LLC trap for the unwary in Canada

In Canada, an LLC, similar to an LP, cannot avail itself of the Canadian-US Tax Treaty benefits. Under US tax law, an LLC's default classification is that of a partnership and therefore is not subject to full comprehensive US taxation. However, in Canada an LLC is considered to be a corporation...

Full description

Saved in:
Bibliographic Details
Published in:The Tax Adviser 2002-08, Vol.33 (8), p.504
Main Author: Bakale, Anthony
Format: Magazinearticle
Language:English
Subjects:
Alternative minimum tax
Corporate income tax
Corporate tax planning
Dividend distributions
Double taxation
Foreign corporations
Foreign operations of US corporations
Foreign tax credits
International aspects
Limited liability companies
Limited partnerships
Organizational structure
Repatriation
Stockholders
Tax credits
Tax rates
Tax treaties
Taxation
Withholding taxes
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In Canada, an LLC, similar to an LP, cannot avail itself of the Canadian-US Tax Treaty benefits. Under US tax law, an LLC's default classification is that of a partnership and therefore is not subject to full comprehensive US taxation. However, in Canada an LLC is considered to be a corporation; as such, for purposes of determining treaty benefits, there will not be a lookthrough to the LLC members. Therefore, an LLC resident in the US that derives revenue from Canada cannot rely on the protection of the treaty to avoid an entity-level tax from a Revenue Canada assessment. The preferred structure for carrying on business or making investments in Canada depends totally on the particular facts. The most important point is that the use of US LLCs to do business in Canada or own Canadian assets can result in extremely detrimental tax consequences.
ISSN:0039-9957