Investing in Canada Through a U.S. Limited Liability Company: The Impact of New Paragraph 6 to Article IV of the Canada-U.S. Tax Treaty
Since January 1, 2009, new tax rules affecting fiscally transparent entities investing into Canada have been in place. These new rules emanate from changes to the United States – Canada Income Tax Convention (the “Treaty”) as a result of the Fifth Protocol (the “Protocol”) to the Treaty which was signed December 15, 2008.
In view of the changes to the Treaty, cross border structures used by U.S. and Canadian businesses and investors deserve to be reviewed and reassessed. In particular, U.S. residents should review whether their investments into Canada should be structured or restructured to benefit from the new tax advantages that arise when such investments are structured through a fiscally transparent entity, such as a U.S. limited liability company, which, prior to the Protocol, did not qualify for Treaty benefits.