The government attempts to limit double-taxation of company profits by:

Question

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Allowing people who receive dividend income to claim credit for tax already paid by the company is the most common way governments limit double-taxation of company profits. This means that the company pays tax on its profits, and when it distributes those profits as dividends to its shareholders, those shareholders only have to pay tax on those dividends at their own personal tax rate (which may be lower than the corporate tax rate). By allowing these shareholders to claim credit for tax already paid by the company, the government ensures that the same profits are not taxed twice.

The Government Attempts to Limit Double-Taxation of Company Profits By