The CRA treats your US LLC as a foreign corporation

Should a Canadian Open a US LLC?

It's the most common cross-border mistake we see. A US LLC is cheap and easy to form, and it's a pass-through to the IRS - but the CRA treats it as a foreign corporation. That mismatch can break your foreign tax credit and tax the same dollars twice. If you already have one, it's usually fixable.

Review My LLC How We Fix It
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Quick answer

Should a Canadian open a US LLC?

Usually no — the LLC is the most common cross-border structuring mistake we see. A US LLC is cheap and easy to form, and the IRS treats a single-member LLC as a pass-through (disregarded entity). The problem is that the CRA does not agree: Canada generally treats a US LLC as a foreign corporation. That mismatch breaks the alignment your foreign tax credit relies on, so the US tax you pay personally may not offset the Canadian tax on the same income — and the same dollars can be taxed twice, sometimes at combined rates well above 50%. For most Canadians, a C-Corp, a Canadian corporation, or operating directly is cleaner. If you have already formed an LLC, it is usually fixable through an entity election, restructuring, or careful treaty filing. We review your situation and recommend the structure that keeps both tax systems aligned.

The Hybrid Mismatch, in Plain English

The two countries don't agree on what your LLC even is - and that disagreement is what costs you.

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What the IRS sees

A single-member LLC is a disregarded entity. Income flows straight to you and is taxed as earned, even if you take no cash out.

You pay US tax in the year the LLC earns the profit.

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What the CRA sees

A foreign corporation. Canada generally taxes only the distribution - treated as a dividend - when the cash is actually moved to you.

If that's a different year than the US tax, the foreign tax credit can fail to match.

The timing trap: profit earned in December 2025 is taxed by the IRS in 2025. If you don't move the cash to Canada until January 2026, the CRA taxes the dividend in 2026. US tax in Year 1, Canadian tax in Year 2, on different characters of income - the foreign tax credit breaks and you can be taxed twice on the same money.

LLC Remediation: How We Fix It

  • Diagnose your exact mismatch and quantify the double-tax exposure to date
  • Where appropriate, restructure the LLC into a C-Corporation or limited partnership
  • Align US tax payments and Canadian distribution timing into the same calendar year
  • Restore and defend your foreign tax credit position on both returns
  • Handle the US filings (including Form 5472 / 1120 where relevant) and Canadian reporting together

US LLC FAQs

Why is a US LLC a problem for a Canadian?
The IRS treats a single-member LLC as a disregarded entity, so income flows to you personally. The CRA treats the same LLC as a foreign corporation. The two countries tax different taxpayers on the same income, which can break the foreign tax credit and cause double taxation.
How does the double taxation happen?
The US taxes flow-through income as earned; Canada taxes the distribution as a dividend when paid. If profit is earned in one year and distributed the next, the US and Canadian taxes fall in different years on different characters of income, so the foreign tax credit may not match.
Can the LLC be fixed?
Often yes. Depending on facts we restructure into a C-Corp or limited partnership, or align the US payment and Canadian distribution into the same calendar year so the credits reconcile. The right path depends on your income, goals, and structure.
Should a Canadian ever use a US LLC?
Sometimes, but rarely as a default. For many Canadians a US C-Corp or a Canadian corporation operating through a US structure is cleaner. We assess your situation before recommending an entity rather than defaulting to the LLC because it's cheap to form.

Already Have a US LLC? Let's Check It.

A short call tells you whether you're exposed to double tax and what remediation would involve. No commitment.

[email protected] +1 (206) 209-8210