Jan 19, 2022
As we advised in Tax Tip 20-04 , significant additional disclosure and filing requirements for trusts were announced in the 2018 Federal Budget and are scheduled to apply for trust’s 2021 and subsequent tax years.
“ABULC’s are cost-effective alternatives to NSULC’s.”
Until May 2005, US investors in Canada could only use a Nova Scotia Unlimited Liability Company (“NSULC”) in order to get flow-through treatment for U.S. tax purposes. Recent amendments to the Alberta Business Corporations Act have created the ABULC as a possible alternative. For Canadian federal tax purposes, the ABULC will be considered a regular Canadian corporation. For U.S. tax purposes, the ABULC will qualify as a flow-through entity unless it elects to check the box and be considered a corporation.
There are some non-tax differences between an NSULC and an ABULC:
Liability of Shareholders
The members of an NSULC are liable for the debts and liabilities of the company only if the company cannot meet its obligations only when it is wound up. The liability of the shareholders of an ABULC is unlimited and is joint and several in nature. This means that shareholders of an ABULC can be sued at the same time as the corporation. Having said that, an NSULC can easily be petitioned into winding up, exposing its members to unlimited liability. The liability of a past NSULC shareholder can continue if the current shareholders cannot satisfy the company’s outstanding liabilities at the time of winding up.
The incorporation and annual costs of an NSULC are significantly higher than an ABULC. At present, the initial incorporation costs of an NSULC are $6,000, and there is an annual $2,000 renewal fee. The incorporation fee in Alberta is less than $1,000 and the annual costs are less than $20.
This is a brief outline of some differences between an ABULC and an NSULC. Either entity can be used by U.S. investors in order to minimize double tax in Canada and the U.S.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.
TAX TIP is provided as a free service to clients and friends of Cadesky Tax.
The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.