Grant Gilmour

What is Foreign Accrual Property Income (FAPI) and what affect does it have on my corporate taxes?

If you are a Canadian resident and own a foreign corporation that earns passive income, the income needs to be reported on your Canadian tax return even if you never received the funds. However, if the foreign corporation has a loss, the loss is not allowed to offset any other income you have for the year. Instead, the loss can be carried back three years against previous FAPI or forward 20 years against future FAPI.

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There is a little-known method by which wealthy immigrants to Canada can use a holding company (“Holdco”), either in Canada or offshore, to receive, otherwise taxable, money tax-free in Canada.

This will be applicable in situations where that immigrant holds a significant interest in foreign a corporation (“Forco”), either alone, or with family members.

This technique will be even more attractive now that “immigrant trusts” will no longer be available as a tax planning tool for wealthy immigrants (see my blog posting A Sudden Death For The Canadian “Immigrant Trust”!). Read More

There is a big problem for Canadian residents who use U.S. LLCs- the Canada Revenue Agency (“CRA”) considers them to be corporations, even if they are considered disregarded entities (if only one shareholder) or partnerships (with two or more shareholders) for US tax purposes.

Furthermore, the CRA does not consider the LLC itself to be a resident of the US for the purposes of the Canada-U.S. Income Tax Convention (“the Treaty), since the LLC is not liable to tax (assuming it has not elected to be treated as a corporation under the US “check the box rules”).

In fact, in many cases, US LLCs that are controlled by Canadians will be considered Read More