Cross border part investor for a flip... tax questions?

[George Hadjichristou]

Hello Everyone,

First time poster but long time reader of all the good information and advice on BP.

Let me pre-face this by saying that I have reached out to some cross border tax specialists, and some I am still awaiting a response from, and some others have given conflicting advice. So it thought I would throw this out there to see if anybody here has any experience or knowledge on the matter:

I'm a US resident that purchases and flips houses through a single member LLC (taxed as an S-Corp). Now in order to do a certain flip, I need an investor to go in for 15% of the cost (with return of his investment + 15% of the profits). The investor I found is a Canadian. He is concerned about getting double taxed as his return would be payed out to him by my US LLC. I'm assuming he would have to pay US tax on that profit, and in part Canada would consider that income coming in as an investment dividend from a US corporation, and tax him again. Am I accurate on the assessment that he WOULD in fact be double taxed? And if so, is there any structure he could set up that could avoid double taxation on a one time Canadian part investor (who is not a member of the LLC nor on the deed of the property) on a single project ?

Any advice, knowledge,or guidance on the matter would be highly appreciated. 

Thanks,

George Hadjichristou

[Roy N.]

@George Hadjichristou

In Canada there is no equivalent to an LLC - you either operate as sole proprietor or a corporation - and LLCs are not generally recognized by the CRA as being a {non-corporial} "individual" for the purposes of taxation.

As a consequence, your Canadian partner would be taxed, at home, on any retained earnings s/he repatriates as if it were {flow-through} income from a partnership and not dividends from a corporation.