Tax Treatment of Single member US LLC in Canada

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8xroad
Posts: 5
Joined: Fri Oct 25, 2019 8:53 pm

Tax Treatment of Single member US LLC in Canada

Post by 8xroad »

Cross Border Gurus,
I am a dual resident in the US (due to green card) and in Canada (due to ties). Starting Feb-21, I am working in the US as a single member US LLC. The LLC has no income or operation in Canada. I am considering to use the LLC as a pass through disregarded entity and pay all US taxes in my individual 1040. I have a few questions in my effort to minimize the total tax liability and hoping you could help.

1- Is the LLC required to file taxes in Canada, even if it does not have any income or operation in Canada?
2- If it is required, will CRA treat it as a corporation and double tax on the total income? There appears to be some exception where it is possible to indirectly access Treaty benefits if its members satisfy the look-through and limitation on benefits rule. I am not very clear on how this works and if would apply in my situation.
3- Is there a better way to structure the LLC to prevent double taxation, if it comes to that.
4- In my individual T1 tax return for Canada, is the total income of the LLC taxable or does CRA tax only the withdrawals from the LLC?

Appreciate if you could please provide some guidance on what is the best strategy to adopt.
I apologize if this has already been discussed earlier but my search did not find much on this topic.
8xroad
Posts: 5
Joined: Fri Oct 25, 2019 8:53 pm

Re: Tax Treatment of Single member US LLC in Canada

Post by 8xroad »

Tax Gurus
Rephrasing my question hoping some one can help
I am a dual Canadian US Tax Resident and own a single member pass through LLC in the US. Its disregarded for tax purpose in the US. 100% of the income is in US and is derived by consultation work.

Q- Does this LLC have any tax obligation in Canada?

Thanks in advance for sharing your knowledge
El Dano
Posts: 1
Joined: Sat Jun 04, 2022 2:31 pm

Re: Tax Treatment of Single member US LLC in Canada

Post by El Dano »

I am in a similar boat.
I am a US citizen and resident. My wife is a dual citizen and repatriated Canadian resident as of 2022.
We have an LLC that she owns 20% of.
Apparently the Foreign Tax Credits cannot be claimed in the US, so the result is double taxation of the passthrough income.
It appears that our best option is to change ownership percentages such that I own 100%.
When I land as a Canadian resident, I will have to idle my LLC and establish a new business in Canada.
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