Buying in Florida: Should a Canadian Hold It Personally, in an LLC, in a Canadian Company, or in a Trust? A Decision Table

This is the question every Canadian buyer asks and every US professional answers with "LLC." For a Canadian resident, the LLC is the one structure that produces double taxation, because Canada treats it as a corporation and the US treats it as nothing. The right structure depends on which problem the buyer needs solved: income tax on rent (if any), the US estate tax, Florida probate, liability, and the owner's own use of the place. Here is the comparison across the five structures, then the reasoning.

Key takeaways

The five structures compared, holding option by holding option — Personal, Revocable trust, US LLC, Canadian corporation, Irrevocable trust:

• US income tax on rent — Personal: 871(d), graduated rates; Revocable trust: same; US LLC: same; Canadian corp: 21% plus branch tax; Irrevocable trust: trust rates or the beneficiaries.
• Canadian tax on rent — Personal: T776, foreign tax credit; Revocable trust: same; US LLC: FAPI, credit uncertain; Canadian corp: passive corporate income, credit; Irrevocable trust: trust or beneficiaries.
• Sale — Personal: long-term capital gain 15/20%, 25% depreciation recapture; Revocable trust: same; US LLC: same; Canadian corp: 21% flat plus branch tax; Irrevocable trust: trust rates.
• US estate tax — Personal: in the estate, treaty proration; Revocable trust: same; US LLC: in the estate (disregarded); Canadian corp: out (shares are not US-situs); Irrevocable trust: out if structured properly.
• Florida probate — Personal: yes; Revocable trust: no; US LLC: no; Canadian corp: no; Irrevocable trust: no.
• Liability — Personal: insurance only; Revocable trust: insurance only; US LLC: entity shield; Canadian corp: entity shield; Irrevocable trust: no shield.
• Personal use — Personal: 280A allocation; Revocable trust: same; US LLC: same; Canadian corp: shareholder benefit; Irrevocable trust: beneficiary use issues.
• Annual filings — Personal: 1040-NR, T776, T1135; Revocable trust: same; US LLC: plus Form 5472/1120, T1134; Canadian corp: 1120-F, T2, state return; Irrevocable trust: 1040-NR/1041, T3.
• Cost — Personal: low; Revocable trust: low; US LLC: medium, with a trap; Canadian corp: high; Irrevocable trust: high.

• Most Canadians: personal, titled in a Florida revocable trust, with landlord and umbrella insurance.
• A Canadian who will become a US resident: personal now, LLC after the move.
• A worldwide estate above about $15 million with meaningful Florida value: the Canadian corporation or an irrevocable Canadian trust, depending on personal use and income.
• Never for a Canadian resident: a personally owned LLC.

Personal ownership

The default and, for a single vacation property or rental of ordinary size, the best. Rent is taxed on net under the section 871(d) election at graduated rates, and the sale at long-term capital gains rates with 25% recapture; Canada taxes the rent and the gain with a credit; the treaty prorates the US estate exemption by the Florida share of the worldwide estate, which eliminates the estate tax for most (Form 706-NA claims it). The drawbacks: Florida probate on death (months, Florida counsel, public), and liability limited by insurance rather than an entity.

Revocable trust

Personal ownership with the deed held by a Florida revocable living trust. Disregarded for US income and estate tax; in Canada, a bare trust or attributed to the settlor (the CRA's bare-trust reporting rules apply to the T3 filing in some years). The trust avoids Florida probate: the successor trustee transfers the property on death. Tax results identical to personal ownership. This is the recommended form of personal ownership for a Canadian in Florida. An enhanced life estate deed (Lady Bird deed) is a cheaper alternative that also avoids probate.

US LLC

For a US resident, the LLC is the standard vehicle: liability protection with flow-through taxation. For a Canadian resident, it fails on the Canadian side. Canada classifies the LLC as a corporation; the owner's Canadian return does not report the rent directly; the LLC is a controlled foreign affiliate whose rent is FAPI, included in the owner's income annually with a deduction for foreign accrual tax that may not fully reflect the US tax the owner paid personally; Form T1134 annually; distributions tracked against surplus. The US side adds Form 5472 with a pro forma 1120 ($25,000 penalty). The estate tax is unchanged (the LLC is disregarded, so the property is in the estate). The liability shield is the only gain, and insurance provides most of it.

A Canadian who will move to the US and become a resident can hold personally now and convert to an LLC after the move (a contribution to a disregarded entity is a non-event in the US; the Florida documentary stamp tax may apply to the deed).

Canadian corporation

A Canadian corporation holds the property. The US taxes the corporation on the rent as effectively connected income on Form 1120-F at 21%, plus branch profits tax (5% under the treaty) on profits not reinvested, plus Florida's 5.5% corporate tax; the sale is taxed at 21% with no capital gains rate. Canada taxes the corporation's rent as passive investment income at about 50% (partially refundable on distribution) with a corporate foreign tax credit, and taxes the shareholder on dividends. The owner's personal use is a taxable shareholder benefit at fair rental value. The shares are not US-situs property, so the condo is outside the US estate, and no Florida probate. The structure solves the estate tax and probate at a high income tax cost and with the personal-use benefit. It fits a Canadian with real estate tax exposure and a property that is rented, not used.

Irrevocable trust

A discretionary trust resident in Canada purchases the property (with funds not gifted by the person who will use it, to avoid the US retained-interest inclusion and Canadian attribution). The property is outside the settlor's US estate, outside probate, and the trust can allow family use. The trust files a 1040-NR (or 1041) and a T3; Canada's 21-year deemed disposition applies; professional trustees are usual. Appropriate for high-value property and real estate tax exposure where the corporation's income tax cost is unacceptable; expensive to set up and run.

The reasoning

The estate tax is the problem that pushes Canadians toward the corporation or the trust, and for a worldwide estate under about $15 million the treaty proration already solves it at zero cost (with a Form 706-NA on death). The liability problem is solved by insurance for a single property. Probate is solved by the revocable trust. What remains for most buyers is the income tax and the compliance cost, and personal ownership wins on both.

Worked example

A Calgary couple with a $6 million worldwide estate buy a $900,000 Boca Raton condo to use four months a year and rent the rest.

• Personal, revocable trust. 871(d); net rent after allocation and depreciation about $10,000; US tax about $1,000; Canadian tax on the net with a credit; estate tax after proration (15% of $15 million = $2.25 million): none; Form 706-NA on death; no probate; $2 million umbrella policy. Annual: 1040-NR, T776, T1135.
• LLC. Same US tax plus Form 5472; FAPI in Canada with an uncertain FAT deduction; T1134; estate tax unchanged. Worse.
• Alberta corporation. 1120-F at 21% plus branch tax and Florida corporate tax; Canadian passive income tax; the four months of use is a $16,000 shareholder benefit each year; no estate tax (none anyway); no probate. Worse.
• Irrevocable trust. Solves an estate tax problem they do not have; expensive. Worse.
• Answer. Personal, in a Florida revocable trust.

Official sources

"If an NRA owns or holds in interest in real property located in the U.S. and holds the property for the production of income, then the NRA can elect under Internal Revenue Code (IRC) 871(d) to treat all income from U.S. real property as effectively connected income with the conduct of a trade or business in the U.S." — Internal Revenue Service, Nonresident Aliens — Real Property Located in the U.S., https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-real-property-located-in-the-us

"If the date of death value of the decedent's U.S.-situated assets, together with the gift tax specific exemption and the amount of the adjusted taxable gifts, exceeds the filing threshold of $60,000, the executor must file a Form 706-NA." — Internal Revenue Service, Estate Tax for Nonresidents not Citizens of the United States, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax-for-nonresidents-not-citizens-of-the-united-states

"For purposes of these instructions, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations." — Internal Revenue Service, Instructions for Form 5472, https://www.irs.gov/instructions/i5472

The CRA lists as a shareholder benefit under subsection 15(1) the "Personal use of your (the corporation's) property (for example, house, car, yacht) without a FMV charge or return." — Canada Revenue Agency, Shareholder benefits, https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/determining-tax-treatment/shareholder.html

"A separate supplement must be filed for each foreign affiliate (non-resident corporation or non-resident trust) of the taxpayer or partnership" that is a controlled or non-controlled foreign affiliate. — Canada Revenue Agency, Foreign affiliates and foreign accrual property income, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/information-returns-relating-foreign-affiliates.html

Practitioner note

The decision table has one row that matters for most Canadians, the estate tax, and the treaty already sets it to zero for estates under about $15 million. Once that is understood, the personal-ownership column wins on everything else, and the revocable trust removes the one remaining item, probate. The LLC column is the one to avoid, and it is the one Canadians are steered into most often.

See also: For the full sequence of a Canadian move to Florida, see the Canada-to-Florida tax guide, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the holding structure analysis on the buyer's numbers, the revocable trust coordination with Florida counsel, and the annual filings for the structure chosen. See cross-border pricing or book a call.