Tag Archives: Canadian

Canada to treat Florida and Delaware LLLPs and LLPs as Corporations for Tax Purposes

The Canada Revenue Agency (“CRA”) announced at the May 26 meeting of the International Fiscal Association in Montreal that limited liability limited partnerships and limited liability partnerships organized under the laws of Florida or Delaware will be taxable as corporations for Canadian income tax purposes.  The CRA has treated US limited liability companies as corporations for many years, but previously treated US LLLPs and LLPs as pass-through entities. The announcement did not specify whether similar entities organized in other US states would be treated the same, but the justification provided by the CRA would appear to apply to such other entities.

The CRA’s announcement raises several issues for US LLLPs and LLPs that have Canadian owners, including such entities that own US real estate. One issue is that income from these entities will now be subject to double income tax. The US will treat these entities as pass-through entities and so only the owners will be subject to US income tax, but Canada will now treat these entities as corporations. Consequently, Canadian dividend tax will apply to distributions received by the Canadian owner, and a Canadian tax credit is not available for the US tax.  Previously for such LLLPs and LLPs, but not for LLCs, the Canadian owner could credit the US tax they paid against their Canadian tax. Issues can also arise for US LLLPs or LLPs that do not have Canadian owners, but have business operations or investments in Canada.

The CRA did announce transitional relief so that US LLLPs and LLPs can be treated as pass-through entities for Canadian tax purposes retroactively if certain conditions are satisfied. One of the key conditions is that the LLLP or LLP must convert before 2018 to an entity that is recognized by the CRA as a pass-through entity, such as a general partnership or a limited partnership.

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

Tax Planning for Foreign Investors Purchasing Real Estate

Foreigners, especially Canadians, continue to comprise a significant percentage of Florida real estate purchases. The National Association of Realtors reported that during the recent 12-month period ending July 2013 the total sales volume of Florida residential real estate purchases by foreigners was $6.4 billion (9% of total Florida residential sales volume). 30% of these foreign purchasers were Canadian. These figures do not included foreign purchases of commercial real estate. Unfortunately, many Canadians and other foreign real estate purchasers do not sufficiently consider the U.S. tax ramifications of their purchase. There are many alternatives for structuring a foreigner’s purchase of U.S. real estate, and each alternative has tax advantages and disadvantages.

Below is a link to an article that discusses the U.S. tax issues and planning techniques that can help minimize tax headaches for Canadian (and other foreign) owners of Florida real property.

Tax Planning For Canadians Purchasing Property In Florida

If you need assistance with a foreign purchaser of U.S. real estate, please contact us.

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043