Entrepreneurship & Small Business

Canadian company with US Clients (tax and other implications)

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Newbie
Nov 27, 2016
38 posts
14 upvotes

Canadian company with US Clients (tax and other implications)

I do online IT consulting for clients in the US. I live and work in Mississauga. I have been doing this for about a year now. Based on incorrect information, I have been charging them HST and remitting it to CRA. I just found out that I shouldn't and have I stopped doing it.

  1. When I report my income to CRA, how would they know that my income is from the US?
  2. Should I close my HST account.. I make about 5K from Canadian Clients and I am better off not charging them the extra 13%.
  3. Do I need a EIN or complete the W-8BEN-E? No one has asked me for one.
  4. Aside from saying SORRY, is there something that is required from me for charging my US clients HST

P.S, I am sole proprietor and in the process of incorporating.

Thanks for all the info.
21 replies
Deal Fanatic
Aug 21, 2007
6054 posts
853 upvotes
Markham
aaronth wrote: I do online IT consulting for clients in the US. I live and work in Mississauga. I have been doing this for about a year now. Based on incorrect information, I have been charging them HST and remitting it to CRA. I just found out that I shouldn't and have I stopped doing it.

  1. When I report my income to CRA, how would they know that my income is from the US?
  2. Should I close my HST account.. I make about 5K from Canadian Clients and I am better off not charging them the extra 13%.
  3. Do I need a EIN or complete the W-8BEN-E? No one has asked me for one.
  4. Aside from saying SORRY, is there something that is required from me for charging my US clients HST

P.S, I am sole proprietor and in the process of incorporating.

Thanks for all the info.
1. You can on the hst form if you file it online, indicate that there are exempt sales which is how they would know
2. i thnk you are better off keeping it; you can still claim HST which you pay (the work for US clients is zero rated for HST purposes, meaning you charge 0% hst - but you can still claim all the HST which you pay
3. I'm not sure on this - typically i only see this done at the request of the US side of a transaction; see some common examples below and if they apply to you, you'd need one:

Some of the most common reasons Canadian companies would require an EIN are as follows:

To complete Form W8-BEN or W8-ECI as requested by US vendors or customers
Reduce or eliminate US withholding taxes on certain types of income (e.g. payments for services or goods sold)
Setup a US bank account
Setup a US PayPal account
Hire US employees or US subcontractors
Report all tax remittances to the IRS (e.g. income tax, payroll, etc.)
File a US business tax return
Claim an exemption under the Canada-US treaty from US income taxes on US business profits
Export goods across the border (US customs will ask for an EIN)

4. Theoreticaly you should be refunding them the HST; I believe you could file an amendment to your HST returns filed to recover the money from CRA.
Newbie
Nov 27, 2016
38 posts
14 upvotes
Thanks for the info, appreciate it!

I guess I'll start talking to CRA to get my clients money back. I am still waiting on a refund from 2016!
Deal Addict
Jul 3, 2017
3859 posts
2814 upvotes
Been running a Canadian company that does business with clients in the U.S. and Canada for many years, and I can tell you that you do not need a U.S. EIN.

You do not charge your U.S. clients GST or HST or PST. As foreign customers, they are zero rated. You can still deduct GST/HST on Canadian expenses related to the sales if you are registered.

Your U.S. clients may at some point request a W-8BEN-E form from you to certify that you are a foreign entity so that they don't have to withhold 30% from payments made to you. You do not need an EIN to complete the W-8BEN-E form.

If the accounting dept. of one of your U.S. clients insists that you must have an EIN, they are wrong. Their requirement is fully satisfied by the W-8BEN-E form.

You do not need an EIN to open a U.S. bank account with a U.S. bank. All they require is the W-8BEN-E form.

You can get an EIN from the U.S. IRS. It's not difficult, but it can take a while. Afterwards you will probably have to file a pointless U.S. tax return that says you don't owe any tax because you have no U.S. presence and you already pay tax in Canada. But you will likely have to pay an accountant to make sure that you are filing correctly with the IRS. Not sure why you would want to spend your hard-earned money that way!
Last edited by Exp315 on Apr 14th, 2018 10:45 am, edited 1 time in total.
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Aug 2, 2010
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Here 'n There
Exp315 wrote: Been running a Canadian company that does business with clients in the U.S. and Canada for many years, and I can tell you that you do not need a U.S. EIN.

You do not charge your U.S. clients GST or HST or PST. As foreign customers, they are zero rated. You can still deduct GST/HST on Canadian expenses related to the sales if you are registered.

Your U.S. clients may at some point request a W-BEN-E form from you to certify that you are a foreign entity so that they don't have to withhold 30% from payments made to you. You do not need an EIN to complete the W-8BEN-E form.

If the accounting dept. of one of your U.S. clients insists that you must have an EIN, they are wrong. Their requirement is fully satisfied by the W-8BEN-E form.

You do not need an EIN to open a U.S. bank account with a U.S. bank. All they require is the W-8BEN-E form.

You can get an EIN from the U.S. IRS. It's not difficult, but it can take a while. Afterwards you will probably have to file a pointless U.S. tax return that says you don't owe any tax because you have no U.S. presence and you already pay tax in Canada. But you will likely have to pay an accountant to make sure that you are filing correctly with the IRS. Not sure why you would want to spend your hard-earned money that way!
+1
Member
Mar 5, 2018
419 posts
231 upvotes
I have a similar question so I post it here to not create duplication subject in the forums. Please forgive me if this disturbs you.

I have registered a personal (individual) enterprise in Quebec, I have a software program that I would like to put on my website to sell. So if a client is else where on the world other than Canada, I don't have to charge them any tax, right?
And if the client is in another province of Canada other than Quebec I only need to charge them GST, right?

Previously, I only get some K a year, so I didn't registered for GST/HST number, but this year there are more clients if I don't collect taxes, will I have penalty at the end of the year? Please give some advise how to handle that as I'm a newbie.

Thank you very much and pardon me if I post in the wrong place

Tom
Member
Jun 25, 2011
336 posts
117 upvotes
Alberta
TomShopper wrote: I have a similar question so I post it here to not create duplication subject in the forums. Please forgive me if this disturbs you.

I have registered a personal (individual) enterprise in Quebec, I have a software program that I would like to put on my website to sell. So if a client is else where on the world other than Canada, I don't have to charge them any tax, right?
And if the client is in another province of Canada other than Quebec I only need to charge them GST, right?

Previously, I only get some K a year, so I didn't registered for GST/HST number, but this year there are more clients if I don't collect taxes, will I have penalty at the end of the year? Please give some advise how to handle that as I'm a newbie.

Thank you very much and pardon me if I post in the wrong place

Tom
Here is the simple Rule regarding GST/HST

You charge GST/HST based on the place of supply. So if someone purchase your software from the Canada then you will charge them GST/HST based on their place of business/residence.

You do not charge sales tax when someone purchase it outside Canada

You charge GST or HST based on the participating province (Prince Edward Island, New Brunswick, Newfoundland and Labrador, Nova Scotia and Ontario here you charge HST rest only GST)

You will need to register for GST number when your sales from the previous four quarter or in your current quarter you exceed the limit of $30,000. You will be liable to pay GST/HST whether you collect it or not. So to be safe, if you think that you will exceed that limit, just register for GST number and charge your customers.
Member
Mar 5, 2018
419 posts
231 upvotes
Thank you very much albertaguy, I understand now. Do you know if I have already get paid without taxes, for example 10000$, will I have to remit to CRA 1300$ (13%) on that amount or how it will be charged?

Regards

Tom
Banned
Mar 30, 2015
15 posts
Gloucester, ON
It depends on province and location of residential address to consumer so whatever you charge in HST must be remitted either quarterly , semi annually or annually depending on how you set up your HST account.

Would advise getting an accountant the first year and learn the ropes per say and after that get your own software and do it on your own.
Member
Jun 25, 2011
336 posts
117 upvotes
Alberta
TomShopper wrote: Thank you very much albertaguy, I understand now. Do you know if I have already get paid without taxes, for example 10000$, will I have to remit to CRA 1300$ (13%) on that amount or how it will be charged?

Regards

Tom
You don't have to remit GST/HST till you are below $30,000 limit in previous 4 quarters. So lets says in last 4 quarters you made only $25,000 then you don't have to remit GST/HST but lets say in last 3 quarter you made $25,000 and this month you made $6,000 which pushed you above $30,000 limit, now you have to remit GST/HST on all total $31,000. You have to track each sales as some will be GST and some will be HST to determine the taxes to remit. If you supply in only one province then you can use simplified method where you calculate percentage on the sales.

To be safe against the liability of remitting GST/HST in cases where you did not bill your client GST/HST, you should voluntary register for GST/HST. The benefit is that you will be protected from the paying taxes out of your pocket and also you will be eligible to claim GST/HST (ITC) on taxable supplies you paid to run your business. The only downside is that now you have to file GST/HST return which you have to do either monthly (sales over $1 million), Quarterly or annually. It is not much effort though. But if you are going to sell only $5,000 worth of stuff in 4 quarters (12 months) and do not have significant ITC to claim then you may chose to not register for GST/HST and keep it all simple and it will be a little bit competitive edge for you as your product/service will be little cheaper than competition as you don't have to charge sales tax but your competitor may.

Last tip: since you will be selling intangible product (Software) which people might download on their computers and you won't be physically shipping the product, make sure you charge GST/HST based on their billing address. But if in future you decide to ship physical product then you determine GST/HST based on the address you ship the product.
Deal Addict
Dec 13, 2004
3495 posts
189 upvotes
Toronto
Forgive me for reviving an old thread, but I think my question is relevant.

I understand that I don't charge my U.S. clients HST since they are zero rated. However, do I still need to remit HST to the CRA on that income?

E.g. A U.S. client pays me $1,000 CAD, should be setting aside $115.04 for HST and reporting $884.96 as income?

Or do I just report that the $1,000 is exempt?

Thanks and I apologize again if I've posted in the wrong spot.
Deal Addict
Jul 5, 2006
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Toronto
Exp315 wrote: Been running a Canadian company that does business with clients in the U.S. and Canada for many years, and I can tell you that you do not need a U.S. EIN.
+1
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Nov 19, 2004
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GemInite wrote: Forgive me for reviving an old thread, but I think my question is relevant.

I understand that I don't charge my U.S. clients HST since they are zero rated. However, do I still need to remit HST to the CRA on that income?

E.g. A U.S. client pays me $1,000 CAD, should be setting aside $115.04 for HST and reporting $884.96 as income?

Or do I just report that the $1,000 is exempt?

Thanks and I apologize again if I've posted in the wrong spot.
You do not remit anything if you haven't collected anything because it is zero-rated. When you complete your GST return, you fill out your total revenue (including revenue from US or elsewhere). You fill out the amount of GST collected, which just for simplicity we assume you only have US clients, would be $0 since you haven't collected anything. Add in your ITCs and your done. There is nowhere to say the revenue is exempt (because it is not exempt, it is zero-rated).

If at some point, the CRA asks for more information, then you may have send copies of invoices or something to prove that the clients were US companies.
Member
Mar 5, 2018
419 posts
231 upvotes
If you didn't have GST/HST number and didn't collect taxes so you don't have to remit anything. But the law obligates you to register GST/HST when your sales reaches 30000$ from the last 4 quarters. The date that you got your GST/HST number you have to collect taxes with Canadian clients and remit that to government. For foreigner clients (non resident and also non registered) , it's zero-rated taxes
Newbie
Sep 12, 2010
3 posts
Toronto
Apologies for reviving an old thread but I think my question is highly relevant to this topic.

I'm a Business Consultant based in Toronto (Canadian citizen and Canadian resident) providing consulting services remotely for a US client working out of my home office in Toronto. I provide services through my Canadian Corp and all work is done remotely except ~4 trips to the US per year to visit the client in-person for informal meet and greets / lunches, etc. I do not have any offices, facilities, etc., in the US.

When I started working with this US client in early 2019, I obtained a US EIN and filled out the W-8BEN-E form and submitted this to my client upon their request. They have not been withholding the 30% withholding tax.

I know I have to file a tax return for my Corp with the CRA for the total revenue from US and Canadian sources for the year, but do I also need to file a return with the IRS for US sourced income?

Appreciate feedback / suggestions from anyone experienced in this.
Newbie
Apr 9, 2020
1 posts
I have a Canadian company. I got a client in USA for IT support services. Instead of doing the work myself I contacted a third party in USA to perform IT Support through their employees for my client. My client and third party are US based, but I do not have any office in USA.
What would be my tax obligations. Please help me figure that out.
Newbie
Jun 17, 2020
1 posts
Good Evening,

I am a canadian indépendant contractor registered in Canada. I do Hotel management consulting. I have few hotel owners offering me assignments and they want me to fill up a W9 form which is not appropriated for me since I am canadian so is my company.What is the right form to use ? Do I need a work visa for such short terms assignments (1 week, 2 weeks)?

Thanks for any help you can provide.


Alain
Jr. Member
Jun 24, 2006
150 posts
30 upvotes
Exp315 wrote: Been running a Canadian company that does business with clients in the U.S. and Canada for many years, and I can tell you that you do not need a U.S. EIN.

You do not charge your U.S. clients GST or HST or PST. As foreign customers, they are zero rated. You can still deduct GST/HST on Canadian expenses related to the sales if you are registered.

Your U.S. clients may at some point request a W-8BEN-E form from you to certify that you are a foreign entity so that they don't have to withhold 30% from payments made to you. You do not need an EIN to complete the W-8BEN-E form.

If the accounting dept. of one of your U.S. clients insists that you must have an EIN, they are wrong. Their requirement is fully satisfied by the W-8BEN-E form.

You do not need an EIN to open a U.S. bank account with a U.S. bank. All they require is the W-8BEN-E form.

You can get an EIN from the U.S. IRS. It's not difficult, but it can take a while. Afterwards you will probably have to file a pointless U.S. tax return that says you don't owe any tax because you have no U.S. presence and you already pay tax in Canada. But you will likely have to pay an accountant to make sure that you are filing correctly with the IRS. Not sure why you would want to spend your hard-earned money that way!
I have a similar setup and now the CRA is after me claiming I owe HST on US client billings, which I do not. They are now going as far as to have all the directors cite the zero exempt Excise Tax Act section and have all US residence clients sign on the services our Canadian corporation provided to match against the Tax Act. Secondly they requested corporate bank account details to match up invoices which is also irrelevant.

I'm beyond furious with CRA on this nonsense, that I am now dissolving the corporation in Canada and moving the corporation to the US to pay the taxes there instead. CRA is just proving to be the bully that makes further operating a business in Canada not worth it.

I'd be curious to know if anybody had the "pleasure" of dealing with an HST audit in nature, or next steps at the tax court level?
Deal Addict
Feb 25, 2007
1568 posts
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Ottawa
arcane47 wrote: I have a similar setup and now the CRA is after me claiming I owe HST on US client billings, which I do not. [...]
I'd be curious to know if anybody had the "pleasure" of dealing with an HST audit in nature, or next steps at the tax court level?
The nature of my business is that I have (B2B) billings to Ontario, Quebec, Alberta, and international clients.

About 1 year in 3, they follow up to ask for a breakdown of the HST I have billed/collected by invoice, aggregated according to HST rating. I guess this is the least intensive type of desk audit.

Usually, my accountant just sends them a simple table and all is well. Last time was in 2021 (for 2020) and my accountant had COVID at the time, so I sent the breakdown myself. Once, they wanted to see the actual zero-rated invoices (i.e., the international ones). We sent them and all was fine.

I'm sorry to hear you're having a hard time. Do you have an accountant advising you? My understanding is that the general rule is that goods that are exported outside of Canada and services rendered to non-residents are zero-rated under the GST/HST rules, so I'm wondering if there is any genuine debate on that in your instance, or if you've accidentally answered something in a way that set off alarm bells. I think a lot of these rules were written in an age with much less virtual/offline work.

I should mention that, on my accountant's advice, if I provide services to a multinational that has a presence in Canada, I insist on billing their Canadian office, with appropriate HST, unless my services are unambiguously and clearly provided in another country. I could see there being some debate if I were rendering nebulously geographically nonspecific services to a company with offices in Canada and in the US, and choosing to bill their US office rather than Canadian office just to avoid HST. Or if CRA could reasonably suspect me of doing so. Not trying to criticize you, just a stab in the dark why you might be being challenged?
Deal Fanatic
Jan 21, 2018
9652 posts
10924 upvotes
Vancouver
houska wrote: The nature of my business is that I have (B2B) billings to Ontario, Quebec, Alberta, and international clients.

About 1 year in 3, they follow up to ask for a breakdown of the HST I have billed/collected by invoice, aggregated according to HST rating. I guess this is the least intensive type of desk audit.
Same here, but we've never been asked to provide documentation of our low GST/HST to total revenue ratio. I wonder why the difference?

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