We solve serious CRA tax problems

Help from a CPA Tax Consultant – What are Tax Integration Mechanisms?

Smiling man shaking hands with another person

Tax integration is a concept that attempts to eliminate the differences in tax payable resulting from a choice in business or income-earning structure. There are many of these provisions in Canada’s Income Tax Act

They aim to integrate the taxes across various structures to make sure that the total tax payable at the end of the day is the same or very similar to the amount that would be due if those structures did not exist. 

Tax Integration in Private Companies

Here are two of the most common ways that tax integration principles are applied specifically to private company income.

Dividend Tax Credits

The most common tax integration mechanism is the dividend tax credit. When a corporation earns revenue, it must pay tax on that income. The rate of income tax is either a low rate for the active business of a CCPC below the threshold or the general rate. 

Either way, what’s left of the income that a corporation pays out as dividends to shareholders is money on which some tax has already been paid. When the dividend is then received by shareholders, the amount of the dividend is considered income. 

If no integration mechanism existed, then the dividend would be taxed again at the shareholder’s marginal rates. The dividend tax credit allows shareholders to claim a tax credit approximately equal to the amount of tax paid by the corporation on the dividend paid. 

It is intended to ensure that shareholders pay the same amount of tax on their income, regardless of whether it is earned through a corporation or personally. 

Refundable Dividend On Hand

This integration mechanism increases the tax payable by a corporation on passive income dividends and then refunds it when the dividend is ultimately paid to an individual, so that the tax payable on the dividend each year is the same or more than the tax payable by an individual receiving the same dividend. 

Integration mechanisms are meant to help make the tax system neutral to methods of structuring income-earning activities. 

 

As experienced and licensed CPA tax consultants, we help our clients handle all tax and accounting issues. Give us a call today at 1 844 340 5771 to schedule an assessment.

pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.

Had a great experience with Sam Faris and his team. Sam took over my file from the previous accountant and was able to fix significant mistakes in the books which ended up saving me taxes and get me a refund for money that I already paid to the government. They have performed the work on timely basis with the least cost possible. Anyone who is in search for the best tax consultant in the country, Sam Faris is the man. Thank you Sam and his team for all the amazing work.
Faris is an outstanding accountant. A professional at the highest level that comprehends the intrinsic power and beauty of numbers. Serving the appropriate value to each person or company, longing for his personal imagination and process in action keeping financial accounts. He's highly recommended in knowing the magical reality of numbers.
Faris CPA was awesome! I cannot express how grateful I was during my tax audit.

Super kind and approachable- they took the time to explain the entire process. They answered all my questions/concerns and made sure I understood everything.

They made sure nothing was overlooked and would keep in touch with me should they need any docs as well as asked me questions to ensure accuracy.

I really appreciated their dedication and expertise! For anything tax-related, I truly recommend Faris CPA.
Response from the owner:Thank you Donald for your five stars review. We will remain at your disposal if you need our services in the future.
Great experience dealing with Sam Faris and his team. They were transparent, patient with their explanations and they meet all promises. Highly reliable and trustworthy firm. They promise and they meet all their promises. If you are looking for the best tax consultant firm, I highly recommend Faris CPA.
Response from the owner:Many thanks and much appreciated for the kind and positive review.