Tax Updates

Canadian tax integration of private company income

September 25, 2020

Authored by

Gracie Tetzlaff, CPA, CA, shared this article

Authored by RSM Canada LLP

Gracie Tetzlaff, CPA, CA, shared this article

INSIGHT ARTICLE  | 

A central theme of Canadian income taxation is tax integration. Tax integration is achieved when a particular stream of income is subject to the same or similar total tax rate once it reaches the individual taxpayer level, regardless of the number of corporate tiers the income has passed through before reaching the individual taxpayer.

These tables provide an illustration of how the Canadian income tax integration system works. Integration is approximate. Depending on the applicable tax rates, there may be a slight tax savings, or tax cost, to earning investment income through a corporation followed by a distribution of after-tax profits paid to an individual shareholder by way of a dividend. This is because the combined corporate level tax and the personal level tax on dividends may be slightly higher or lower than personal tax if the income were earned by the individual earned the income directly, depending on his or her marginal tax rate.

Unless otherwise stated, references herein are to the Income Tax Act.

Download illustrative example of tax integration

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This article was written by Clara Pham and originally appeared on 2020-09-25 RSM Canada, and is available online at https://rsmcanada.com/our-insights/tax-insights/canadian-tax-integration-of-private-company-income.html.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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