LLCs Face Double Taxation
By Leonard Glass
Many US businesses are carried through limited liability corporations (LLCs). LLCs provide a shield to its members from the liabilities of the business but can be fiscally transparent for U.S. tax purposes.
Canada’s tax system does not have entity classification rules. An LLC is a corporation for commercial purpose and so it is treated as a corporation for Canadian tax purposes. The differing treatments of LLCs by the two tax systems means that LLCs often results in both Canada and the U.S. taxing the same income also called double taxation.
There is a tax treaty between Canada and the U.S. One of the purposes of the Treaty is to alleviate double taxation. The problem of double taxation of LLCs carrying on business in Canada or even holding stock of an entity carrying on business in Canada has been well known for years. The governments suggested some time ago that they would fix the problem in the course of negotiating amendments to the Treaty. However, when those amendments came out, not only did they not fix the double taxation problem, but they made the double taxation problem worse in some areas.
This presentation will:
-
Explain why using LLCs to expand a US business in Canada results in double taxation.
-
Suggest ways in which the LLC double taxation issue can be ameliorated.
-
Describe what happens when an S-Corp or a C-Corp expands into Canada.
-
Provide a brief introduction into the Canadian tax system.
Audience participation will be encouraged!
About the Author: Leonard Glass is a partner with Lawson Lundell LLP in Vancouver, where his practice encompasses both tax planning and dispute resolution and focuses on implementation of transactions in a tax effective manner. Mr. Glass advises clients in all areas of taxation, including the recently introduced Harmonized Sales Tax (HST). He has extensive experience in both inbound and outbound business expansions and acquisitions as well as in business succession, including shareholder agreements and estate plans.
Mr. Glass has appeared as counsel in the Tax Court of Canada and he is a frequent speaker on tax issues at CLE conferences and seminars. Mr. Glass earned his B.A. at the University of Manitoba and his LL.B. at the University of Toronto.
