What are the tax implications for a Canadian business that earns income in the U.S.?
Allan Madan, CA
As a Canadian business that is deriving income from sales that occurred in the US you will be required by the IRS to report this income on one of the following tax returns, depending on your organizational structure:
• 1040-NR
• Form 1120-F
• Form1065
The IRS has the right to levy income tax on business income earned in the US.
To make matters worse, the CRA will also levey income tax on the business income earned in the US by you or your Canadian company. The Canada-US tax treaty does provide tax relief, such that you or your business can claim a foreign tax credit for the US income taxes paid.
Note that if you do not have a fixed place of business in the US, you can apply for an exemption from US income tax, pursuant to the Canada-US tax treaty.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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