Principal Issues: Whether consequent to the decision of the U.K. Supreme Court in the case of Anson v. Commissioners for Her Majesty’s Revenue and Customs, [2015] UKSC 44, an individual taxpayer who is a resident of Canada and a member of a U.S. limited liability company (LLC) is entitled to a foreign tax credit in Canada pursuant to paragraph 2 of Article XXIV of the Canada - U.S. Income Tax Convention for U.S. taxes paid in a taxation year on their share of the income of the LLC regardless of whether the LLC has made a distribution in that taxation year.
Position: No.
Reasons: The CRA generally views income of a corporation, including an LLC, to belong to the corporation and the Anson decision has not changed that general view. The CRA considers the U.S. taxes paid by a member of a U.S. resident LLC on their share of the income of the LLC to be in respect of a U.S. source (i.e. the source being the member’s interest in the LLC). However, under the provisions of subsection 126(1) of the Act, an individual member must have U.S. source income (e.g. a dividend from an LLC) in the taxation year for which the tax is paid in order to compute a foreign tax credit. The relief from double taxation provided in paragraph 2 of Article XXIV of the Canada - U.S. Income Tax Convention is subject to the limitations imposed by subsection 126(1) of the Act.
