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Multiple Choice Quiz
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1
Which of the following is not a fundamental tax consideration when deciding whether to pursue a domestic business expansion?
A)The annual tax cost of the profits generated by the expansion.
B)The transfer pricing between the original business operation and the expansion operation.
C)How and when the operating losses can be utilized to offset against other taxable income.
D)The tax implications if the expansion fails and must be discontinued.
2
Which of the following statements is false regarding the utilization of losses during the initial period of the business expansion?
A)Under a division structure, the losses would generate tax savings as they occur.
B)Under a corporation structure, the losses would accumulate but could eventually be used if the parent amalgamates with the subsidiary.
C)When potential losses exceed the amount of capital originally invested in the expansion, the protection from limited liability would be weighed against the after-tax cost of absorbing the losses.
D)Under a division structure, if the losses exceeded the original capital invested, the loss would be treated as a capital loss.
3
The amount of tax paid on profits from an expansion operation would not depend on…
A)A division structure or corporate structure being used.
B)The expansion involving new operations in a different province.
C)The type of income earned by the expansion operation compared to the income from the existing operations.
D)The dividends paid to the existing business if the expansion was financed by a share capital investment.
4
The process for determining future cash flows when expanding with a new equity partner includes determining…
A)How capital and accumulated profits would be repatriated for reinvestment.
B)How prior profits would be taxed to each partner.
C)An appropriate discount rate to apply.
D)An equitable sharing of the small-business deduction between the two partners.
5
Foreign exchange gains and losses are taxed…
A)On the accrual basis in accordance with GAAP.
B)On the cash basis when the related balances are either collected or paid.
C)Depending on the nature of the underlying transaction that resulted in the foreign exchange gain or loss.
D)As capital gains or losses since the taxpayer is normally not in the business of foreign exchange trading.
6
The profits from the direct sales of products by a Canadian business into a foreign market are taxed…
A)As business income in the foreign jurisdiction.
B)As business income in the foreign jurisdiction, but an offsetting credit is allowed in Canada for the tax paid.
C)As business income in Canada.
D)In accordance with the terms of any tax treaty between Canada and the foreign jurisdiction.
7
The profits earned by a foreign branch of a Canadian corporation are…
A)Repatriated to Canada and taxed only once since they are part of the corporation's worldwide income.
B)Only subject to the taxes applicable in the foreign jurisdiction.
C)Only taxed in Canada when they are repatriated. Otherwise they are taxable in the foreign jurisdiction.
D)Subject to both foreign and Canadian income taxes.
8
If foreign profits are subject to a lower tax rate in the foreign jurisdiction than an equivalent amount of Canadian profits in Canada, which of the following statements is true?
A)The branch structure provides the lowest tax cost and therefore the lowest after-tax cash flow.
B)The corporate structure provides the highest tax cost and therefore the highest after-tax cash flow.
C)The branch structure provides the lowest tax cost and therefore the highest after-tax cash flow.
D)The corporate structure provides the lowest tax cost and therefore the highest after-tax cash flow.
9
The foreign tax credit provisions are designed to avoid double taxation by limiting the total amount of tax paid to…
A)The one imposed by the country with the higher tax rate.
B)The applicable tax rate in Canada.
C)The applicable tax rate in the foreign jurisdiction.
D)The one imposed by the country with the lower tax rate.
10
Intercompany transfer pricing refers to the treatment applied to…
A)The parent company's cost of providing equity capital to its foreign subsidiary.
B)The sale and purchase of products between a parent company and its foreign subsidiary.
C)The parent company's cost of providing equipment and technology to its foreign subsidiary.
D)The parent company's cost of providing management services to its foreign subsidiary.





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