RSM324H1 Lecture Notes - Lecture 2: Snapple, Corporate Tax, Financial Transaction
Document Summary
Future tax rates may be greater than, less than, or the same as current tax rates: shifting income example. The following is tax information for abc corp: tax rate on income < ,000, tax rate on income > ,000. 27: 20x1 income after reserve = ,000. ,000 reserve can be delayed to 20x2: 20x2 income is estimated to be ,000, cash is being used to take advantage of 2% early payment discounts (assume equivalent to an annual rate of 36%) Determine the ultimate tax savings from shifting the reserve claim to 20x2: shifting income solution. If the ,000 reserve is deducted in 20x2, income is shifted from 20x2 to 20x1. 1,612: shifting income from one time period to another (continued) In making a decision to shift income, must determine: future tax rates, discretionary opportunities within the tax act (i. e. reserves), time value of money, transferring income to another entity.
