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.
Principal Issues:
Whether or not an entity formed under the Michigan Limited Liability Company Act is considered a corporation for purposes of the Income Tax Act.
Position TAKEN:
Is considered to be a corporation.
Reasons FOR POSITION TAKEN:
A Michigan LLC would appear to be an entity very similar to a New York LLC which we consider to be a corporation. For example, the members may elect in the operating agreement to waive limited liability status.
The Michigan law does not, however, contain the declaratory statement found in the NY law that indicates that the LLC is a separate legal entity,
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Having said this, we do not feel that the declaratory statements are that important in making a decision. We should focus on the fact that a Michigan LLC can own property in its own right, sue and be sued, etc.
In our view, the Michigan LLCs are really no different than the NY LLCs. In both cases, the unlimited liability status could not be relied upon by creditors as the operating agreement can be amended at any time. A Michigan LLC is also quite similar to a Texas LLC
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942060
XXXXXXXXXX David R. Senécal
(613) 957-9796
Attention: XXXXXXXXXX
October 12, 1995
Dear Sirs:
Re: Michigan Limited Liability Companies
This is in reply to your letter of August 9, 1994, wherein you request our views as to the tax status in Canada of a limited liability company ("LLC") created under the Michigan Limited Liability Company Act ("Michigan LLC Act").
We are also taking the liberty of providing you with our views on the application of certain provisions of the Income Tax Act (the "ACT") to an LLC. We apologize for the delay in responding to your enquiry.
We are of the opinion that a company formed under the Michigan LLC Act would be a corporation for purposes of the Act and, in particular, for purposes of the definition of a "foreign affiliate" in subsection 95(1) of the Act.
In accordance with Interpretation Bulletin IT-392, the Michigan LLC is considered to have a capital stock consisting of 100 issued shares and each owner of a beneficial interest in the LLC is then considered to own a number of shares proportionate to his beneficial interest in the LLC. Each amount distributed on account of profits by the Michigan LLC to its owners will be considered dividends for the purpose of the Act and the Regulations made thereunder.
If the Michigan LLC is treated as a partnership for the purposes of the Internal Revenue Code (the "Code") such that the shareholders ("partners") rather than the LLC are liable to tax under the Code on the income of the LLC, such LLC will not be considered to be a resident of the U.S. pursuant to paragraph 1 of Article 4 of the Canada-U.S. Income Tax Convention (the "Convention"). If the LLC's mind and management is in Canada, the company will not be a foreign affiliate but will be taxed under the Act as a resident of Canada.
On the other hand, where the mind and management of the LLC is situated in the U.S., resulting in the LLC not being considered a resident of Canada for purposes of the Act, it will not be considered as being a resident of either Contracting State for purposes of the Convention, if it is treated as a partnership for purposes of the Code.
We trust you will find the above comments of assistance.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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