Hold a LLC in a Limited Partnership
We (Canadian and US partner) are buying rental property in US. We formed an LLC, but it will result in double taxes, since LLC, LLP, LLLP are not considered partnership in Canada.
Is it ok to transfer the ownership of this LLC to a Limited/General partnership. Are there any issues to be aware of, besides additional paperwork.
Final structure would look like: Partners --> LP --> LLC --> property.
Yes an LLC can be held by a Limited Partnership. Generally LLC ownership interests can be owned by just about any legal person. Your have a basic hybrid entity issue (i.e., where an entity is taxed as a pass-through in one jurisdiction, and non pass-through in the other), plus you are apparently contemplating multi-jurisdictional owners. In this regard, you should have access to Canadian practitioners (local Canadian Attorneys, Accountants) that are very familiar with the cross border structuring aspects of real estate investments inbound to the US.
I do mostly non real estate outbound structuring work (US into Canada) not inbound work, so I will defer (as I do in my actual work) to an inbound Canadian expert who in this case should do a lot of work with real estate structuring. Again, I think you should be able to find some one fairly easily who can assist since there is a great deal of inbound work being done by Canadians in the US and I would assume a lot of that is real estate focused. Maybe ask your banker, accountant or a very knowledgeable real estate or insurance agent for a referral.
Just as a final note international hybrid partnership structuring (specifically with real estate) can be quite complicated, whether yours would fall into that category is difficult to say, but if you find a local Canadian practitioner with meaningful experience in cross border real estate partnership activities I am sure they will be able to give you the straight facts.
Originally posted by @Gurpy Ont:
...We (Canadian and US partner) are buying rental property in US. We formed an LLC, but it will result in double taxes...
Are you certain you wouldn't get credit from the CRA for rental income that would have been already taxed in the US based on current treaty between US and Canada?
No credit for taxes paid in US for sure.
US taxes it as partnership income, and CRA views it as corporation income. So it ends up getting taxed thrice: US tax, Canadian corporate tax and then dividend tax.
Originally posted by @Gurpy Ont:
No credit for taxes paid in US for sure.
US taxes it as partnership income, and CRA views it as corporation income. So it ends up getting taxed thrice: US tax, Canadian corporate tax and then dividend tax.
Not exactly true
Quote from @Gurpy Ont:Were you able to sort this out or find a good solution? I'm in the same boat as you and trying to figure out the best structure.
We (Canadian and US partner) are buying rental property in US. We formed an LLC, but it will result in double taxes, since LLC, LLP, LLLP are not considered partnership in Canada.
Is it ok to transfer the ownership of this LLC to a Limited/General partnership. Are there any issues to be aware of, besides additional paperwork.
Final structure would look like: Partners --> LP --> LLC --> property.
Quote from @Sam Issa:
Quote from @Gurpy Ont:Were you able to sort this out or find a good solution? I'm in the same boat as you and trying to figure out the best structure.
We (Canadian and US partner) are buying rental property in US. We formed an LLC, but it will result in double taxes, since LLC, LLP, LLLP are not considered partnership in Canada.
Is it ok to transfer the ownership of this LLC to a Limited/General partnership. Are there any issues to be aware of, besides additional paperwork.
Final structure would look like: Partners --> LP --> LLC --> property.
Following.
let me know what everyone finds out.
I’m just in the process of getting this setup.