16 April 2012 External T.I. 2011-041149

A Canadian-resident individual owns all the shares of an Alberta unlimited liability company which, in turn, owns a majority of the membership units of a US LLC. As a result of both corporations being fiscally transparent entities under US tax law, the individual is required under US tax law to pay tax on his proportionate share of the income of the LLC.

The determination of the management of the LLC to pay the US tax liability of the individual would result in an income inclusion to the individual under s. 246(1) given that a payment of that amount by the Alberta ULC would have resulted in an income inclusion under s. 15(1).

A Canadian-resident individual owns all the shares of an Alberta unlimited liability company which, in turn, owns a majority of the membership units of a US LLC. As a result of both corporations being fiscally transparent entities under US tax law, the individual is required under US tax law to pay tax on his proportionate share of the income of the LLC. The management of the LLC pays the US tax liability of the individual.

After noting that:

any distribution by a corporation of its income or capital gains made pro rata among its shareholders may properly be described as a dividend, unless the corporation can show that it is another type of payment;

CRA indicated that the payment of the taxes by the LLC would not be considered a dividend "as the payment would not constitute a pro rata distribution by a corporation among its shareholders."