Doing Business in the U.S.: Tax Structure for Canadian Companies
Canadian corporation expanding to the U.S.? Learn how to choose between a US corp and LLC, avoid FAPI, plan around US estate tax, and structure the ownership before it's locked in.
Everything a Canadian Advisor Needs to Know Before Their Client Opens Up Shop in the U.S.
A client comes in with a U.S. expansion on the table. Maybe they're already selling south of the border, maybe they're thinking about a manufacturing plant in Texas, maybe the tariffs have forced their hand. The question isn't just how to set it up — it's how to set it up without creating a problem that's expensive and difficult to undo. Most Canadian CPAs haven't had formal U.S. tax training, and that gap becomes obvious fast: wrong entity choice, FAPI you didn't see coming, a capital gains exemption that quietly disappeared, US estate tax that nobody planned for. The consequences are real, and unlike many Canadian tax mistakes, some of these can't be fixed retroactively.
- check_circle Understand exactly when U.S. tax exposure begins — and how quickly it escalates. The path from casual U.S. visits to a full permanent establishment is gradual. Each step adds exposure: employee trips, order-taking, nexus, branch, incorporated subsidiary. Know where your client sits on that spectrum, and what it means for their filing obligations in the U.S.
- check_circle Choose the right structure before you're locked in. A U.S. corporation and a U.S. LLC are not interchangeable for a Canadian-owned business. The differences go beyond liability: treaty access, withholding mechanics, Canadian FAPI exposure, the repatriation tax cost, and the treatment on a sale are all affected by which entity you put in place — and there's no tax-free Canadian rollover into a U.S. corporation once you've started down the wrong path.
- check_circle Plan around the traps that catch people off guard. U.S. estate tax on personally-held U.S. shares, FAPI from passive U.S. income, the loss of the capital gains exemption when U.S. assets exceed 10% of the Canadian corporation's value, the IRS's substance-over-form rules on salary and thin capitalization, and the tax cost of an asset sale versus a share sale — each one an avoidable mistake with the right planning, and a costly one without it.
What You'll Learn
Across the 2.5-hour session, we move from the basics of how U.S. tax exposure builds with activity level, through entity choice and ownership structure, into the Canadian characterization rules that catch passive income, the planning issues that most advisors miss, and practical case studies on IP, substance, tariffs, and what happens when you sell.
expand_more How U.S. Tax Exposure Builds — The Five Activity Levels
- The spectrum of U.S. business activity — from a Canadian employee visiting customers to a fully incorporated U.S. subsidiary — and how each level triggers a different tax result
- When the Canada-U.S. treaty exempts a Canadian employee's salary from U.S. personal tax, and the conditions that must be met (under 183 days, expense not deducted by a U.S. entity, under $10,000 USD)
- What casual business visits by a Canadian owner do and don't trigger — and how order-taking or contract-concluding in the U.S. changes that answer
- State nexus: what it is, how it differs from a federal permanent establishment, and why California's unitary tax stands apart from every other state
- What "permanent establishment" means under the treaty, why it triggers both federal and state tax plus a 5% branch profits tax, and why the slippery slope from branch to subsidiary is dangerous without early planning
expand_more U.S. Corporation vs. U.S. LLC — What Actually Differs
- How a U.S. corporation is taxed — 21% federal plus state, dividend withholding at 5% (corporate owner) or 15% (individual owner), world income (not just U.S. source)
- How a U.S. LLC works as a flow-through entity, why withholding at 37% (individual owner) or 21% (corporate owner) applies to LLC income whether or not it's distributed, and why this makes LLCs less popular for Canadians than they appear
- The treaty protections available to a U.S. corporation that are simply not available to a U.S. LLC: deemed U.S. residency, permanent establishment relief, and access to the mutual agreement procedure on disputes
- The three ways to own a U.S. LLC (through a U.S. corp, through a Canadian corp, or personally) and what the tax treatment looks like under each
- Why U.S. LLC income splitting between spouses looks attractive from a U.S. perspective, and the Canadian complications that arise when you try to rely on a TOSI exemption to support it
expand_more Canadian Characterization — Foreign Affiliates, CFAs, and FAPI
- When a U.S. entity becomes a foreign affiliate or controlled foreign affiliate under Canadian rules, and why it matters for how income is taxed and repatriated
- The types of income that qualify as FAPI — rental income, services performed by a Canadian resident shareholder, investment income, most capital gains including crypto — and the five-employee threshold that can change the answer for some categories
- What happens when a U.S. corporation earns active business income: no Canadian income imputed, and dividends repatriated tax-free from exempt surplus when paid to a Canadian corporation
- The contrast with passive income: FAPI imputed to the Canadian parent as earned, with only partial relief for U.S. tax paid (1.9x deduction), and a complex repatriation calculation
- A worked example comparing corporate ownership (total tax approximately 54%) to individual ownership (total tax approximately 63%) on $100 of U.S. corporate income — and why the Canadian corporation structure has become the default for active U.S. businesses
expand_more Structuring the Ownership — What Most People Get Wrong
- Where to hold the U.S. entity within the Canadian corporate group — and why having the U.S. entity owned directly by the Canadian operating company (or even through a holdco) can eliminate the capital gains exemption on the sale of the Canadian shares
- The 10% threshold: once the U.S. entity represents 10% or more of total value, the Canadian corporation is no longer a small business corporation — and debt used to fund the U.S. entity counts as a non-qualifying asset even if the shares don't
- The practical complications of a parallel structure (separate Canadian and U.S. corporate groups): financial statement consolidation, financing and security issues, immigration visa problems, and banking difficulties
- U.S. estate tax: how it applies to Canadian residents who personally hold shares of a U.S. corporation or units of a U.S. LLC, how the prorated $14 million exemption works in practice (with worked examples), and how holding through a Canadian corporation eliminates the exposure entirely
- Why owning through a Canadian holdco is the most common and most reliable approach for active U.S. businesses, and when a trust structure makes sense for high-net-worth individuals who need individual-level ownership
expand_more Operating the Business — Substance, IP, Salaries, and Tariffs
- Why U.S. local substance matters: a U.S. entity with no real U.S. operations is likely a permanent establishment in Canada, taxable there — illustrated with the Crock Software case study where ignoring this created a decade of unfiled Canadian returns
- The IP problem: when a Canadian company sets up U.S. manufacturing, the designs, brand, customer relationships, website, and data are often owned by the Canadian corporation — and the U.S. entity either has to buy or license them at fair value, or risk an appropriation of property
- The U.S. salary rules: unlike Canada, the IRS requires shareholder-employees to take a reasonable arm's-length salary — too little and a dividend may be recharacterized as salary, too much and the excess may be treated as a disguised dividend
- Tariffs and the U.S. expansion decision: a worked example showing how a 10% tariff turns a $4 million net income to nil for a company with a 15% gross margin, and how partial relocation to the U.S. reduces the tariff base and recovers part of that loss
- The bigger tariff evaluation: whether the tariff cost can be passed on, whether a licensing model to a U.S. manufacturer avoids it, whether redirecting to non-U.S. markets is viable, and how to frame the overall business case before the tax analysis begins
expand_more Selling the U.S. Business — Getting the Structure Right Before It's Too Late
- Why a share sale of a U.S. corporation by a Canadian non-resident produces no U.S. tax at all — only a capital gain in Canada — while an asset sale triggers U.S. corporate tax at 21%, 5% withholding, and then Canadian personal tax on the dividend, reaching an effective rate of approximately 55%
- How the sale of U.S. LLC units differs: both an asset sale and a unit sale can produce a U.S.-taxable capital gain at 20% federal, with Canada granting a foreign tax credit — a significantly better outcome than the U.S. corporation asset sale scenario
- The ACB mismatch between Canada and the U.S. for LLC units: Canada treats the LLC as a foreign corporation (ACB doesn't adjust for income or distributions), while the U.S. treats it as a partnership (ACB adjusts as it would for any partner) — and why assuming the two bases are equal is a mistake
- Foreign currency risk: recent CAD/USD moves from $0.84 to $0.68 create real gains and losses on intercompany loans, whichever currency they're denominated in
- U.S. filing deadlines and extensions: how the corporate, LLC, and individual filing calendars work, and why U.S. extensions (up to 8 months for individuals) can create timing mismatches with Canadian foreign tax credit claims
Learn Directly from Tax Experts
Michael Cadesky is the managing partner at Cadesky Tax and a committed contributor to the tax and accounting professions since 1980, earning the title of Fellow from CPA Ontario. He is a past governor of the Canadian Tax Foundation, past chair of STEP Canada and STEP Worldwide, and past chair of the CPA Canada Tax Committee for Small and Medium-Sized Enterprises. Michael is also the co-author of 11 books on tax subjects and the author or co-author of numerous papers and articles on Canadian and international taxation.
As the President of Cadesky U.S. Tax Ltd., Dean has been providing U.S./Canada cross-border planning and compliance for over 30 years. He assists private clients with their personal, corporate, and estate planning needs, taking into account the unique challenges of integrating two independent tax systems.
Frequently Asked Questions
Quick answers about registering for this course.
Can I start right away? expand_more
Yes. Doing Business in the U.S. was recorded in June 2025 and is available on demand. Register and begin immediately at your own pace.
Does this course provide CPD? expand_more
Yes. You will receive a verifiable CPD certificate for 2.5 hours of instructional learning upon completion.
What is included with registration? expand_more
Registration includes the full course recording, slides, detailed notes, and a knowledge assessment. You have one year of access to the program and materials from your date of registration.
Is there a cost to register? expand_more
Yes. Registration is $225 CAD and includes everything listed above. This is a one-time payment with no subscription required.