“I thought Form 5471 was the only thing I needed”
If you are a U.S. citizen living in Canada and you own a Canadian corporation, filing Form 5471 is not the end of your U.S. obligations. The bigger issue is often GILTI: a U.S. tax on your corporation’s profit, charged to you personally, every year.
We recently worked with a U.S. citizen professional living in Canada who had incorporated a practice. Like many incorporated professionals, they knew Form 5471 was required and assumed that was the whole story. They did not raise the corporation with us until their U.S. return was being prepared, after the year had ended.
By then, the corporation had earned roughly C$60,000 of after-tax profit. All of it had to be reported as GILTI income on their personal U.S. return, even though they had not taken a dollar out. That year, an unrelated capital loss happened to absorb most of the income. Next year, there is no such cushion.
What is GILTI, in plain English?
GILTI stands for Global Intangible Low-Taxed Income. Despite the name, it is not limited to patents or “intangible” income. It catches almost all the business profit of a foreign corporation controlled by U.S. persons.
The U.S. taxes its citizens on worldwide income, wherever they live. In Canada, a corporation lets you pay a low small business rate (around 11%) and defer personal tax until you take money out. The U.S. does not allow its citizens that deferral. Under GILTI, the corporation’s profit is included in your U.S. income each year, whether or not it is paid to you.
Three features make GILTI painful for individual owners of Canadian corporations:
- Active business income is caught. A dental, medical, consulting, or engineering practice is fully exposed.
- The Canadian small business rate is too low to escape it. The high-tax exclusion only applies if the foreign corporate rate is above about 18.9%.
- No credit for the corporation’s Canadian tax. That tax was paid by the corporation, not by you, so as an individual you cannot claim it as a foreign tax credit unless you make a special election (section 962).
Form 5471 reports the corporation. GILTI taxes you.
Form 5471 is an information return. It discloses your Canadian corporation’s ownership, income statement, balance sheet and transactions with you. On its own it does not create tax, but missing it can cost US$10,000 per form per year in penalties.
GILTI is different: it is real income on your Form 1040. The calculation runs through Form 8992 and lands on Schedule 1 as a “Section 951A(a) inclusion.”
| Form 5471 | GILTI (Form 8992) | |
| What it is | Information return about the corporation | Income inclusion on your personal return |
| Creates U.S. tax? | No | Yes |
| Main risk | US$10,000 penalty per form, per year | Tax on corporate profit you never received |
| Can it be planned? | Only by filing on time | Yes, but mostly before the corporation’s year-end |
The common mistake is treating the corporation as a pure reporting issue. In reality, owning a Canadian corporation changes how much U.S. tax you pay.
Why it was too late to fix at filing time
GILTI is calculated on the corporation’s profit for its tax year. Once that year closes, the profit is fixed, and so is the GILTI.
The most effective planning tools all have to be used before the corporation’s year-end:
- Salary or bonus to you. Salary is deductible to the corporation and reduces the profit that GILTI taxes. It has to be paid, and payroll remitted, during the year.
- Dividends in the same year. A dividend does not reduce GILTI, but Canadian tax on a dividend paid in the same year can generally help offset the U.S. tax on that year’s GILTI. Paid a year later, that relief is largely lost.
- Structuring contracts and shareholder loans. How the corporation contracts for work, and whether it lends you money, can change the U.S. result.
Our client came to us after the year had ended, when the only question left was how to report the income correctly. The lesson: talk to your cross-border tax adviser when you incorporate, and again before every year-end, not at tax time.
What changes from 2026: GILTI becomes NCTI
The One Big Beautiful Bill Act renamed GILTI “net CFC tested income” (NCTI) for tax years beginning after December 31, 2025. For an individual owner who makes no election, the result is largely the same: the corporation’s profit is taxed to you each year, with no credit for Canadian corporate tax.
| GILTI (2025 and earlier) | NCTI (2026 onward) | |
| Exempt 10% return on tangible assets (QBAI) | Yes | Repealed |
| Deduction with a section 962 election | 50% | 40% |
| Credit for foreign corporate tax with a section 962 election | 80% | 90% |
| Individual with no election | Fully taxed, no credit | Fully taxed, no credit |
The higher 90% credit makes the section 962 election more attractive from 2026 for owners who leave profit in the corporation. Source: RSM, International tax reform under the OBBBA
How to plan for GILTI with a Canadian corporation
The right answer depends on how much you need to live on, how much you leave in the corporation, and your other U.S. income. Most owners use a mix of these tools, set before each year-end.
| Strategy | How it helps | Trade-off |
| Pay yourself a salary | Reduces the corporation’s profit, so GILTI shrinks. Canadian tax on salary is creditable against U.S. tax. | Higher Canadian personal tax and CPP; less deferral in Canada. |
| Same-year dividends | Canadian tax on the dividend can generally offset U.S. tax on that year’s GILTI. | Must be paid in the same year as the GILTI; does not reduce GILTI itself. |
| Section 962 election | Taxed as if you were a U.S. corporation: deduction plus a credit for most of the Canadian corporate tax. Low current U.S. cost from 2026. | Later dividends are taxable again in the U.S. Must be modelled each year. |
| Avoid shareholder loans | Loans from your corporation can create extra U.S. income (section 956) and Canadian income (subsection 15(2)). | Take money out as salary or dividends instead. |
| Review service contracts | Contracts that name you personally can turn active income into passive Subpart F income. | May need renegotiation with the clinic or client. |
Income already taxed as GILTI can later be paid to you as a dividend without further U.S. tax, apart from currency gains or losses. Canada will still tax that dividend, which is why timing matters.
Checklist for U.S. citizens who own a Canadian corporation
- ☐ Tell your cross-border adviser before you incorporate, not after.
- ☐ File Form 5471 every year, starting with the year you incorporate (Form 926 too, for the initial share subscription).
- ☐ Report GILTI (NCTI from 2026) on Form 8992 and your Form 1040.
- ☐ Include the corporation’s bank accounts on your FBAR if you have signing authority or own more than 50%.
- ☐ Meet your adviser before the corporation’s year-end to set salary, dividends and the section 962 decision.
- ☐ Avoid borrowing from your corporation; repay any shareholder loan promptly.
- ☐ Keep records of income already taxed as GILTI so later dividends are not taxed twice in the U.S.
Frequently asked questions
Does GILTI apply to active business income like a dental or medical practice? Yes. GILTI is not limited to passive income. A Canadian professional corporation earning active income taxed at the small business rate is generally fully exposed.
Can I avoid GILTI by paying myself a dividend? No. A dividend is paid out of after-tax profit and does not reduce GILTI. Salary does, because it is a deductible expense of the corporation.
Can I claim the Canadian corporate tax as a foreign tax credit? Not as an individual. The credit belongs to the corporation. A section 962 election lets you claim most of it, with trade-offs.
Is Form 5471 enough if my corporation had a loss? In a loss year there is usually no GILTI, but Form 5471 is still required. Late or missing forms carry a US$10,000 penalty per form per year.
I missed Form 5471 in an earlier year. What should I do? Act before the IRS contacts you. Delinquent forms filed with a reasonable cause statement are usually the best route. Speak to a cross-border adviser first.
Plan before year-end, not at tax time
If you are a U.S. citizen with a Canadian corporation, or thinking of incorporating, talk to us before your corporation’s year-end. ICTax prepares Canadian and U.S. returns for cross-border clients and can model salary, dividends, and the section 962 election side by side, so you know the cost before the year closes.
Book a consultation with ICTax
This article is general information, not tax or legal advice. Client details have been changed to protect confidentiality. U.S. and Canadian tax rules change often; speak to a qualified cross-border adviser about your situation.
