Has the double taxation of US LLCs ended?

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llcofthedraw
Posts: 2
Joined: Thu Jun 01, 2023 11:19 pm

Has the double taxation of US LLCs ended?

Post by llcofthedraw »

According to this article on the Serbinski site - https://www.serbinski.com/for-businesses/using-an-llc which references this summary of the Fifth Protocol - https://www.serbinski.com/sites/default ... acting.pdf

it sounds like the issue of double taxation may have been resolved at least in some cases. So: for a US citizen living full-time in Canada, is it ok now to open a US LLC, and have both the IRS AND the CRA see it as a pass-through entity, so the taxation of the LLC is ignored, and the individual owner is taxed instead? (That is, the US LLC income flows through to the owner. Since the owner lives in Canada, the owner reports the business income there, and the income is excluded from the US, if below the exclusion max, or otherwise a credit is taken on US taxes based on Canadian taxes paid.

Right? No more double taxation with the CRA seeing the LLC as a dividend-paying corporation?

For reference, here is a quote -
"International Implications for the LLC:
Under former rules, certain entities which are disregarded for income tax purposes in the United States, or which are considered “flow through” entities are considered corporations in Canada. This gave rise to many tax problems related to the recognition of foreign tax credits (especially since the hybrid entity was not considered taxable in the U.S.) Under the new rules, income which is treated as being earned by a member or shareholder of such an entity, will be deemed to be earned by the recipient in the country of residence. (A corollary rule to take effect in two years provides that if income is NOT to be recognized by the individual member in the country of origin, it will NOT be taxable in the country of residence.) If a U.S. LLC earns interest income in Canada, the new rules will presume that the U.S. residents earned the income, and will thus eliminate withholding taxes on the income in Canada.

Under new rules contained in the Fifth Protocol to the Canada U.S. Income Tax Convention, U.S. fiscally transparent entities such as LLC’s will be recognized as taxable entities, and will be eligible for Treaty benefits. Although the LLC will be required to file a tax return in Canada since it is considered a corporation, it will be eligible to claim Treaty benefits attributed to its members in the U.S. under the new “look-through” treatment in the Fifth Protocol.

However, the changes in the Fifth Protocol do not correct certain income recognition issues for residents of Canada who contemplate invesments in U.S. business or real estate ventures, and alternate structures such as limited partnerships should be considered for these types of investments."
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: Has the double taxation of US LLCs ended?

Post by ND »

no
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