Company structure for Canadians investing in US rentals

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Company structure for Canadians investing in US rentals

Arhum Nomani
Investor · Atlanta, GA · Member since 2015 · 9 posts · 2 votes

Hi, this post is relevant to Canadian residents who are investing in US rental properties. With regards to setting up a company structure for these properties that will avoid double taxation on rental income in US and Canada, I've read several posts that discourage holding the US properties under an LLC because the CRA does not consider it to be a flow through entity and hence will tax it as a US corporation which leads to double taxation.

My question is 2 fold: 

1) If a Canadian resident has a US corporation (could be an LLC), which owns rental properties, and there are Zero payments from the US corporation to a Canadian citizen or company, how can Canada tax the US corporation, or the corporation owners, when the US Corp is not doing business in Canada? ( this scenario assumes all US rental income is kept and reinvested in the US...and not brought back to Canada)

2) I would really like to hear from Canadian residents here in on BP who currently own rental properties in the US within an LLC. How's their experience been so far with regards to filing taxes ? and how are they filing taxes in both US and Canada?

Thanks in advance for your help!

Arhum

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Dan Crosby
Investor · Ontario, Canada · Member since 2021 · 46 posts · 23 votes
3y

Property > US LP > Canadian LP > Canadian Holding Corp.

This is obviously oversimplified, but you get the picture. There are a lot of reasons for doing this type of thing, and a lot of complications that arise if you don't have your systems in place.

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    5y
    Originally posted by @Arhum Nomani:

    Hi, this post is relevant to Canadian residents who are investing in US rental properties. With regards to setting up a company structure for these properties that will avoid double taxation on rental income in US and Canada, I've read several posts that discourage holding the US properties under an LLC because the CRA does not consider it to be a flow through entity and hence will tax it as a US corporation which leads to double taxation.

    My question is 2 fold: 

    1) If a Canadian resident has a US corporation (could be an LLC), which owns rental properties, and there are Zero payments from the US corporation to a Canadian citizen or company, how can Canada tax the US corporation, or the corporation owners, when the US Corp is not doing business in Canada? ( this scenario assumes all US rental income is kept and reinvested in the US...and not brought back to Canada)

    2) I would really like to hear from Canadian residents here in on BP who currently own rental properties in the US within an LLC. How's their experience been so far with regards to filing taxes ? and how are they filing taxes in both US and Canada?

    Thanks in advance for your help!

    Arhum

    You are best to get advice from a cross border legal and accounting specialist vs getting advice on here.  

    However to answer your question regarding u.s. Corp holding all profits. You only receive a foreign tax credit in the year that the taxes were paid. Therefore if you repatriate earnings in a subsequent year you do not benefit from the foreign tax credit and pay full tax at the Canadian rate with no offset on what was already paid in the US. 

    Or at least that's how it was several years ago when I had a similar structure set up which I changed.  You would be much better off setting up a limited partnership in the US.  Do not take this as legal or accounting advice, as I mentioned above you are much better off getting advice from a cross-border specialist.

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  • Arhum Nomani
    OP
    Investor · Atlanta, GA · Member since 2015 · 9 posts · 2 votes
    5y

    @Chad U. Thanks, Chad! Yes, I am in touch with a cross border accounting/legal specialist and he's also recommending setting up a limited partnership in the US. I will most likely take that route, but was curious to see how others operating under an LLC set up are dealing with it. Also appreciate your comment on repatriated earnings.

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  • Jason Shackleton
    Investor · Ontario · Member since 2015 · 486 posts · 250 votes
    5y

    Hey @Arhum Nomani 

    I know a lawyer that helps clients set up entities in the U.S. She has been doing it for 15 years. She also used to live in Canada. She advised me on things like double taxation and other things you have to be aware of. I would be happy to connect you with her. I also know some lenders that help Canadians invest in the U.S with their entities.

    0Reply
    • Sungyeol Park
      Member since 2025 · 19 posts · 6 votes
      1y
      Quote from @Jason Shackleton:

      Hey @Arhum Nomani 

      I know a lawyer that helps clients set up entities in the U.S. She has been doing it for 15 years. She also used to live in Canada. She advised me on things like double taxation and other things you have to be aware of. I would be happy to connect you with her. I also know some lenders that help Canadians invest in the U.S with their entities.


       Hello! I know this post was a while ago but I'd love to connect with the lawyer you know who helps set this up! 

      0Reply
  • Nikhil Gupta
    Member since 2017 · 5 posts · 0 votes
    4y

    Hi @Arhum Nomani. 

    My cross border lawyer here in Canada also suggested an Limited partnership (LP). however, I have questions about how to set it up so that lending is not an issue? were you able to find out abt lending? Thanks

    0Reply
  • Arhum Nomani
    OP
    Investor · Atlanta, GA · Member since 2015 · 9 posts · 2 votes
    4y

    Hi @Nikhil Gupta - thanks for your response. Yes, LP seems like the most popular option for us Canadians. As for lending, there are some US commercial lenders who provide financing on long term leases but their interest rates are typically higher. I've heard the big 5 Canadian banks here also offer loans for investment properties in the US. 

    Just out of curiosity, where are you looking to buy in the States and what type of properties ?

    0Reply
  • David Pollard
    Investor · Chatham ON, Canada · Member since 2022 · 9 posts · 1 vote
    4y
    Quote from @Jason Shackleton:

    Hey @Arhum Nomani 

    I know a lawyer that helps clients set up entities in the U.S. She has been doing it for 15 years. She also used to live in Canada. She advised me on things like double taxation and other things you have to be aware of. I would be happy to connect you with her. I also know some lenders that help Canadians invest in the U.S with their entities.

    Hi Jason
    I'm just looking into getting things set up properly for investing in the US.
    I would greatly appreciate any contacts/ information you could provide so do the companies properly the first time.

    Thanks and I look forward to networking with you.
    Dave
    0Reply
    • Sungyeol Park
      Member since 2025 · 19 posts · 6 votes
      1y
      Quote from @David Pollard:
      Quote from @Jason Shackleton:

      Hey @Arhum Nomani 

      I know a lawyer that helps clients set up entities in the U.S. She has been doing it for 15 years. She also used to live in Canada. She advised me on things like double taxation and other things you have to be aware of. I would be happy to connect you with her. I also know some lenders that help Canadians invest in the U.S with their entities.

      Hi Jason
      I'm just looking into getting things set up properly for investing in the US.
      I would greatly appreciate any contacts/ information you could provide so do the companies properly the first time.

      Thanks and I look forward to networking with you.
      Dave

      Hello! Id be interested to find out anything you've learned about this or how you have set up an entity to get started in REI in the US as a Canadian as well! Thanks!

      0Reply
  • Dan Crosby
    Investor · Ontario, Canada · Member since 2021 · 46 posts · 23 votes
    3y

    Property > US LP > Canadian LP > Canadian Holding Corp.

    This is obviously oversimplified, but you get the picture. There are a lot of reasons for doing this type of thing, and a lot of complications that arise if you don't have your systems in place.

    1Reply
  • Duy Tran
    Member since 2021 · 3 posts · 0 votes
    3y
    Quote from @Dan Crosby:

    Property > US LP > Canadian LP > Canadian Holding Corp.

    This is obviously oversimplified, but you get the picture. There are a lot of reasons for doing this type of thing, and a lot of complications that arise if you don't have your systems in place.

    @Dan Crosby  thank you for your suggestion to the thread. Does that mean us canadian should open a us company who will act as the general partnert in the US LP?

    0Reply
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