US LLC distribution to Canadian resident - how to structure?

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full_00
Posts: 1
Joined: Thu Jun 15, 2023 8:57 am

US LLC distribution to Canadian resident - how to structure?

Post by full_00 »

Hi! I would appreciate thoughts on how best to estimate tax exposure for the following situation and how to best structure the distribution from the tax perspective.

My situation in a nutshell is as follows:
Canadian resident. <10% ownership of US pass-through LLC. There are several other owners who are US individuals.

This LLC may shortly sell a group of subsidiaries (mostly other LLCs), realizing the gain, which we’d like to distribute to members. For US members, gains are long-term capital gains. Members funded the entire group over past several years.

Canadian member also owns an Ontario corporation, unrelated to the LLC. It is possible to arrange that Canadian corporation provides consulting services to the US LLC, together with making a distribution or for part of the distribution (if it makes sense to do so)

My questions are the following:
1. In US my return will show long-term capital gain and I will likely be taxed at 15% in the US. To what extent I will be able to use this to offset personal tax exposure in Canada for the same year? What if I realize gains in the US in 2022 and distribute only in 2023?

2. How the distribution be taxed in Canada? Will it be taxed as capital gains or dividends or else?

3. What is the optimal way to structure this from a tax perspective? Maybe more beneficial to sell membership in the LLC to other members, for example? Perhaps there is a solution that others have used in similar circumstances?

Thanks!
UnknownStranger
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Re: US LLC distribution to Canadian resident - how to structure?

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Re: US LLC distribution to Canadian resident - how to structure?

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Re: US LLC distribution to Canadian resident - how to structure?

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Re: US LLC distribution to Canadian resident - how to structure?

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ND
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Re: US LLC distribution to Canadian resident - how to structure?

Post by ND »

My questions are the following:
1. In US my return will show long-term capital gain and I will likely be taxed at 15% in the US. To what extent I will be able to use this to offset personal tax exposure in Canada for the same year?
NOT AT ALL, YOU'LL BE DOUBLE TAXED SINCE CRA VIEWS LLC AS SEPARATE CORP, NOT FLOW THRU

What if I realize gains in the US in 2022 and distribute only in 2023?
YOU'RE ALREADY IN DOUBLE TAX POSITION REGARDLESS - SEE ABOVE

2. How the distribution be taxed in Canada? Will it be taxed as capital gains or dividends or else?
SEE EXCESS SURPLUS RULES

3. What is the optimal way to structure this from a tax perspective?
A US PARTNERSHIP FOR CDN INVESTORS, LLC FOR US INVESTORS.
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