Line 12 muffin cups with paper liners; set aside.
In large bowl, beat butter with sugar until fluffy; beat in egg, coconut extract and vanilla until smooth.
In separate bowl, whisk together flour, baking powder, baking soda and salt; add to butter mixture alternately with buttermilk, making 3 additions of flour mixture and 2 of buttermilk. Stir in coconut. Spoon into prepared cups, filling about three-quarters full.
Bake cupcakes in centre of 350°F (180°C) oven until cake tester inserted in centre comes out clean, about 22 minutes. Transfer to rack; let cool completely. (Make-ahead: Store in single layer in airtight container for up to 24 hours or freeze for up to 2 weeks.)
Garnish: In metal cake pan, toast coconut in 350°F (180°C) oven, stirring once, until golden, 5 to 8 minutes. Let cool.
Cream Cheese Icing: In bowl, beat cream cheese with butter until light and fluffy; beat in milk, vanilla and coconut extract. Reduce speed and beat in icing sugar, 1 cup (250 mL) at a time, until fluffy. Spread about 2 tbsp (25 mL) over each cupcake; dip in toasted coconut. (Make-ahead: Refrigerate in airtight container for up to 24 hours.).