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Integrated Tax Planning

The perception of tax planning has often been misconceived as a simple choice between dividends and salary from an owner managed business.  The decision should consider a number of variances – one such consideration being integration.

The Canadian tax system is designed to equalize the combined corporate and personal tax rate paid regardless of how this was earned.  This attempt to equalize the tax treatment is called integration.

Integration often does not work perfectly and often leaves room for planning.  With changes occurring each year, revising your tax planning annually to verify optimization is prudent to minimizing your tax burden.

In Alberta, the combined federal and provincial corporate tax rate for businesses has decreased – as has four of the individual personal income tax brackets.  However, the highest marginal personal tax rate in Alberta remains at a whopping 48%.  The recent changes in tax rules under TOSI and passive income are also reason for small and medium sized business owners to ensure their plan are optimized.

Personal rate changes on eligible and non-eligible dividends have also changed and left disintegration opportunities.  At the top marginal rate in Alberta – eligible dividends (largely for dividends received from corporations that paid the large corporate tax rate) are taxed at 34.31% and non-eligible dividends (for dividends received from corporations that paid the small business rate) are taxed at 42.31%.  However, dividend tax rates are progressive and as individual taxable income decreases, so do the tax rates charged.  With this in mind, dividends can be taxes at rates as low as 2.57% for income below $50,197 for eligible dividends and 15.86% for non-eligible dividends.

Cash flow considerations are also measured – where funds not needed personally can be reinvested within the corporation to allow for a tax deferred growth that may find a more efficient way to take funds out in future years – such as reinvesting income earned at the small business rate into a large business that pays a dividend or capital gain and then withdrawing those funds at the lower tax rates.  This should be considered along with other variances such as anticipated future cash flows and income splitting opportunities where available and the new passive income rules that impact availability of the small business corporate tax rate.

The changes necessitate small business owners to plan for remuneration in both the near and longer term.  At Shajani, we are happy to provide you with a personalized consultation on how to take money out of your corporation tax efficiently.  Our integrated approach will go beyond what you may be used to at traditional firms by collaborating with financial planners, lawyers and other service providers in a unique team based approach to provide both a tax efficient plan and a means to implement the plan.


2022 Integration table for funds taken at the highest tax bracket (Alberta Illustration Only)


2022 Integration
  Salary Only Small Business
Dividend Only
General Business
Dividend Only
Revenue         200,000               200,000                 200,000
Expenses         100,000               100,000                 100,000
Salary         100,000                          –                            –
Income before tax                    –               100,000                 100,000
Corporate tax                    –                 11,000                   23,000
Income available to distribute                    –                 89,000                   77,000
Dividend                    –                 89,000                   77,000
Personal Tax on Dividend                    –                 37,656                   26,419
Personal Tax on Salary           48,000                          –                            –
Cash in hand           52,000                 51,344                   50,581
Total Tax Paid           48,000                 48,656                   49,419

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2022 Shajani LLP.

Shajani LLP is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.

Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.