Tax Tips for Working With US Clients
The world gets a little bit smaller every day, which can be great!
Many of my clients who are freelancers are not limited to their geographical location and have clients all around the world, including in the United States. It makes sense - we generally speak the same language (except when we have to explain what a toque is), the business culture is similar, and there are many more opportunities given their larger population.
But working with US clients also comes with some added complications, one of which is taxes. Here are the answers to three questions to help you navigate the world of US taxes as a Canadian freelancer or company.
NOTE: This article should not be considered advice and does not apply to those who work remotely as employees for a US company. We strongly encourage you to book a call jkcpa.ca/book-a-callwith your favourite tax professionals (aka us!) to discuss your specific situation.
Do I charge sales tax (i.e. HST or GST) to American clients?
If you collect HST, this may be the top question on your mind. Generally speaking, the client pays the tax of their province or territory. When you sell goods or services outside of Canada, you do not charge Canadian sales tax, as long as the products or services stay outside of Canada.
For example, say you are a copywriter. If you provide copywriting to a US company, then you would not charge sales tax.
However, if you sell chocolates, and a non-Canadian resident buys them from you while in Canada, you would charge sales tax.
As we discussed in our guide to HST, you charge based on where the products or services are being purchased/consumed.
Do I need to pay tax on US income?
Absolutely you do! Regardless of where the income comes from, you should report ALL income to the CRA.
Note that even if you are paid in US dollars, you must report your income in Canadian dollars. You can determine the exchange rate using the Bank of Canada's exchange rate for the Canadian amount on the day that the income was received.
What is a W8-BEN form?
US companies are required to withhold tax on all payments made to their freelancers and contractors. If they were to do that to you, you would be taxed twice - once by the IRS and once by the CRA.
Obviously, you do not want that. That's where the W8-BEN form comes in (or a W8-BEN-E form for corporations).
Canadians who do work for US companies should make sure to fill out this form to avoid double taxation from the CRA and the IRS. You are basically stating that you are not a US citizen, that you are receiving income from the United States, and that based upon the treaties between our countries, your client is not required to withhold income tax on their end.
Get Advice You Can Trust
As the world becomes more interconnected, it's important that you have a team of advisers who can help you with the challenges and opportunities of working across borders.
We specialize in helping Canadian freelancers, contractors, and businesses handle their financial strategic planning, tax preparation and advice, so they can succeed all over the world! Book a call with us today to discuss how we can help you!
