By Luc Dubé, M. Tax., Taxation Expert, in collaboration with Doron Belaich, lawyer (Barreau du Québec)
A Paraguayan residence card, an American LLC, two banking apps: for about US$3,000, ordinary entrepreneurs now copy the billionaires’ setup and report nothing to Canada. The coaches selling it leave out three details: Canada taxes its residents on their worldwide income, the money brought home already leaves a trail, and Ottawa plans to start closing the crypto blind spot on January 1, 2027.
Picture this. Ryan Kowalchuk is 34, with a laptop and clients in Toronto, Chicago and London. A self-employed developer based in Winnipeg, he bills about C$140,000 a year. Last winter, somewhere between two videos, he stumbled on an online coach promising « zero per cent tax, legally ». Three pieces were all it took: a residence in Paraguay, an American limited liability company (an LLC) and a neobank in the United States. Starting cost: about US$3,000. No trust in Jersey, no firm on Bay Street, no private jet.
The tax haven, budget version.
The billionaire’s kit, budget edition
To understand why the recipe sells, weigh each ingredient on its own; taken one at a time, none of them is illegal.
The LLC first. Owned by a single foreign member, it is, as a rule, disregarded by the American federal tax system, which treats it as a mere extension of its owner. If that owner does not reside in the United States and the income is not effectively connected with a trade or business there, Washington collects nothing. Each year, the IRS asks only for a Form 5472 attached to a pro forma Form 1120. Forget it, and it costs US$25,000 per form, then another US$25,000 for each 30-day period if the failure continues more than 90 days after the IRS notice.
Then comes Paraguay, which has long applied a territorial system, modernized by Law No. 6380 of 2019: foreign-source income is not taxed there. The tax residence certificate, for its part, requires among other things the cédula (the Paraguayan identity card), a taxpayer number (RUC) and a record of entries into and exits from the country.
That leaves the bank. An American financial technology company opens the LLC’s account remotely, with no Social Security number. An electronic money platform supplies the debit card and the currency conversions.
On paper, the result borders on the comical. Washington passes the ball to Asunción, which replies that the income is foreign-source. Nobody taxes it.
Ryan cashes in.
Keeping the structure alive costs about US$3,500 a year, according to the market price lists we compiled. The math lands, and that is precisely what makes it dangerous: the pitch preys on people who have never had a tax advisor and who believe, in good faith, that the rich man’s game is finally open to them.
Why it seems to hold
The setup looks solid for one reason above all: information, or rather the lack of it.
More than a hundred jurisdictions now automatically exchange data on financial accounts held by non-residents under the OECD’s Common Reporting Standard, the CRS. The first exchanges took place in 2017. Ottawa has taken part since 2018. Washington never signed on. The United States runs its own regime, FATCA, which vacuums up information from foreign banks about Americans, while the reciprocity promised to Canada is limited, for the most part, to depository accounts held by individuals resident in Canada. For other accounts, it covers only holders who declare themselves Canadian residents, and only if U.S.-source income is paid into the account. An LLC’s account, an American entity in its bank’s eyes, slips through the net. That asymmetry leaves the door wide open.
Knowing this, an American LLC that keeps its money in an American bank stays under the Canadian automatic radar. Nobody sends its balance to the CRA.
The two other blind spots are narrower than people think. The payment platform, if it is established outside the United States and treated as a financial institution, already collects a tax residence self-certification under the current CRS. As for stablecoins, no automatic, standardized reporting flows back to the Canadian tax authorities yet.
Here’s the rub: Ryan still lives in Winnipeg
The coach left out one detail: Ryan never left Manitoba. His condo, his spouse, his account at the local credit union, his Manitoba Health card and his dog all stayed in Winnipeg. He spent two weeks in Asunción, just long enough to sign some papers.
Let’s get one thing straight. In Canada, tax residence is decided on the facts, not by a foreign residence permit. A home, a spouse, dependants: each of them outweighs any certificate issued elsewhere. And the law says so in no uncertain terms. Subsection 2(1) of the Income Tax Act provides that « An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year. » Paragraph 3(a) of the same Act then reaches income « from a source inside or outside Canada ». Manitoba follows suit; its income tax is calculated on the same T1, on the same worldwide income, every year. And no tax treaty links Canada and Paraguay: there is no tie-breaker rule for dual residence, and only Canadian law counts.
The whole world, then.
Worse still, the American exemption is a smoke screen. Ottawa does not recognize the LLC’s transparency: under a long-standing administrative position of the CRA (Income Tax Technical News No. 38, September 22, 2008), it is treated as a corporation. Run from a kitchen in Winnipeg, it becomes resident in Canada in its own right, under the central management and control test developed by the courts. It must then file a T2 return, which also covers Manitoba’s corporate tax, and pay tax on its worldwide income. Even if it were found to be non-resident, it would gain nothing: the work is performed in Winnipeg, and subsection 2(3) of the same Act taxes a non-resident person who carried on a business in Canada. Sales taxes follow the same path. With C$140,000 of revenue, far above the C$30,000 small supplier threshold, the LLC should have registered for the GST/HST and charged 13 per cent HST to its Toronto client; only its services to the Chicago and London clients would have been zero-rated. Zero per cent exists only as long as nobody looks.
This is not planning. It is omission. And when the omission is wilful, section 239 of the federal Act turns it into the offence of tax evasion.
Let’s do the math. Assume three unreported years and, to stay conservative, an average rate of about 29 per cent, federal and Manitoba combined, drawn from the 2026 Manitoba tax table of Tax Templates Inc. The real rate would be higher: incorporated abroad, the LLC is not a « Canadian corporation » within the meaning of subsection 89(1). It therefore cannot claim the small business deduction, and its dividends carry no dividend tax credit. Interest runs at the prescribed rate on overdue amounts, about 7 per cent, compounded daily. Then come the penalties, and they are heavy. If Ryan filed his personal return while leaving this income out, subsection 163(2) adds a gross negligence penalty for false statements or omissions of at least half of the tax at stake. The LLC’s return that was never filed, the T2, triggers its own late-filing penalties. All told, the bill exceeds a year and a half of income. Add the Form 5472 penalties, which the IRS can reduce for reasonable cause, and the worst case passes two full years. And nothing holds the CRA to three years: where no return was filed, or where there is a misrepresentation attributable to neglect, carelessness or wilful default, no normal reassessment period stands in its way.
Two years of work, gone. For a US$3,000 kit.
The black hole is already leaking
No course will tell you this: hidden money is useless as long as it stays hidden.
To pay the mortgage in Winnipeg, it has to come home. Yet since January 1, 2015, Part XV.1 of the Income Tax Act has required banks and credit unions to report to the CRA every international electronic funds transfer of C$10,000 or more, and to add up smaller transfers made within 24 hours on behalf of the same person. The LLC’s monthly transfer of about C$11,000 to his Winnipeg credit union therefore leaves a trail every month, from the very first one.
The American account is silent. The money coming home is not.
That leaves crypto-assets. In the European Union, the United Kingdom and dozens of other first-wave jurisdictions, 2026 data are already being collected under the OECD’s Crypto-Asset Reporting Framework (the CARF), for exchanges starting in 2027. Canada has fallen behind. Budget 2025 pushed back by one year both this framework and the amended CRS, which adds electronic money. The CARF is part of Bill C-31, still before the House of Commons at the time of writing: Canadian collection would begin on January 1, 2027, with a first report in 2028. The United States, for its part, has announced its intention to apply the CARF by 2029.
One nuance: the amended CRS excludes electronic money whose average 90-day balance stays below US$10,000. A card emptied every month can stay outside it.
Paraguay is tightening the screws too. General Resolution 47/2026 of the DNIT, signed on March 10, 2026, requires residents whose crypto-asset activity exceeds US$5,000 a year to file a sworn return starting in March 2027, which stays in Paraguay: it is not sent automatically to the CRA. Its automatic CRS exchanges, expected by 2027 or 2028, would reach Ryan only if he opened an account there.
Building the structure today, then, means betting on an opacity that is already crumbling. A house of cards, on a windy day.
And if he really left? Destination: the United States
Suppose Ryan does everything by the book. He sells the condo and moves to Florida with his spouse. He still needs a work status: TN status excludes self-employment, which leaves the E-2 visa, with a real investment, or the green card.
Just before he leaves, section 128.1 of the Income Tax Act deems him to have disposed of most of his property at its fair market value, for federal and Manitoba purposes alike. His RRSP and TFSA escape it; the LLC does not. Since the CRA treats it as a corporation, Ryan’s interest in it is caught. With more than C$25,000 of reportable property, excluding cash and registered plans, he files Form T1161. The tax can be deferred without interest, but the CRA requires security above C$16,500 of federal tax.
The LLC pays its share too. Managed from Winnipeg, it was resident in Canada, and it emigrates with him. It is deemed to have disposed of all of its property, and section 219.1 then adds a 25 per cent corporate emigration tax on its surplus. Section 219.3 reduces that rate to the treaty rate on dividends, but only if the treaty applies to the corporation, which is doubtful: the CRA does not consider a transparent LLC to be resident in the United States.
Canada then lets go, provided the ties are cut. If he kept the condo, or if his spouse were slow to follow him, Ryan could end up resident in both countries. The Canada–United States tax convention would then break the tie based on his permanent home, then on his centre of vital interests.
Once a U.S. resident, through the green card or the substantial presence test (183 weighted days over three years, including 31 in the current year), Ryan is taxed on his worldwide income. His single-member LLC disappears from view, and the profit lands on Schedule C of his Form 1040. He pays progressive federal income tax, plus the 15.3 per cent self-employment tax on 92.35 per cent of the profit: 12.4 per cent for Social Security, on up to US$184,500 of earnings in 2026, and 2.9 per cent for Medicare. Under the Canada–United States social security agreement, he contributes there only, and no longer to the CPP. The 20 per cent deduction under section 199A softens the bill, and Florida does not tax individual income.
Form 5472 disappears. In come the FBAR, if his foreign accounts exceed US$10,000 in total, and Form 8938. His TFSA loses its shelter: the U.S. tax system taxes its returns every year, and his Canadian funds become PFICs. And if he comes back to work for a client in Toronto, that client must withhold 15 per cent of his fees (section 105 of the Income Tax Regulations), an amount withheld on account of tax, which a treaty-based waiver can avoid.
The LLC is no longer a hiding place. Just a billing and liability-protection tool.
Who profits? Not Ryan
Large fortunes pay entire teams to build structures that hold up in court: real residence, local substance, complete returns in every country. The poor man’s version is a sham; it copies the form without the substance. Same LLC, same jargon, same promise of zero, but none of the conditions that make that zero defensible. Make no mistake, the coach can get caught as well: section 163.2 of the federal Act provides a penalty for a third party who makes, or participates in the making of, a false statement, notably in the course of a planning activity, knowing it to be false or in circumstances amounting to culpable conduct.
The legal road does exist, though. An entrepreneur who truly leaves Canada, cuts his ties, settles his departure tax, really settles in a territorial country, or in a country that taxes him less, like the United States for Ryan, and reports everything, everywhere, can cut his bill, sometimes spectacularly. Here’s the catch: a territorial country generally taxes work performed on its soil, even for foreign clients. That road costs months, a move, another life. It does not fit in an eight-minute video.
Course sellers, digital nomad influencers, would-be « optimization » gurus: all of them sold the bodywork without the engine.
Bottom line: zero per cent for $3,000 never existed. There was only a missing slip.
And that slip has an arrival date.
Not December 31. The day the CRA links one piece of data to your name.
Do you hold an LLC or a foreign account you have never reported? Then act before the CRA does. Its Voluntary Disclosures Program remains open as long as no audit or investigation has been started against you. An unprompted application normally gets the penalties cancelled and 75 per cent relief on interest. Once the CRA has received third-party information about your situation, the application becomes prompted and interest relief drops to 25 per cent. The estimated tax, for its part, must be paid in full with the application, or under a payment arrangement. Relief nonetheless remains discretionary. Luc Dubé & Associés supports entrepreneurs who want to regularize their situation, or plan a real departure, by the rules.
Notice: this text is general information. It is not personalized tax, legal or accounting advice and creates no professional relationship with its reader. It does not describe a course of action and recommends no structure. The laws, rates, thresholds and timelines cited, Canadian and foreign alike, may change, notably depending on the passage of Bill C-31; they reflect the state of information as of October 20, 2026. The Paraguayan and American rules are summarized from public sources and have not been validated by an advisor in those countries. The cost estimates rest on simplified assumptions and do not replace a calculation made on an actual file. The author accepts no liability for any decision made solely on the strength of this text. Ryan Kowalchuk is a composite character; any resemblance to a real person is coincidental. Consult a professional before acting.