Magazine article CMA - the Management Accounting Magazine

Accountability for Taxation

Magazine article CMA - the Management Accounting Magazine

Accountability for Taxation

Article excerpt

Most corporations are subject to taxes on income, capital, payroll, property and sales that must be passed on in various degrees to their customers, employees and shareholders. These taxes are a costing of doing business, and management decision-making should ideally take into acccount all such revelvant costs. In practice, however, front-line managers may view taxation as an uncontrollable cost, and therfore fail to give it sufficient consideration in their day-to-day decisionmaking. Such ommisions can significantly impair the financial health of a firm to remain competitive in its product, labor and capital markets, management must be accountable for incorporating effective tax planning into all business decisions.

Effective tax planning may require managers to consider the tax position of not only the firm itself, but als the tax positions of all parties, at the expense of the government. The following examples illustrate some tax-motivated strategies and transactions, and the accountability therefor.

Product pricing

Until reecently, Revenue canada considered that chocolate milk was subject to GST where it was sold in packages containing 500 ml or less . Some Quebec dairies took advantage of this rule by changing the standard size to 501 ml by simply adding a few drops into the samesize container. By escaping both the GST and the harmonized Quebec sales tax, management enabled the customers to save 13 cents on an 80-cent container.

Input pricing

The form in which a landlord offers inducements to tenants providing GST-exempt services (e.g. banks, charities and physicians) makes a difference in the benefits conferred to such tenants. An inducement in the form of leasehold improvements or lower rent will net the tenant 7 per cent more than an equivalent cash allowance for similar purchases, since such tenants are unable to recover the GST on business inputs purchased by themselves.

Employee compensation

The materialty of labor costs in most organizations makes compensation-related planning extermely important. Therefore, management should provide compensation packages which have the lowest possible after-tax cost to the firm. Management may achieve this by taking full advantage of non-taxable benifits such as group term life insurance (up to $25,000) or private health services such as Blue Cross. …

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