
9. Anaentrepreneuraisadevelopingaaanewabusinessaventureaandaisaplanningatoaraiseaequityacapitalafroma
individualainvestors.aTheiraadviseraindicatesathatatheaventureacouldabeastructuredaasaaacorporationa(
i.e.,asharesaareaissuedatoatheainvestors)aoraasaaalimitedapartnershipa (i.e.,a partnershipa unitsa area sold).
Canadian Income Taxation 26th Edition
by William Buckwold, All Chapters 1 - 23
,TABLE OF CONTENTS
a a
Chapter1aTaxation-ItsaRoleainaDecisionaMaking
Chapter2aFundamentalsaofaTaxaPlanning
Chaptera3aLiabilityaforaTax,aIncomeaDetermination,aandaAdministrationaofatheaIncomeaTaxaSystem
Chaptera4aIncomeafromaEmployment
Chaptera5aIncomeafromaBusiness
Chaptera6aTheaAcquisition,aUse,aandaDisposalaofaDepreciableaProperty
Chapter7aIncomeafromaProperty
Chapter8aGainsaandaLossesaonatheaDispositionaofaCapitalaProperty-CapitalaGains
Chaptera9aOtheraIncome,aOtheraDeductions,aandaSpecialaRulesaforaCompletingaNetaIncomeaforaTaxaPurposes
Chaptera10aIndividuals:aDeterminationaofaTaxableaIncomeaandaTaxesaPayable
Chaptera11aCorporations-AnaIntroduction
Chaptera12aOrganization,aCapitalaStructures,aandaIncomeaDistributionsaofaCorporations
Chaptera13aTheaCanadian-ControlledaPrivateaCorporation
Chaptera14aMultipleaCorporationsaandaTheiraReorganization
Chaptera15aPartnerships
Chaptera16aLimitedaPartnershipsaandaJointaVentures
Chaptera17aTrusts
Chaptera18aBusinessaAcquisitionsaandaDivestitures-AssetsaversusaShares
Chaptera19aBusinessaAcquisitionsaandaDivestitures-Tax-DeferredaSales
Chaptera20aDomesticaandaInternationalaBusinessaExpansion
Chaptera21aTaxaAspectsaofaCorporateaFinancing
Chaptera22aIntroductionatoaGST/HST
Chaptera23aBusinessaValuations
, CHAPTERa1
TAXATION―aITSaROLEaINaBUSINESSaDECISIONaMAKING
ReviewaQuestions
1. Ifaincomeataxaisaimposedaafteraprofitsahaveabeenadetermined,awhyaisataxationarelevantatoabusinessad
ecisionamaking?
2. Mostabusinessadecisionsainvolveatheaevaluationaofaalternativeacoursesaofaaction.aForaexample,aaama
rketingamanageramayabearesponsibleaforachoosingaaastrategyaforaestablishingasalesainanewageograp
hicalaterritories.aBrieflyaexplainahowatheataxafactoracanabeaanaintegralapartaofathisadecision.
3. Whataareatheafundamentalavariablesaofatheaincomeataxasystemathatadecision-
makersashouldabeafamiliarawithasoathatatheyacanaapplyataxaissuesatoatheiraareasaofaresponsibility?
4. Whataisaana―after-tax‖aapproachatoadecisionamaking?
SolutionsatoaReviewaQuestions
R1-
1aOnceaprofitaisadetermined,atheaIncomeaTaxaActadeterminesatheaamountaofaincomeataxathataresults.a
However,aataallalevelsaofamanagement,aalternativeacoursesaofaactionaareaevaluated.aInamanyacases,ath
eachoiceaofaoneaalternativeaoveratheaotheramayaaffectabothatheaamountaandatheatimingaofafutureataxesa
onaincomeageneratedafromathataactivity.aTherefore,atheapersonamakingathoseadecisionsahasaaadirectai
nputaintoafutureaafter-
taxacasha flow.aObviously,adecisionsathatareduceaorapostponeatheapaymentaofataxaaffectatheaultimatear
eturnaonainvestmentaand,ainaturn,atheavalueaofatheaenterprise.aIncludingatheataxavariableaasaaapartaofat
heaformaladecisionaprocessawillaultimatelyaleadatoaimprovedaafter-taxacashaflow.
R1-
2aExpansionacanabeaachievedainanewageographicaareasathroughadirectaselling,aorabyaestablishingaaafo
rmalapresenceainatheanewaterritoryawithaaabranchaofficeaoraaaseparateacorporation.aTheanewaterritorie
samayaalsoacrossaprovincialaorainternationalaboundaries.aProvincialaincomeataxaratesavaryaamongstat
heaprovinces.aTheaamountaofaincomeathataisasubjectatoataxainatheanewaprovinceawillabeadifferentaforae
achaofatheathreeaalternativesamentionedaabove.aForaexample,awithadirectaselling,anoneaofatheaincomea
isataxedainatheanewaprovince,abutawithaaaseparateacorporation,aallaofatheaincomeaisataxedainatheanewap
rovince.aBecauseatheataxacostaisadifferentainaeachacase,ataxationaisaaarelevantapartaofatheadecisionaand
amustabeaincludedainaanyacost-benefitaanalysisathatacomparesatheathreeaalternativesa[Reg.a400-
402.1].
R1-
3aAabasicaunderstandingaofatheafollowingavariablesawillasignificantlyastrengthenaaadecisionamaker'sa
abilityatoaapplyataxaissuesatoatheiraareaaofaresponsibility.
TypesaofaIncome - Employment,aBusiness,aProperty,aCapitalagains
TaxableaEntities - Individuals,aCorporations,aTrusts
, AlternativeaBusiness - Corporation,aProprietorship,aPartnership,aLimited
Structures partnership,aJointaarrangement,aIncomeatrust
TaxaJurisdictions - Federal,aProvincial,aForeign
R1-
4aAllacashaflowadecisions,awhetherarelatedatoarevenues,aexpenses,aassetaacquisitionsaoradivestitures,a
oradebtaandaequityarestructuring,awillaimpactatheaamountaandatimingaofatheataxacost.a Therefore,a casha
flowa existsa onlya ona ana aftera taxa basis,a and,a thea taxa impactsa whetheraoranotatheaultimatearesultaofathea
decisionaisasuccessful.aAnaafter-taxaapproachatoadecision-makingarequiresaeachadecision-
makeratoathinka"after-
tax"aforaeveryadecisionaatatheatimeatheadecisionaisabeingamade,aand,atoaconsideraalternativeacoursesaof
aactionatoaminimizeatheataxacost,ainatheasameawayathatadecisionsaareamadearegardingaotheratypesaofaco
sts.
Failurea toa applya ana after-
taxa approacha ata thea timea thata decisionsa area madea maya provideainaccurateainformationaforaevaluation,aand,are
sultainaaapermanentlyainefficientataxastructure.
CHAPTERa2
FUNDAMENTALSaOFaTAXaPLANNING
ReviewaQuestions
1. ―Taxaplanningaandataxaavoidanceameanatheasameathing.‖aIsathisastatementatrue?aExplain.
2. Whatadistinguishesataxaevasionafromataxaavoidanceaandataxaplanning?
3. DoesaCanadaaRevenueaAgencyadealawithaallataxaavoidanceaactivitiesainatheasameaway?aExplain.
4. Theapurposeaofataxaplanningaisatoareduceaoradeferatheataxacostsaassociatedawithafinancialatransactio
ns.aWhataareatheageneralatypesaofataxaplanningaactivities?aBrieflyaexplainahowaeachaofathemamayare
duceaoradeferatheataxacost.
5. ―Itaisaalwaysabetteratoapayataxalateraratherathanasooner.‖aIsathisastatementatrue?aExplain.
6. Whenacorporateataxaratesaarea13%aandataxaratesaforaindividualsaarea40%,aisaitaalwaysabetteraforathea
individualatoatransferatheirabusinessatoaaacorporation?
7. ―Asalongaasaallaofatheaincomeataxarulesaareaknown,aaataxaplanacanabeadevelopedawithacertainty.‖aIs
athisastatementatrue?aExplain.
8. Whatabasicaskillsaarearequiredatoadevelopaaagoodataxaplan?
9. Anaentrepreneuraisadevelopingaaanewabusinessaventureaandaisaplanningatoaraiseaequityacapitalafroma
individualainvestors.aTheiraadviseraindicatesathatatheaventureacouldabeastructuredaasaaacorporationa(
i.e.,asharesaareaissuedatoatheainvestors)aoraasaaalimitedapartnershipa (i.e.,a partnershipa unitsa area sold).
