Overview
This interpretation explains how U.S. Limited Liability Companies (LLCs) are treated for Canadian tax purposes. Although LLCs can be treated as flow-through entities for U.S. tax, Canada generally treats a U.S. LLC as a corporation, unless facts show otherwise.
CRA also provides guidance on:
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Whether a U.S. LLC is carrying on business in Canada
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Permanent establishment (PE) considerations
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Regulation 105 and 102 withholding
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Treaty-based exemptions
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Impact of U.S. “check-the-box” elections
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Filing obligations for both the LLC and its employees
This page consolidates the CRA’s views across multiple rulings and DTS guidance.
Key Issues Considered
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1. Classification of a U.S. LLC in Canada
(Relevant: ITA 248(1) “corporation”; Treaty Article IV)
CRA confirms:
✔ A U.S. LLC is normally treated as a corporation for Canadian tax purposes.
The fact that the LLC may be treated as a disregarded entity or partnership under U.S. tax rules does not affect its Canadian classification.
✔ A U.S. LLC may qualify as a U.S. resident under the Treaty
—but only if it is liable for tax in the U.S. on all of its income (e.g., electing corporate treatment).
✔ Members of the LLC cannot claim Treaty benefits unless the LLC itself qualifies.
2. Impact of U.S. "Check-the-Box" Election
(Relevant: CRA STEP Roundtable; Treaty Article IV)
CRA states:
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A check-the-box election does not change the legal form of the LLC.
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Therefore, for Canadian purposes, the LLC remains a corporation.
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The election does not trigger:
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a disposition of membership units, or
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a deemed disposition of LLC assets.
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✔ The Canadian tax treatment is unchanged by the election.
However, the election may affect Treaty access and foreign tax credit calculations, because:
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When treated as a corporation for U.S. purposes, the LLC itself pays U.S. tax.
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When treated as a flow-through for U.S. purposes, the members pay U.S. tax.
This matters when determining which taxpayer is entitled to foreign tax credits in Canada.
3. Is a U.S. LLC Carrying On Business in Canada?
(Relevant: ITA 2(3), 253; Treaty Article V)
CRA emphasizes that this is a factual test, examining:
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where contracts are made
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where inventory is stored or delivered
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who performs services in Canada
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whether employees/agents are present in Canada
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whether the LLC solicits sales in Canada
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nature of business activities in Canada
Key CRA guidance:
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Merely storing goods in Canada for delivery only does not create a PE.
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Preparatory or auxiliary activities (storage, display, delivery) do not create a PE under Treaty Article V(6).
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If the LLC is carrying on business in Canada but does not have a PE, it must still file a T2 return to claim Treaty exemption.
4. Permanent Establishment (PE) Considerations
(Relevant: Treaty Article V)
A U.S. LLC has a PE in Canada if it has:
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a fixed place of business in Canada,
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a dependent agent concluding contracts on its behalf, or
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service activities exceeding Treaty thresholds.
Under Article V(6), no PE exists if activities are solely:
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storage
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display
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delivery
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processing by another person
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other preparatory or auxiliary functions
If a PE exists, Canada may tax profits attributable to that PE.
If no PE exists, the LLC must file a T2 return to claim the Treaty exemption.
5. Regulation 105 Withholding (Services Provided in Canada)
Services performed in Canada by a U.S. LLC or its agents are subject to:
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15% Regulation 105 withholding
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Applies even if Treaty ultimately exempts the income
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The LLC must file a Canadian return to obtain a refund
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CRA notes:
✔ No 105 withholding is required if all services are performed outside Canada, such as:
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telephone support from the U.S.
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email or remote assistance
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maintenance performed in the U.S.
✔ 105 withholding applies if services are rendered in Canada, whether by:
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U.S. employees temporarily entering Canada, or
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Canadian subcontractors acting on the LLC’s behalf.
A waiver may be available if Treaty Article VII exempts the income.
6. Filing Requirements for a U.S. LLC
(Relevant: ITA 150, 2(3), 115)
A U.S. LLC must file a Canadian T2 non-resident return if:
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it is carrying on business in Canada,
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it has Canadian-source service income,
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it needs to recover Regulation 105 withholdings,
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it elects under Treaty rules to claim exemptions.
A U.S. LLC does not have to file if:
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it performs no services in Canada,
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no business is carried on in Canada under ITA 253,
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no withholding needs to be refunded.
Key Takeaways
- Canada treats a U.S. LLC as a corporation, not a partnership.
- A U.S. “check-the-box” election does not change the LLC’s Canadian tax classification.
- Business presence in Canada triggers potential tax and filing obligations.
- Regulation 105 withholding applies to services rendered in Canada.
- Employees may be exempt under Treaty Article XV if conditions are met.
- A U.S. LLC may not have a PE in Canada even if it carries on business here—but must still file a return to claim the Treaty exemption.
Disclaimer
This summary is based on a redacted CRA technical interpretation. While believed to be accurate at the time of original publication, CRA positions may change and may not represent current administrative policy. This content is provided for general information only and should not be relied upon as tax, legal, or financial advice.
Redaction Notice
All names, phone numbers, office locations, signatures, and confidential identifiers from the original CRA documents have been removed to protect privacy and comply with publishing guidelines.
