RSM424H1 Study Guide - Final Guide: Foreign Tax Credit, Double Taxation, Capital Structure
Document Summary
Corporations-an introduction: relationship between the corporation and its shareholders, corporation de ned. Separation between corporation and shareholders-> separate entity. Shareholders may have more than one relationship i. e. creditor, suppliers, customer, ,employee, lessor: tax impact of shareholder/corporate relationships. > all corporate income ultimately ows to individuals. > tax on corporate income and second level of tax on income derived from corporation on. Primary and secondary relationship-> di erent tax consequences shareholders: primary relationship. Primary relationship= shareholder provides equity capital to corporation. Owns participating shares/common shares-> increase in valeu. Increase dividends reduce the potential for capital gains and vice versa. If pro ts are retained, no further immediate tax occurs. Corporate pro ts are distributed as dividend, the corproate income tax is taxed second time indirectly. The compensation paid by the corporation from its pre-tax income is fully taxable when received. > corporate income is shifted to the individual shareholder and taxed only once.
