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Tax
Corporation Dividend
Tax
Normally,
a corporation pays income taxes on its profits, and may decide to
distribute
a portion of those proceeds as dividends to its shareholders.
The money is therefore taxed at the corporate level deeming to be its
income. When it is paid to shareholders, who a distinctly different
entity, as dividends, it is taxed as income for that individual. This is
referred to as the dividend tax. On the other hand, the partnership itself
is not taxed, but partners do pay a personal income tax on their share of
net earnings at the end of the year, whether or not those earnings are
distributed.
Those opposed to the dividend tax tend to refer to it as a
case of double taxation while those who prefer to maintain the income tax
for individuals who receive dividends, avoid using this terminology due to
its rather ambiguous connotation.
Different economies react differently in a bid to work
around this situation: in Australia, for instance, the income tax on
dividends is avoided by the use of a dividend imputation system. In the
United States of America, in the year 2003, President Bush lobbied to
repeal the dividend tax referring to it as double taxation. A compromise
with the Congress later resulted in the Jobs and Growth Tax Relief
Reconciliation Act of 2003, according to which most Americans are taxes at
the 15% level, and low-income Americans at the 5% level.
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