A corporate tax, also known as company tax or corporate tax, is an indirect tax typically imposed on the value of companies or comparable legal entities' assets. Most countries levy such taxes at the national and state levels, with some states also imposing such tariffs at local or municipal levels. A corporate tax differs from the usual type of income tax in that it is usually charged to the beneficiaries of the corporation rather than the company itself. As with income tax, the corporation may be able to pass some of the corporate tax onto its customers in the form of dividends.

Business Income

Business income is one category of the sources of corporate taxes. Corporate tax on earnings represents the portion of an entity's profits subject to taxation. The part that is subject to corporate tax is generally determined by assessing the amount of the earnings per share (EPS) by multiplying the net earnings attributable to shareholders (EAT) by the proportion of shareholder equity to the weighted average cost of capital (LCAC). Some jurisdictions also consider dividends subject to corporate tax when paid directly to the central government rather than the shareholder. In such jurisdictions, however, there is typically a second category of entities that are considered paying corporate taxes on behalf of shareholders, which are referred to as pass-through entities.

Corporate Tax Can Be Assessed On Either Direct Or Indirect Taxes

A direct tax is a tax on an income or profit directly derived from providing a service or product to the public. Examples of such taxes include income taxes, franchise tax, and property tax. Indirect taxes are indirectly related to a company's operation or activities, including advertising taxes, trade taxes, Excise taxes, and territorial taxes.

Federal Corporate Tax and a Provincial Direct Tax 

When a corporation becomes a public company, it will form a standing agreement with the Canadian government to pay a federal corporate tax and a provincial direct tax. This tax regime is referred to as the GST. The significant component in the payment of GST is the corporate tax. In addition to the corporate tax, the corporation must remit sales tax. These two taxes together constitute the complete tax system for corporations in Canada. The provincial revenue department can administer the remaining portion of the tax system, referred to as the PST.

Special Sales Tax Rates

In addition to the two significant taxes described above. Municipalities, school boards, nurses, and many other organizations and businesses also have their own locally implemented sales tax. Many large and small companies incorporate themselves to take advantage of these special sales tax rates. This incorporation activity is referred to as corporation incorporation.

Corporations and Business Individuals

Combining the above two taxes presents many challenges to corporations and business individuals. First, individuals and corporations that incorporate in either the Province of Ontario or the Province of Quebec do not enjoy any relief from the corporate income tax rates. In addition, if a corporate entity incorporates itself in a province that imposes a higher personal income tax than the jurisdiction in which the company has incorporated itself, the corporate tax in the Uk will be increased. Although there are some jurisdictions in which the individual income tax can be reduced, this too will hurt the corporate profit rate.

Corporate Tax Regime

The corporate tax regime is designed to provide revenue for various infrastructure and health care programs. While many people view this as a handout, the government has justified this provision by asserting that the revenues generated through these programs are necessary to achieve long-term objectives. For example, the Federal highway fund is provided exclusively for constructing and maintaining highways. Without this financing, many States would not be able to retain their existing roadways. Therefore, the construction and maintenance of roads are seen as a worthy investment.

Conclusion

The concept of dividends in Canada differs from the US concept of dividends. A corporation may pay dividends only if it is registered as an active investment in the US. On the other hand, a corporation must be both passive and active in Canada. In the case of an active corporation, the shareholders must elect one or more shareholders, and the corporation must regularly remit its taxable income to them. If the corporation is passive, then it pays dividends at specified intervals.