Corporate income tax addresses this problem by imposing a tax on profits and capital gains prior to their distribution to individuals in the form of dividends. Third, corporate taxes allow the taxation of income accruing to foreigners and ensure that foreign-based corporations operating in Canada pay tax on income earned in Canada. Capital taxes are used by both federal and provincial governments to supplement income tax revenues and to ensure that corporations pay for the public services they use. Similarly, provincial capital taxes are an important source of revenue in some provinces. Capital taxes can also serve as a form of minimum tax as is the case for the federal capital tax on financial institutions where large banks , trusts and life insurance companies have to pay a minimum amount of tax based on capital which can then be offset by federal income tax.
Corporations pay a variety of other taxes and contributions in addition to income and capital taxes.
Over the last three decades, corporations have paid an average of 36 per cent of their pre-tax profits in income and capital tax . Corporate income tax receipts vary cyclically with the level of profits in the economy. Over the last few years, corporate income taxes have experienced the fastest rate of growth of all federal revenue sources, reflecting their sensitivity to stronger economic growth experienced over this period. Comparison of the ratio of corporate income taxes to total government revenues or to GDP can create the misperception that the total tax burden on corporations is falling. The major reason these ratios fell, particularly in the early 1990s, is that corporate profits have fallen as a percentage of Canada's GDP .