CANADIANSCROSSBORDERCONUNDRUM

InHindi,whichisalanguagethatisspokenandunderstoodby20%ormoreoftheworldspopulation,itissaid,Ektho
KareladhujeNeemChada,withEnglishequivalentreferstoAnunpleasantsituationgettingworseorinthelocalslangit
meansApimplethathasgrownuponanulcer.
IamreferringtoCanadianTaxregimeasbeingtheulcer,andtheCrossBorderTaxes(henceforthCBT)asthepimple.Itsa
knownfactCanadiansdisliketaxes,andtheyhaveavalidreason,asreinforcedbytheinformationinthetablehereunder.
(WebsiteReference:http://www.unitednorthamerica.org/simdiff.htm)

Details
GDPPerCapita

PersonalDisposableIncome
PerCapita

Canada

US

$47,567USD

$47,106USD

Canadahasa0.97%greaterGDPpercapita

$34,949USD

USAhasa29.3%higherdisposableincome.
HMMMCanadiansearnhigherGDPpercapitabut
havealowerPersonalDisposableIncomepercapita.

$28,591USD

Notes

WHAT???Inowneedprofessionaladviceto
solvethismystery.

$12,630

$10,951

Canadacollects13.3%moretaxespercapita.
EUREKAnowitmakessomesense,astowhyIhave
lowerPDI

OldAge&SurvivorBenefits
Expenditureas%ofGDP

4.2%

6.0%

USApubliclyspends1.8%moreonprogramslike
SocialSecurity

HealthCareExpenditureas
%ofGDP

11.4%

17.4%

TotalTaxReceiptsper
capita

USAspends6%moremoneyonhealthcareas
expressedin%ofGDP

(Note:ThistableisanextractfromtheabovewebsitewiththeintenttohighlightwhyCanadiansdisliketaxes)
Next,forpurposesofsimplicityandtocontinuefurtherwiththeCBTdiscussionIgroupaverageCanadiansintothe
followingcategories.Firstoff,thoseCanadianswhoatthedropofahat,runsouthduetothelureofsunand/orfunand/or
greenbacks.Secondly,wehavethoseFATCAnadians(FATCAalsoreferstoForeignAccountTaxComplianceAct)who
aredualcitizenswithCanadian&USCitizenships,orCanadianResidentswithUSCitizenshiporResidency.Andlastly,we
havethoseCanadians,whojustneedtoknowthelistofrestrictedorprohibiteditemswhencrossingthe49 thparallelandthe
perpersonpersonalexemptionlimit.AnyinformationoverandaboveisforthelikesofTimothyJohnTimBernersLee
(inventorofWorldWideWebProtocols).
OrfromadifferentperspectivewecanalsocategorizetheaverageCanadians(whetherresidentsorcitizens)aswhoown
personalrentalorvacationpropertyinUS.Inaddition,theymayormaynotownbusinessinUS.Or,theymayormaynot
earnanyotherbusinessorrentalorotherincomefromUS.Or,theyalsomayormaynotearnpassiveincomeorany
financialorinvestmentincomefromUS.
Thesecondcategoryisanextensionofthefirst,butwiththeriderthattheymustalsobeUScitizen.
ThelastcategoryrepresentstherestoftheCanadianswholiveintheirpresentanddontcaremuchaboutCBT.
However,whethertheybelongtooneoranothergrouporanycategory,theyshouldwhengoingtoorwheninUSA;ateach
stepofbusinessorpleasurepursuit,criticallyanalyzetheiravailableoptionsandchoices.Thisanalysismustbedone
everytimetheyheadofftoUSAforanyreason,otherthanaquickdaily(lessthan24hours)visittobuygroceriesetc.In
Hindiagain,BinaVichareJoKare,SoPaachePachtaaye,withEnglishequivalentreferstoLookbeforeyouleap.
Beforetakingtheleapoffaith,firstidentifycorrectlythereasonandtheneedtoinvest,whetherinpropertyorininvestment
vehiclesorelsewhere.Also,clearlylayouttheintentofinvestment,thetimeperiodofinvestmentandthereturnsexpected
andalsovisualizehowitshouldendwhenitends.Thenidentifywhatshouldbethe LegalStructure.Ifthisstepiscarefully

plannedout,thengoingforwarditsafairlysmoothsailingeverytime.However,ifthisstepisignoredorcompleted
incorrectly,thensuddenlyanaverageCanadianislookingataprohibitivecleanupcoststorevise,ormakeelectionsandre
electionsorrequestchangeofelections,orfixtheirpreviouslyfiledtaxreturnsortorespondtoIRSnotices.
InHindiagain,wesay,AgrSochi,SadaSukhi,withEnglishequivalentreferstoPreventionisbetterthancure.So,itis
imperativetostudythechoiceoflegalstructure.Theimportantfactorstoconsiderinselectingthelegalstructure,include:
taxrules,methodsoftaxation,rulesofcomputationandfilingrequirementswhichvaryfromstatetostateandfromentity
toentityandthen,nottheleastfindingagreatCrossBorderTaxSpecialist.
statelawsregulatingthelegalstatusofincorporationorotherwise,directorresidency,needofcontrolbylocalresidents
etc.,causingeachformofalegalstructureinadifferentstategeneratingdifferentlegalconsequences.
theownersneedsanddesireforinvestmentsorearnings,orperiodofholding,personalliability,accesstocapital,multi
stateoperations,exitstrategyetc.
Consequently,thereisnoonesinglecorrectlegalstructuretochooseofftheshelf.Butdetailedbelowarethegenerally
availableoptions:
1. SoleProprietor,SingleOwnerLLCorSingleOwnerLLPElecttobetaxedasSoleProprietororCorporation(CorS)
2. 2orMorePartnersPartnerships,LLPs,LLLPsorVenturesand2orMoreMemberLLCElecttobetaxedasPartnership
orCorporation(CorS)
3. Corporations(LLC(SingleMember),LLC(MultipleMember),SandC)ElecttobetaxedasSoleProprietor(Single
Member)orasPartnership(MultipleMember)orasCorSCorporation)
NOTE:SCorporationoptionisnotavailableforaNonResidentAlien(ApersonwhoisneitheraUSCitizennoraresident
inUSunderanytests).AlsosomestatesdonotrecognizeSCorporation,sotheyaretreatedasCCorporation
Confusedwhat???Wejustgotstartedhere,ifnotletsdiveindeeper.
SoleProprietorshipswithincomeshigherthan$50,000aresubjecttothehighestauditratesofanytypeofentity,as
historically(fromIRSviewpoint),theyhavemoreerrors,overstateddeductions,understatedincomeetc.However,fromthe
ownerviewpoint,thebiggestworryforthesoleproprietors(nottobeconfusedwithSingleMemberLLC)havingbusinessor
financialorinvestmentcommitmentsinUSistheUnlimitedLiabilityandthetrapofEstatesTaxesafterthedeathofthe
owner.Businesslossescanbedeductedfromotherprofitablebusinessesandreducingtheoveralltaxburdenoftheowner.
LLCshavethegreatestflexibilitysinceasinglememberLLCistreatedbydefaultasadisregardedentity(meaningasole
proprietorship).AdditionallyforamultiplememberLLC,ithastheoptiontoelecttobetaxedasaCorSCorporation.
Profitsdistributedaretreatedasdistributionofcapitalandnottaxable,sinceprofitsbeforedistributionisalreadytaxed.
Generallythecalendaryearisthetaxreportingyeartooandcanmaintainbooksofaccountsonsingleentryaccounting
method.
Whereasformultiplemember(s)oftheLLLPsandLLCstheLiabilityisgenerallylimitedexceptincaseofGeneralPartner
inLLP.Andsincethepartnershipisaflowthroughentity,itdoesnotpayanytaxes.However,theincomeorlossesare
passedontothepartners,whomustreportitintheirincomeandpaytaxesonsuchincome.And,thepartnershipmustfilean
informationalreturnbothtoIRSandtotheindividualpartners.Generallythecalendaryearisthetaxreportingyear.Fora
MultiplePartnerormemberLLP,LLLPorLLCwithaMultiStateoperation,thereportingrequirementsgetsconvolutedand
taxing(nopunintended).
TheownersoftheCorporationontheotherhandareshieldedbythestatelawsandonlyhavelimitedliabilitytotheextentof
theamountinvestedinthestock.Also,asapassthroughentity,SCorporationcanavoidpayingtaxattheentityleveland
shareholdersreporttheincomeandlossesontheirpersonaltaxreturns.However,thereisapossibilitythatshareholdersmay
enduphavingtopaytaxesondividendincomenotreceivedfromScorporation,specificallywhentheprofitsareretainedby
theSCorporation,becauseIRSforTaxPurposestreatstheprofitsasdistributedwhetherinfactitwasdistributedornot.
CCorporationontheotherhandistaxedattheentitylevelontheprofitwhenearnedandthentaxedattheshareholderslevel
whensuchprofitsaredistributed(netofwithholdingtax)asdividends.Greatertaxfreefringebenefitstoowneremployees
areallowableunderCCorporationthananyotherentity.
LastlyimportanttonoteisthatUSandCanadaaretighteningtheirborderreportinginformationexchange.Whatthismeans
toanaverageCanadianisthatgoingforward,CanadiansnowbirdsmaystartgettingnoticesfromtheIRSrequestingthemto
filereturnsorpaypenaltiesfornotfilingreturnsandtaxesowing.UndertheSubstantialPresenceTestanyCanadianifthey

havebeenundertheUSsunforlongerthanthestipulatednumberofdaysovera3yearperiod,theymaybedeemedUS
PersonundertheUSTaxLawsandliableforUS(sun)Taxes(punintended).

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