Distribution of Earnings
Most systems that tax corporations also impose income tax on shareholders of corporations when earnings are distributed. Such distribution of earnings is generally referred to as a dividend. The tax may be at reduced rates. For example, the United States provides for reduced amounts of tax on dividends received by individuals and by corporations. By contrast, the United Kingdom provides for reduced amounts of tax only on dividends received by individuals.
The company law of some jurisdictions prevents corporations from distributing amounts to shareholders except as distribution of earnings. Such earnings may be determined under company law principles or tax principles. For example, the United Kingdom permits a company to make dividend distributions only up to the balance of earnings available for distribution according to its last audited accounts. In such jurisdictions, exceptions are usually provided with respect to distribution of shares of the company, for winding up, and in limited other situations.
Other jurisdictions treat distributions as distributions of earnings taxable to shareholders if earnings are available to be distributed, but do not prohibit distributions in excess of earnings. For example, under the United States system each corporation must maintain a calculation of its earnings and profits (a tax concept similar to retained earnings). A distribution to a shareholder is considered to be from earnings and profits to the extent thereof unless an exception applies. Note that the United States provides reduced tax on dividend income of both corporations and individuals.
Other jurisdictions provide corporations a means of designating, within limits, whether a distribution is a distribution of earnings taxable to the shareholder or a return of capital. For example, in Canada a corporation may designate a distribution to shareholders as a distribution of Paid Up Capital (PUC), and thus not taxable as a dividend, to the extent of remaining capital, or an eligible dividend.
Read more about this topic: Corporate Tax
Famous quotes containing the words distribution of, distribution and/or earnings:
“In this distribution of functions, the scholar is the delegated intellect. In the right state, he is, Man Thinking. In the degenerate state, when the victim of society, he tends to become a mere thinker, or, still worse, the parrot of other men’s thinking.”
—Ralph Waldo Emerson (1803–1882)
“The question for the country now is how to secure a more equal distribution of property among the people. There can be no republican institutions with vast masses of property permanently in a few hands, and large masses of voters without property.... Let no man get by inheritance, or by will, more than will produce at four per cent interest an income ... of fifteen thousand dollars] per year, or an estate of five hundred thousand dollars.”
—Rutherford Birchard Hayes (1822–1893)
“The earnings of a poet could be reckoned by a metaphysician rather than a bookkeeper.”
—Edward Dahlberg (1900–1977)