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The IRS and CRA Double Tax Trap for Canadians
In this episode, we sit down with a U.S. tax specialist to uncover why forming a U.S. LLC — often promoted as a simple and tax-efficient structure — can quickly turn into a costly mistake for Canadian residents.
While LLCs offer flexibility and liability protection in the United States, the way Canadian tax law treats these entities creates a serious mismatch that can lead to unexpected reporting obligations, double taxation, and significant penalties.
In this episode, we break down:
• Why U.S. LLCs are often unsuitable for Canadian residents
• Why the CRA and IRS classify LLCs differently — and how it can lead to double taxation
• How “disregarded entities” work in the U.S. and why Canada doesn’t recognize them the same way
• The hidden reporting requirements, including Form 5472 and Canadian foreign disclosure filings
• How missed foreign disclosure filings can trigger severe cross-border penalties
• The impact of post-2018 U.S. tax rules on non-U.S. LLC owners
• Structuring strategies, including blocker corporations, to reduce cross-border tax friction
• How the Canada–U.S. Tax Treaty can lower withholding taxes when structured properly
If you’re a Canadian looking to buy rental property in the U.S. or start a business across the border, this episode is a critical warning to seek professional advice before signing any contracts.
Links:
CRA Voluntary Disclosure Program 2025 Explained | What’s Changed & What It Means
Looking for trusted tax advice?
Connect with Sankalp (Sunny) Jaggi at Cedar Consulting Group.
Email: [email protected]
Website: cedargroup.ca
Subscribe if you want practical breakdowns of real tax scenarios.
Comment below — have you ever been tempted to form a U.S. LLC based on what you saw online?
Timestamps:
00:00 – The $1M mistake: Why Canadians should avoid U.S. LLCs
01:18 – Real Case Study: 20 properties and $750,000 in penalties
04:56 – What is an LLC? Legal vs. tax definitions
05:52 – The appeal: Limited liability and “slip and fall” protection
06:40 – How LLCs are taxed: Disregarded entities vs. partnerships
08:43 – LLC vs. C-Corp: Understanding the tax differences
11:19 – The Disconnect: Why Canada and the U.S. view LLCs differently
13:36 – Cross-border strategies: Using “blocker” corporations
15:55 – The Ideal Structure: Canadian vs. U.S. ownership setups
17:05 – Reducing withholding taxes from 15% to 5% via treaty
22:00 – The danger of DIY: Why internet advice leads to tax disasters
32:41 – Hidden Costs: Maintenance fees and filing compliance
38:00 – The $25,000 Trap: Form 5472 and late filing penalties
39:36 – Canadian Compliance: T1134 foreign disclosure requirements
46:21 – Fixing the mess: Voluntary disclosure and IRS abatement
View all episodes
By AdvisorsTablePodcastIn this episode, we sit down with a U.S. tax specialist to uncover why forming a U.S. LLC — often promoted as a simple and tax-efficient structure — can quickly turn into a costly mistake for Canadian residents.
While LLCs offer flexibility and liability protection in the United States, the way Canadian tax law treats these entities creates a serious mismatch that can lead to unexpected reporting obligations, double taxation, and significant penalties.
In this episode, we break down:
• Why U.S. LLCs are often unsuitable for Canadian residents
• Why the CRA and IRS classify LLCs differently — and how it can lead to double taxation
• How “disregarded entities” work in the U.S. and why Canada doesn’t recognize them the same way
• The hidden reporting requirements, including Form 5472 and Canadian foreign disclosure filings
• How missed foreign disclosure filings can trigger severe cross-border penalties
• The impact of post-2018 U.S. tax rules on non-U.S. LLC owners
• Structuring strategies, including blocker corporations, to reduce cross-border tax friction
• How the Canada–U.S. Tax Treaty can lower withholding taxes when structured properly
If you’re a Canadian looking to buy rental property in the U.S. or start a business across the border, this episode is a critical warning to seek professional advice before signing any contracts.
Links:
CRA Voluntary Disclosure Program 2025 Explained | What’s Changed & What It Means
Looking for trusted tax advice?
Connect with Sankalp (Sunny) Jaggi at Cedar Consulting Group.
Email: [email protected]
Website: cedargroup.ca
Subscribe if you want practical breakdowns of real tax scenarios.
Comment below — have you ever been tempted to form a U.S. LLC based on what you saw online?
Timestamps:
00:00 – The $1M mistake: Why Canadians should avoid U.S. LLCs
01:18 – Real Case Study: 20 properties and $750,000 in penalties
04:56 – What is an LLC? Legal vs. tax definitions
05:52 – The appeal: Limited liability and “slip and fall” protection
06:40 – How LLCs are taxed: Disregarded entities vs. partnerships
08:43 – LLC vs. C-Corp: Understanding the tax differences
11:19 – The Disconnect: Why Canada and the U.S. view LLCs differently
13:36 – Cross-border strategies: Using “blocker” corporations
15:55 – The Ideal Structure: Canadian vs. U.S. ownership setups
17:05 – Reducing withholding taxes from 15% to 5% via treaty
22:00 – The danger of DIY: Why internet advice leads to tax disasters
32:41 – Hidden Costs: Maintenance fees and filing compliance
38:00 – The $25,000 Trap: Form 5472 and late filing penalties
39:36 – Canadian Compliance: T1134 foreign disclosure requirements
46:21 – Fixing the mess: Voluntary disclosure and IRS abatement