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Canadian tax treatment of U.S. LLC.

Revenue Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of  takes die position that U.S. limited liability companies (LLCs) structured to be treated as partnerships for U.S. tax purposes are not U.S. residents under the Canada-U.S. income tax treaty. As a result, a U.S. LLC (Logical Link Control) See "LANs" under data link protocol.

LLC - Logical Link Control
 doing business in Canada or receiving income from Canada is not eligible for treaty relief, even if all its members are U.S. residents. The Competent Possessing the necessary reasoning abilities or legal qualifications; qualified; capable; sufficient.

A court is competent if it has been given jurisdiction, by statute or constitution, to hear particular types of lawsuits.
 Authorities of Canada and the U.S. are working to resolve this issue.

Article IV (Residence) of the treaty defines "resident of a Contracting State" to mean "any person that, under the laws of that State, is liable to tax therein by reason of that person's domicile domicile (dŏm`əsīl'), one's legal residence. This may or may not be the place where one actually resides at any one time. The domicile is the permanent home to which one is presumed to have the intention of returning whenever the purpose , residence, place of management, place of incorporation . ..." (Emphasis added.) In the case of a partnership, Revenue Canada looks through the partnership and determines treaty benefits based on the status of the individual partners. Revenue Canada takes the position that a U.S. LLC is to be treated as a corporation rather than a partnership for Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma.  tax purposes. Revenue Canada's position is that LLCs that have been structured for U.S. tax purposes to qualify as partnerships, rather than corporations, are not to be treated as US. residents for purposes of the treaty because, as a passthrough entity, the LLC is not liable for tax in the US. Therefore, Revenue Canada does not look through the LLC and grant treaty benefits based on the residency A duration of stay required by state and local laws that entitles a person to the legal protection and benefits provided by applicable statutes.

States have required state residency for a variety of rights, including the right to vote, the right to run for public office, the
 of its members.

Revenue Canada takes a different position for U.S. S corporations. It treats a U.S. S corporation as a U.S. resident for treaty purposes because the S corporation is not taxable in the U.S. as the result of an election by its shareholders. Also, an S corporation may be subject to U.S. tax if certain conditions are not met and on certain types of income. Revenue Canada says a U.S. LLC may be contrasted to an S corporation because an LLC is not taxable for U.S. income tax purposes by reason of its structure, rather than by reason of an election.

Revenue Canada's position on LLCs is a concern principally when an LLC does business in Canada through a branch, offers anything for sale in Canada or receives income from a Canadian resident subject to Canadian withholding tax The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. . Without treaty protection, the following Canadian tax results occur:

* A Canadian branch of an LLC is required to pay branch tax at the 25% domestic rate and is not eligible for the exemption exemption n. 1) in income taxation, a credit given for each dependent, blindness or other disability, and age over 65, which result in a downward calculation in tax levels.  on the first $500,000 of branch profits.

* An LLC that offers anything for sale in Canada, through an agent or otherwise, is deemed to be doing business in Canada and is subject to Canadian tax even though it does not have a permanent establishment in Canada.

* An LLC receiving income from Canada that is subject to withholding tax, such as dividends, rent, royalties Not to be confused with Royal family.

Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, most typically an intellectual property (IP) right.
 and interest, is subject to the 25% domestic rate of withholding tax rather than the treaty-reduced rates.

US. Treasury officials have initiated discussions with the Canadian Department of Finance on this issue.
COPYRIGHT 1996 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
Laurlor (Member): US LLC 10/23/2012 7:46 PM
this article discusses a US LLC with Canadian Income. How does CRA look at an LLC that is operating in the US with a Canadian resident/citizen and a US resident?
I was told by CRA agent that CRA views the LLC as a 'flow through' and it is except from tax, so same as in US, income goes with personal tax filing.

Would you please verify or clarify this for me.

thank you!

 Reader Opinion




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Title Annotation:limited liability company
Author:Williamson, W. Gordon
Publication:The Tax Adviser
Date:Nov 1, 1996
Previous Article:Investment-adjustment regulations may significantly affect 1995 and later years' E & P determinations.
Next Article:Generation-skipping transfer tax rules affect nonresident aliens.

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