Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
941645
XXXXXXXXXX Tim Kuss
Attention: XXXXXXXXXX
April 3, 1995
Dear Sirs:
Re: U.S. Limited Liability Companies
Subchapter "S" Corporation
Canada-U.S. Income Tax Convention
This is in reply to your letter dated July 8, 1994 to the International Tax Programs Directorate requesting the Department's views whether a U.S. limited liability company ("LLC") or an "S corporation" as defined under section 1361 of the Internal Revenue Code (the "Code") would be considered a resident of the U.S. under the Canada-U.S. Income Tax Convention (the "Convention").
In order for a corporation to be considered a resident of the U.S. under the Convention, it must be liable to tax therein on its world wide income as are corporations incorporated pursuant to the laws of the U.S. An S corporation is such a corporation and is only treated as a flow through entity because of an election made by its shareholders. Notwithstanding the election, an S corporation will be subject to tax in the U.S. on its world wide income if certain conditions are not met. It may also be subject to tax in the U.S. on certain types of income. As a result, we consider an S corporation a resident of the U.S. for purposes of the Convention.
The Department has reviewed the applicable LLC legislation for a number of states. It is our view that the entities formed under those statutes would be considered corporations for Canadian tax purposes. However, an LLC is generally purposely structured so as to be taxed like a partnership under the Code. No special election is necessary. An LLC structured in such a manner will not be liable for tax in the U.S. As a result, we would not consider such an entity to be a resident of the U.S. under the Convention.
However, in a situation where the central mind and management of the LLC was situated in Canada, the LLC would be considered resident in Canada under the Income Tax Act and a resident of Canada under the Convention.
We hope our comments are of assistance.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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