Tax integration
Tax integration is the principle that income a Canadian corporation earns and pays to an individual as a dividend should bear the same total tax as if the individual had earned it directly. The dividend gross-up and tax credit are among the tools for it.
An owner comparing salary with dividends, or corporate with personal tax, is looking at integration. The CRA’s folio on taxable dividends states the principle: income earned by a corporation resident in Canada and paid as a dividend to an individual should be subject to the same total amount of tax as if the individual had earned it directly.
How it works, and where it stops
Finance Canada describes the tool as a gross-up and dividend tax credit mechanism. The CRA adds that integration is achieved when the combined federal and provincial or territorial credit approximates the gross-up, so provincial credits matter, and that Quebec imposes and collects its own provincial income tax. Finance’s archived 2017 consultation paper also noted that, in contrast to active business income, additional taxes applied to passive investment income in the year it was earned.
What to ask
- Whether the income is active business or passive
- Whether dividends are eligible or non-eligible
- Which province the shareholder lives in
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentIncome Tax Folio S3-F2-C2, Taxable Dividends from Corporations Resident in Canada
- 02Department of Finance CanadaGovernmentArchived - Tax Planning Using Private Corporations
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.