My US Rental Is Inside My Canadian Corporation. Was That a Mistake?

It might be, and the fix has a price either way. Three problems run at once, on two sides of the border. The corporation may owe US tax on the rent, then a second layer that doesn’t wait for a distribution. On CRA’s view you may be picking up a Canadian shareholder benefit for every year the place is available for your personal use. And moving the property out has a tax cost of its own that turns on your facts.

What’s actually wrong with holding US property in a Canadian corporation?

Three things, running independently: US tax on the rental income plus a second layer that doesn’t wait for a distribution, a Canadian shareholder benefit (which CRA keys to the place being made available for your personal use), and the cost of taking the property back out. The US side starts in IRC 882(a)(1).

“A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 11, 55, or 59A, on its taxable income which is effectively connected with the conduct of a trade or business within the United States.”

That starts from a corporation already engaged in a US trade or business, and never says whether holding or renting out a house makes it one, a threshold question that’s facts and circumstances. The corporation’s own fate if you emigrate belongs to moving with a Canadian corporation and winding it up first.

How much US tax does the corporation pay?

In two layers, if the corporation is engaged in a US trade or business. If it isn’t, a different US regime applies and this page doesn’t reach it. First, corporate tax on income effectively connected with a US trade or business, under IRC 882(a)(1). Second, the branch profits tax under IRC 884(a): 30 percent of the dividend equivalent amount in the statute, which the treaty can cut to 5 per cent for a qualified resident under IRC 884(e)(1)(B), against a ceiling the treaty measures its own way.

“In addition to the tax imposed by section 882 for any taxable year, there is hereby imposed on any foreign corporation a tax equal to 30 percent of the dividend equivalent amount for the taxable year.”

That’s IRC 884(a), and the 30 percent isn’t necessarily what a Canadian company pays. IRC 884(e) carries the treaty coordination, and the operative text is Article 5(1) of Schedule IV, the 1995 protocol, which replaced “10 per cent” with “5 per cent” in Article X(6). A condition rides on that ceiling and it isn’t automatic. IRC 884(e)(1)(B) withholds any treaty reduction unless the corporation is a “qualified resident” of Canada, which IRC 884(e)(4)(A) keys to who owns the shares and to whom the company’s income pays its liabilities, so it is a test to run rather than a status to assume. Article X(6) does something different: it’s the measure the ceiling is expressed on, reaching “the earnings of a company attributable to permanent establishments” in that state, which is a different test from the trade or business threshold above and one this page doesn’t settle either, on earnings the treaty defines for itself. So the ceiling isn’t simply 5 per cent of the statute’s base.

Nothing has to be distributed for that layer to apply. The statute’s base is effectively connected earnings and profits adjusted for the change in US net equity (IRC 884(b)(1) and (b)(2)(A)), on terms set by regulations under IRC 884(c)(2) that aren’t sourced here. IRC 882(c)(2) then allows a foreign corporation’s deductions and credits “only by filing … a true and accurate return”.

What is the Canadian shareholder benefit, and why did nobody mention it?

Because ITA 15(1), on the Act current to 2026-06-14, doesn’t look like a real-estate rule. Where a benefit is conferred by a corporation on a shareholder, its value goes into the shareholder’s income. CRA generally treats property made available for a shareholder’s personal use as a benefit, and a benefit like that isn’t in the closed list of exclusions at paragraphs (a) to (d), which are corporate-law mechanics like redemptions and dividends. That absence is why the rule reaches here.

“If, at any time, a benefit is conferred by a corporation on a shareholder of the corporation … the amount or value of the benefit is to be included in computing the income of the shareholder … except to the extent that [it] is deemed by section 84 to be a dividend or that the benefit is conferred on the shareholder [paragraphs (a) to (d)]”

“A benefit” itself is undefined.

ITA 15(7) closes off the residence argument before anyone makes it: subsections 15(1), (2) and (5) apply “whether or not the corporation, or the lender or creditor, as the case may be, was resident or carried on business in Canada”. The measure is CRA’s, at paragraph 11 of IT-432R2, Benefits Conferred on Shareholders.

“If corporate property is made available for the personal use of a shareholder, a benefit under subsection 15(1) is generally considered to have been conferred … The calculation … is usually based on the fair market rent for the property minus any consideration paid to the corporation by the shareholder … The fair market rent may not, however, always be appropriate for measuring the benefit, particularly where it does not provide for a reasonable return on the value or cost of the property. This may be the case, for example, for a luxury residence or yacht … If the fair market rent is not an appropriate measure, or if it does not exist or cannot be determined, the amount or value of the benefit would then usually be determined by multiplying a normal rate of return times the greater of the cost or fair market value of the property and adding the operating costs related to the property. The total of these two amounts is often referred to as the ‘imputed rent’.”

Paragraph 11 adds that the benefit arises whether or not the shareholder paid toward the cost or the operating expenses. Where fair market rent isn’t an appropriate measure, or doesn’t exist, or can’t be determined, paragraph 11 says the benefit would then usually be determined on imputed rent instead. Paragraph 11’s own example of an inappropriate rent is one that gives no reasonable return on the value or cost of the property, so paying market rent on an expensive house is no safe harbour. What you paid the company still comes off either measure, and paragraph 11 never defines the rate of return.

Paragraph 14 is the sting: “If an amount is included in the income of a shareholder under subsection 15(1), such amount is not allowed to the corporation as a deduction from income.” And it gets reported: CRA’s position is that the corporation puts the benefit on a T4A slip where the calendar year’s payments total more than $500, and withholds nothing, and that the shareholder reports it as other income or as self-employment income and is the one responsible for remitting the income tax and CPP contributions on it.

Be precise about that bulletin. It’s dated February 10, 1995 and carries an ARCHIVED banner, but CRA’s own current bulletins list says that notice “has no effect on the status or reliability of the ITs”, so the label is a web-standards designation, and a freeze on updates, rather than a comment on reliability. IT432R2 is on that list without a CANCELLED prefix, and Folio S3-F1-C1, effective April 10, 2025, still cites it for subsection 15(1). So it hasn’t been cancelled. It also isn’t a folio and it isn’t law: CRA’s caution is that IT comments “are not a substitute for the law”.

	The corporation’s problem	The shareholder’s problem
Authority	IRC 882(a)(1), IRC 884(a)	ITA 15(1) and ITA 15(7) for the inclusion; the trigger and the measure below come from CRA’s IT-432R2 paragraph 11 rather than from the statute
Trigger	a US trade or business, which IRC 882(a)(1) assumes rather than settles for a rental property	property “made available” for personal use, whether or not the shareholder pays the costs
Measure	effectively connected income, then the dividend equivalent amount	fair market rent less consideration paid, or imputed rent, also less consideration paid, where fair market rent isn’t an appropriate measure, or doesn’t exist, or can’t be determined
Rate	the section 11 rate, which isn’t sourced on this page; branch profits at 30 percent statutory, with a 5 per cent treaty ceiling only for a qualified resident under IRC 884(e)(1)(B), measured the treaty’s own way	the shareholder’s own marginal rate
Relief	deductions and credits allowed only if a return is filed (IRC 882(c)(2))	no corporate deduction for the benefit, under IT-432R2 paragraph 14

What does the corporation have to file in the US?

A Form 1120-F, if it was engaged in a US trade or business. Also if it wasn’t, but had income from any US source and the tax on it wasn’t fully satisfied by withholding at source. Those aren’t the only triggers in the instructions. A corporation with no US office generally files by the 15th day of the 6th month after its year end, so June 15 for a December year end, while a US office generally pulls that to the 4th month.

“Was engaged in a trade or business in the United States, whether or not it had U.S. source income from that trade or business, and whether or not income from such trade or business is exempt from U.S. tax under a tax treaty”

A treaty exemption changes the tax owed, not the return. Trigger, deadline and the Form 7004 extension are in the Instructions for Form 1120-F.

One thing those instructions don’t do. Nothing in them keys a filing obligation to owning US real property. The relevant exception needs both no US trade or business and full US tax withheld at source, so the zero-income case stays unresolved. They do say a corporation that concluded it has no effectively connected income “should” file a protective return, and “should” is not “must”. So whether owning US property with no income requires a 1120-F is unconfirmed on this source.

Can I just take the property out of the company?

You can, and it has a cost. IRC 897(j) recognizes gain when a nonresident alien individual or a foreign corporation transfers a US real property interest into a foreign corporation as paid-in surplus or a contribution to capital. That prices the move in. The move out runs the other way, and nothing quoted here prices it.

“Except to the extent otherwise provided in regulations, gain shall be recognized by a nonresident alien individual or foreign corporation on the transfer of a United States real property interest to a foreign corporation if the transfer is made as paid in surplus or as a contribution to capital …”

That first clause of IRC 897(j) matters: the rule yields to regulations that aren’t sourced here, so read it as the default rather than an absolute. What it establishes is direction only; the unwind’s actual cost turns on basis, value, structure and residence.

Absent an IRC 897(i) election, selling the shares of your Canadian holdco is not a FIRPTA disposition. IRC 897(c)(1)(A)(ii) reaches an interest in “any domestic corporation” that is or was a US real property holding corporation, and the “whether foreign or domestic” substitution at IRC 897(c)(4)(A) only decides whether a corporation is one. Vehicle choice turns on that: how a Canadian should own US property, and the US LLC problem.

Money that left as a shareholder loan is a separate inclusion on its own clock. ITA 15(2) puts the full loan into income, and ITA 15(2.6) turns that off where it’s repaid within one year after the end of the taxation year of the lender, the corporation’s fiscal year end and not the loan’s anniversary, and where the repayment isn’t part of a series of loans or other transactions and repayments. ITA 20(1)(j) gives the deduction in the year of repayment, on that same no-series condition. Because both limbs carry it, repaying before year end and re-borrowing after can cost you the exception and the deduction together, which leaves the whole loan in income with nothing against it. CRA works that pattern through as a running loan account in Folio S3-F1-C1.

What should I do next?

Two things come first, both cheap. Settle whether the corporation has a US trade or business, since it decides which US regime applies and IRC 882(a)(1) assumes the answer. Then count the years the place was available for your personal use, since on CRA’s view the benefit accrues annually.

• List every year the place was available to you, and how much you actually used it, against the company’s fiscal year ends, with what you paid in each, the fair market rent for those periods, and every interest-free loan or advance you made to the company to buy the property.

If the purchase hasn’t happened yet, start with the Canadian buying US property guide instead.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.