Happy New Year,
my husband and I - live in Canada and are Canadian citizens, are creating a LLC in the States for real estate investment purposes.
Being very new at this, I am looking for guidance about information about taxes that we would be responsible for paying and where.
Any help would be appreciated.
tax implications for Canadians investing in the US
Moderator: Mark T Serbinski CA CPA
You should avoid using an LLC because this Hybrid version has no treaty benefits with Revenue Canada they view it as a corp. In the US it is treated by default as a partnership so it is not taxed the income will flow through to the members. Since you are Canadian this means that the income is deemed by Canada to be a dividend not partnership income so you get assessed on this income in the US when it is ALLOCATED to you regarless if it was actually distributed to you, then in Canada it gets taxed to you only when it is paid as a dividend no matching for foreign tax credit. Also witholding tax applies in the US when the allocation is made.
The solution is that the LLC can elect to be treated as a corp however to allow for this matching, but its not guaranteed to work as easy as if it was a corp there are still more reporting requirements than a straight C corp.
Also another problem if its treated as a corp by Revenue Canada if its a home or realestate that is occupied by the shareholders there is a taxable benefit involved too.
An LLC also has to contend with the AT RISK rules so any loss is denied if the amount of the members capital is not sufficient, also Material participation rules also limit the losses if any were to occur that you would take on your pers tax returns.
The solution is that the LLC can elect to be treated as a corp however to allow for this matching, but its not guaranteed to work as easy as if it was a corp there are still more reporting requirements than a straight C corp.
Also another problem if its treated as a corp by Revenue Canada if its a home or realestate that is occupied by the shareholders there is a taxable benefit involved too.
An LLC also has to contend with the AT RISK rules so any loss is denied if the amount of the members capital is not sufficient, also Material participation rules also limit the losses if any were to occur that you would take on your pers tax returns.
JG