The Math: How Double Taxation Happens for Canadians with U.S. LLCs and S-Corps

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One of the most common issues Canadians on E-2 visas face is unexpected double taxation, even when income is only earned once.

A Simple Example

• U.S. business earns: $100,000
• U.S. tax paid personally: $21,000
• Cash distribution taken: $25,000

In the U.S.:

• Tax is owed on profit, not distributions
• The $25,000 is not taxed again

In Canada:

• CRA may treat the entity as a corporation
• The $25,000 is viewed as a dividend
• Foreign tax credits are often denied or limited

Result:

• Tax paid twice on the same economic income

Why Foreign Tax Credits Often Fail

CRA asks:

• Was tax paid at the corporate level?
• Was withholding tax paid on the dividend?

Since neither occurred in the U.S. LLC/S-Corp structure:

• Credits may not be allowed
• Double taxation becomes unavoidable

This Is Not a Rare Issue

We see this repeatedly with:

• LLCs taxed as disregarded entities
• S-Corps owned by Canadians
• Incomplete residency planning

These are not “edge cases.” They are structural problems.