Actually, Regualtion 105 states that an LLC taxed as a
partnership will not be entitled to the treaty based
exemption. Such an LLc will have to pay taxes in Canada and
can only take a tax credit on its US tax return. The draw
back is that we may not recoup all of the taxes paid.

Bryan Wrote:
"Ultimately, if the service is actually being provided or
produced in Canada, it will be taxed in Canada, with the
foreign tax credit being used on the US return. "

I thought that's why we have tax treaties. To avoid paying
taxes on the same income in two different countires. In the
past, I have filed regulation 105 waivers for C corp
clients and totally avoided the canadian withholding taxes.
In a couple of cases, we could not do that on time and
taxes were withheld at source. In those cases, I have filed
the canadian tax return T2 and claimed treaty based
exemption and the taxes were fully refunded.

I believe you use the tax credit only when the amount
involved is not susbstantial and filing the canadian return
will take more time and effort.Please correct me if I am
wrong.

Now my question is this. I want to file form 8832 and elect
to be taxed as a C corp. The LLC does not have any (and does
not expect to own any) assets except some cash. Last year
the partners took out all of the income and paid SE tax on
it. As a C corp, it will be able to avoid the double
taxation. Does it make sense?

Is there anything I should be aware of in electing C corp
status? I have never filed 8832 for an already existing
entity.

Thanks again for your help.

Laxmi

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Bryan Kellar wrote:

- quote -

The section 105 guidelines says that an LLC taxed as a
partnership is not entitled to a treaty based exemption. I
spoke with the CRA as well and it seems like an LLC will be
subject to Canadian taxation and can only claim a tax credit
on its US return.

(Drawback- client may not recoup all of the taxes paid)

- quote -

I thought that's why we had tax treaties - to avoid the double
taxation.

I had a few cases where we did not file the 105 waiver on
time and the client had canadian tax withheld at source. I
filed the canadian T2 tax return and scehdule 91 to claim
treaty based exemption and got all of the taxes refunded.

You use the tax credit only when the amount is not
substantial and it may not be worth the time/effort to file
a canadian tax return.

Now my question is, waht are the things I should watch for
if I file form 8832 and elect to be taxed as a Corp? ( I
have never used this form for an already existing entity)

The LLC does not have any assets. Last year the two partners
pulled out all of the income and paid SE tax on it. Is there
anything I should be looking for before changing the tax
status?

I really appreciate your help.

Laxmi

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<laxmiv[at]yahoo.com> wrote:

- quote -

Regulation 105: Every person paying to a non-resident
person a fee, commission, or other amount in respect of
services rendered in Canada, of any nature whatever, shall
deduct 15 percent of such payment.

- quote -

There seem to be enough mentions of LLC's in the CRA's
documents that I'm wondering where you got the info that
they do not consider an LLC a taxable US entity. Even the
form for the 105 Wavier makes a distinction between LLC's
treated by the US as SP's/partnerships vs. those taxed as
corps. They do appear to lump them in with partnerships and
"joint ventures". Of course, that was with 3 minutes or so
of research.

I have not done one of these, but do deal a lot with
taxpayers with rental property in Canada (who have 25%
withheld at the source). The only way to get an a waiver
there is if the payer agrees to be responsible for any tax
owed if the non-resident does not file a return or pay the
tax owed!

- quote -

OK, all of my clients are either individuals or
corporations, so I don't know. The waiver, however, is
based on fairness to the situation -- meaning that if one
can clearly show that expenses are high relative to income,
then a lower withholding (or none) can be used.

Ultimately, if the service is actually being provided or
produced in Canada, it will be taxed in Canada, with the
foreign tax credit being used on the US return.

- quote -

There are many countries that either do not have LLC's or
they are a rare item, so it could be a problem being
recognized. But, like anything else, it depends.

- quote -

You might find a lot of good information on this around paragraphs
56-63 and the Appendices of IC 75-6R which can be found at
http://www.cra-arc.gc.ca/E/pub/tp/ic...ic75-6r2-e.pdf .

Bryan
------------------------ Bryan Kellar, EA
Oregon Tax Help, Inc. -- Portland, Oregon
www.oregontaxhelp.com
www.canadatax.org

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<laxmiv[at]yahoo.com> wrote:

- quote -

If I remember properly, Nova Scotia does have a LLC entitiy.
Only one I recall in Canada.

Just a thought.

--
Regards,

Mark Rigotti

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laxmiv[at]yahoo.com wrote:

- quote -

Don't confuse the U S government's permission to be taxed AS
a corporation with BEING a corporation. You said above that
the Canadians do not consider the LLC as a US taxable
entity.

Sounds like best course of action is to form a corporation.
But then, I'm no lawyer. (Thank GAWD!) (wink to Stu)

ChEAr$,
Harlan Lunsford, EA n LA

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I have a client that is a two memeber LLC taxed as a
partnership. They will be doing business in Canada and I
thought of fling the Regulation 105 Waiver form to avoid
withholding taxes in Canada. (I remeber filing this form
quite a few years back for another C corp client)

I just found out that LLCs are not entitled to treaty based
exemption. The Canadian Revenue Agency does not consider an
LLC as a US taxable entity.

So, what are my options? The CRA website mentioned an income
and expense waiver. Is it easy to get a waiver based on
this?

My client is thinking of pursuing more contracts overseas.
Will it make sense to elect to be taxed as a corp to avoid
double taxation. The LLC does not have any real estate or
other assets at this time.

I will apprecaite your input.

Thanks

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