I am a Canadian citizen (Ontario resident) looking to invest in a US LLC that invests in US real estate. The return on this investment would be quarterly cash distributions from the rental income plus a share in the increase in value of the properties in the portfolio when they are sold. What I’m wondering is how best to make this investment, from a tax-minimizing perspective. The options I'm looking at are:
1) invest directly in my own name (actually me and my wife). If I do this, the fund will be obliged to withhold US taxes. I gather that, under the Canada-US tax treaty, this would amount to 15%.
2) set up a company in the US (i.e. a Wyoming LLC) and invest through it. This would allow the fund to pay me full distributions, without withholding US taxes. I would then be required to file a tax return with the IRS. The cost of going this route (setting up the company, paying an account to do US income tax filings, etc.) are acceptable relative to what I hope to make.
Any thoughts?
Best route for investing in US real estate LLC
Moderator: Mark T Serbinski CA CPA
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OntarioSam
- Posts: 1
- Joined: Tue Feb 12, 2013 11:06 am
If you have read my previous posts on the LLC matters you would already have seen that investing in an LLC to hold real estate is not recommended.
First you say that there is no witholding tax ( Did you tell them you are CND) because a CND holding any business interest may be subject to 30% witholding ( Branch tax) not 15%. Even if you qualify for an exemptiuon you can only remedey this by having the LLC check the box to be treated as a corp so now its still 15% not zero.
CRA does not receognize LLC as partnership income even if the K-1 shows it as such they treat any income from the LLC as dividends when earned not when distributed to you so you pay a with tax and get no credit in Canada unless they elect to be treated as a corp which all members have to elect to do so then you have solved the matching problem but now as a corp you are subject to 2 levels of tax one personally and one when your LLC earns the income in the corp.
Just take it in your name personally.
First you say that there is no witholding tax ( Did you tell them you are CND) because a CND holding any business interest may be subject to 30% witholding ( Branch tax) not 15%. Even if you qualify for an exemptiuon you can only remedey this by having the LLC check the box to be treated as a corp so now its still 15% not zero.
CRA does not receognize LLC as partnership income even if the K-1 shows it as such they treat any income from the LLC as dividends when earned not when distributed to you so you pay a with tax and get no credit in Canada unless they elect to be treated as a corp which all members have to elect to do so then you have solved the matching problem but now as a corp you are subject to 2 levels of tax one personally and one when your LLC earns the income in the corp.
Just take it in your name personally.
JG