If you’re considering starting a new business or making a purchase in the U.S. with an E-2 or L-1 visa, your immigration lawyer or local U.S. accountant might recommend forming an LLC. It’s simple and offers asset protection. However, they may not be aware that, for a Canadian, a U.S. LLC could pose a substantial tax risk.
In most cases, U.S. immigration lawyers or local U.S. accountants lack knowledge of Canadian tax laws, and Canadian accountants are unfamiliar with U.S. tax laws. This creates a dangerous Advisor “Blind Spot“.
T1134 vs. T1135 Reproting of US LLC
Canadians have to report foreign property to the CRA. Most local Canadian accountants will quickly list your U.S. LLC on a simple form called the T1135. This common mistake can trigger severe audits and penalties.
Under ITA Section 233.3, shares of a “foreign affiliate” are explicitly excluded from being reported on Form T1135. Because the CRA treats your US LLC as a corporation, owning 10% or more automatically makes it a foreign affiliate under ITA Subsection 95(1) [11, 14]. Therefore, it must be reported on the highly complex Form T1134. It requires detailed balance sheets and income reports, all translated perfectly into Canadian dollars. Filing the wrong form triggers aggressive non-compliance penalties under ITA Section 233.4, starting at $25 a day and quickly reaching thousands
Solution
You need a CPA who understands how a US entity is reported on Form T1134. Completely and accurately report the foreign affiliate under ITA Subsection 95(1) and correctly file the exhaustive Form T1134 within the strict 10-month deadline. Furthermore, the CPA ensures all Foreign Accrual Property Income (FAPI) is correctly translated to Canadian dollars using Bank of Canada exchange rates to guarantee perfect compliance .
