Canadian tax integration of private company income

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