Buckwold12e_ch02_Review

Buckwold12e_ch02_Review - CHAPTER 2 FUNDAMENTALS OF TAX...

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CHAPTER 2 FUNDAMENTALS OF TAX PLANNING Review Questions 1. “Tax planning and tax avoidance mean the same thing.” Is this statement true? Explain. 2. What distinguishes tax evasion from tax avoidance and tax planning? 3. Does the Canada Revenue Agency deal with all tax avoidance activities in the same way? Explain. 4. The purpose of tax planning is to reduce or defer the tax costs associated with financial transactions. What are the general types of tax planning activities? Briefly explain how each of them may reduce or defer the tax cost. 5. “It is always better to pay tax later rather than sooner.” Is this statement true? Explain. 6. When corporate tax rates are 16% and tax rates for individuals are 40%, is it always better for the individual to transfer his or her business to a corporation? 7. “As long as all of the income tax rules are known, a tax plan can be developed with certainty.” Is this statement true? Explain. 8. What basic skills are required to develop a good tax plan? 9. An entrepreneur is developing a new business venture and is planning to raise equity capital from individual investors. Her advisor indicates that the venture could be structured as a corporation (i.e., shares are issued to the investors) or as a limited partnership (i.e., partnership units are sold). Both structures provide limited liability for the investors. Should the entrepreneur consider the tax positions of the individual investors? Explain. Without dealing with specific tax rules, what general tax factors should an investor consider before making an investment? 10. What is a tax avoidance transaction? 11. “If a transaction (or a series of transactions) that results in a tax benefit was not undertaken primarily for bona fide business, investment, or family
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benefit.” Is this statement true? Explain.
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Buckwold12e_ch02_Review - CHAPTER 2 FUNDAMENTALS OF TAX...

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