How it works
You hold shares of a Canadian corporation (often existing: your management corporation, family holdco, or OPCO). The corporation then holds US real estate directly, or via a subsidiary.
Common structures
- CA Corp directly holds FL property → corporation is foreign person in US.
- CA Corp holds an FL LLC holding the property → adds layer, increased complexity, sometimes useful for limited liability.
- CA Corp holds a US C-Corp holding the property → probable triple taxation, not recommended.
Concrete taxation
US level (corporation)
Canadian corporation taxed as foreign corporation in US on its US income:
- Net rental income: 21 % federal US + state tax (FL has no state corporate income tax on passive real estate income, but other states do).
- Capital gain at sale: 21 % federal.
- Branch profits tax on un-reinvested profits: 5 % via treaty (vs 30 %).
CA level (corporation then shareholder)
- CA corp pays Canadian corporate tax on worldwide income.
- Foreign tax credit for US taxes paid.
- When corp distributes dividend to you (shareholder), dividend taxable. Per your bracket, 30–48 % in Quebec.
Cumulative consequence
On $100 net US rental income:
- US tax: $21.
- Branch profits or retention: 5 % of $79 = $4.
- CA corp remainder: $75.
- Dividend distribution to Canada: personal tax ≈ 30 % of $75 = $22 (with partial foreign tax credit).
- Net in hand: ≈ $53.
In personal name, the same $100 would have been taxed at your marginal Canadian rate net after foreign tax credit, roughly 50–55 % max but with optimization possible. Difference: little advantage, lots of complexity.
FIRPTA and branch profits
FIRPTA
FIRPTA applies to any disposition by a foreign person, including Canadian corporations. At sale:
- 15 % gross-price withholding, unless exempt.
- Recovery via Form 1120-F after actual gain calculation.
- Withholding certificate possible (Form 8288-B) to reduce withholding before closing.
Branch profits tax
IRS imposes additional tax (30 % default, 5 % via Canada-US treaty) on profits a foreign corporation hasn't reinvested in US. Essentially a tax on implicit distributions, to discourage "branch" structures.
Practical effect: even without formally distributing dividend, Canadian corporation pays tax on its US profits.
Annual US and CA filings
US side
- Form 1120-F — US Income Tax Return of a Foreign Corporation.
- Form 5472 if reporting transactions with related parties.
- FBAR FinCEN 114 if US accounts > $10,000.
- FATCA reporting by profile.
- BOI report FinCEN if a US entity (LLC or Corp subsidiary) in structure.
CA side
- T2 corporate tax return.
- T1135 if foreign assets > $100,000.
- T1134 if CA corp holds a US entity (subsidiary).
Annual compliance cost: C$3,000–$8,000, sometimes more.
The rare advantages
- US estate tax avoided. At your death, CA corp shares are in your estate, not the US property directly. If the corporation isn't itself US-situs, US estate tax doesn't apply (but verify).
- Multiple US properties consolidated under single entity, simplifies management.
- Limited liability integrated into existing structure.
- Profit reinvestment without immediate repatriation (subject to branch profits tax).
Why FL LLC is generally better
| Criterion | CA Corp | FL LLC multi-member treated as corp |
|---|---|---|
| Formation cost | $1,500–5,000 | $250–500 |
| Annual cost | $500–2,000 + accounting | $138.75 + accounting |
| US filings | 1120-F + 5472 + branch profits | Standard 1120 |
| CA filings | T2 + T1134 + T1135 | T1135 (interests) |
| FIRPTA | Yes | Yes |
| US estate tax | Possibly avoided | Applicable |
| Limited liability | Yes | Yes |
| Total complexity | Very high | Moderate |
For most Canadians, well-structured FL LLC offers same protection with much less tax and operational complexity.
Profiles where relevant
- Existing corporation with other US assets: adding real estate to a US portfolio already held corporately.
- Very large wealth with sophisticated corporate succession planning.
- Active rental business (≥ 5 income-generating properties needing centralized management).
- US estate tax strategy where main goal is estate tax avoidance and added cost is acceptable.
- Family share distribution of CA corp shares between spouse and children as planning tool.
Every figure, rate, threshold, and deadline in this guide is drawn from a verifiable primary source listed at the bottom of the page. The article is updated whenever the underlying rules change, with a fresh review date stamped at the top.
Sources and references
All sources were publicly accessible at the last review date. Figures and rules may change; verify the current version before any decision.
- IRS Form 1120-F — US Income Tax Return of a Foreign Corporation. irs.gov/form-1120-f
- IRS Form 5472 — Information Return of a 25% Foreign-Owned U.S. Corporation. irs.gov/form-5472
- Canada-US Tax Treaty Article XXIX-A — Branch profits tax 5 % rate.
- CRA Form T2 — Corporation Income Tax Return. canada.ca/T2
- CRA Form T1134 — Information Return Relating to Controlled and Not-Controlled Foreign Affiliates.
- IRS FIRPTA — Foreign Investment in Real Property Tax Act. irs.gov/firpta
Logical next step
Specifically compare FL LLC and Quebec trust.