real estate investment in the the US

lissa971 · Post by **lissa971** » Fri Jan 27, 2012 5:48 pm

We just bought a property in the US that we plan to rehab and sell. We bought the property under our US LLC. After further research we found that US LLC may be double taxed in Canada. Our plan is to buy another US property once this one is sold. Can we transfer the title of the property over to one of us personally before we sell the property and then dissolve the LLC? What are the tax implications?

JGCA · Post by **JGCA** » Fri Jan 27, 2012 7:58 pm

An LLC in the US is treated as a limited company but that you pick up the net income like an S corp, in Canada its looked on as a corp essentially this does not change too much under the treaty either essentially its still double taxed in Canada as any corp would.

In the US if you sell it to yourself prior there is no difference since you were personally picking up the gain, In Canada the sale would be also to you coming out of teh LLC as a dividend then your ACB is the amunt of teh proceeds then the sale afterwards is a capital gain, since your in this position do not get hit twice take the sale in the LLC into income in Canada
as a dividend distribution, top rate on ineligible dividend is about 33% vs capital gain is 23% difference of 10%.

blairgoates · Post by **blairgoates** » Sat Jan 28, 2012 12:07 am

I'm confused...how is rental property income double taxed in Canada ? I understand the LCC is considered a foreign corp in Canada an the income is considered foreign dividends by the Canadian taxpayor. How is it double taxed ? Thanks

JGCA · Post by **JGCA** » Sat Jan 28, 2012 4:00 pm

The corp pays tax as it earns the income, so this is one tax, teh shareholder then pulls out the income as a dividend, this is tax two in shareholders hands and the corp get no deduction for this since its a dividend therein its taxed twice.

blairgoates · Post by **blairgoates** » Sat Jan 28, 2012 7:00 pm

So to be clear, a U.S LCC for a Canadian resident US citizen:
1) flows income to the taxpayor via US 1040
2) reports income on Cdn non-resident T2 Corporate return ?
3) reports income to Canada as dividends with no dividend tax credit since they are foreign dividends ?

How are the foreign tax credits paid to US applied to Canada ?

Thanks again

JGCA · Post by **JGCA** » Sun Jan 29, 2012 10:36 am

The tax teaty basicall y allows you the CND to defer tax on the LLC dist to you until you actually are disbursed the money from the LLC not when the LLC is taxed in the US on the 1040. Therefore you always want to disburse income to your self in the same yr as it is picked up on the 1040 to match the tax credits against the Canadian T2 tax return. Under the new protocol the T2 filed in Canada you can match the tax you paid against this from the US 1040. After this you pick up your share as dividend income personally on your T1.

blairgoates · Post by **blairgoates** » Sun Jan 29, 2012 11:21 am

thanks jg

lissa971 · Post by **lissa971** » Tue Jan 31, 2012 1:39 am

Thanks, appreciate the responses.

jamescharls123 · Post by **jamescharls123** » Wed Mar 07, 2012 9:40 am

As far I know you would have to face some legal problems if you transfer the title of your property before selling it. So It would be good for you that to concern with property expert before you sell your property.

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RogerMckinley · Post by **RogerMckinley** » Wed Mar 07, 2012 12:00 pm

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