Billing US clients from a Canadian corporation

Three things change when your clients are American, and none of them is your T2, the corporation’s income tax return. Services exported to a non-resident client are generally zero-rated for GST/HST — you charge 0% and still keep the input tax credits on the Canadian costs behind the work. Invoices written in US dollars produce exchange gains and losses that are themselves income. And your client’s accounts-payable department will ask you to certify that you are foreign, on a form that exists so they don’t withhold US tax out of your payment. What does not change is where the profit is taxed: a Canadian corporation with a Canadian office and Canadian staff pays Canadian tax on what it earns, US clients or not.

Zero-rated is a rate you charge, not a line you leave off

A zero-rated supply is a taxable supply taxed at 0%. It is not exempt and not outside the system, and that distinction is the entire reason the input tax credits, the GST/HST you paid on your own purchases, survive. An exempt supplier charges nothing and claims nothing on its costs. A zero-rated supplier charges nothing and claims everything. A consultancy billing wholly into the US ends up a registrant that files every period and gets money back on most of them — which feels like an error the first time and is not one.

The rule turns on a fact about your client rather than about your invoice: the treatment generally requires the recipient to be a non-resident who is not registered for GST/HST. A US-dollar price and a wire from a New York bank prove nothing on their own; a US client registered here is a different case.

Two exceptions are worth naming and not stretching. Services relating to Canadian real property generally fall outside the export rules. So do services supplied to an individual while that person is physically in Canada — a live question for anyone who runs workshops or does discovery on site.

Two adjacent questions belong to other pages. Whether export revenue counts toward the small-supplier threshold turns on how that threshold is measured, which is a registration question. And if much of your billing is zero-rated, the quick method is the election to test hardest, for reasons that page works through.

The invoice and the payment are two different exchange rates

Your books are in Canadian dollars. A US-dollar invoice is translated at the rate in effect when the transaction happens, and that translated figure is the revenue for the year. Then the client pays sixty days later, and the rate has moved. The difference between what you booked and what you collected is an exchange gain or loss, and on ordinary trade receivables it is generally on income account: it lands in profit alongside the billing that created it.

After that the money sits, and sitting is a second position. If the payment lands in a US-dollar account and stays there, the movement on it is not realized until the currency is converted or spent — and being owed a currency is not automatically characterized the same way as holding one.

The mechanics are less contentious than the characterization. The CRA generally accepts the Bank of Canada daily exchange rate, and an average rate is permitted in some circumstances. Pick a convention, apply it every month, and the year-end has nothing to reconstruct. An election also exists to report in a functional currency rather than Canadian dollars, with conditions narrow enough that most owner-managed corporations never reach it.

What a single US$50,000 invoice actually does

Illustrative. The exchange rates below are invented and chosen because they divide cleanly — none is a quoted rate. December 31 year-end, a Canadian consultancy registered for GST/HST, one non-resident US corporate client, no US presence.

You invoice US$50,000 on March 1. At an assumed rate of 1.35 that is C$67,500 of revenue in the March books. GST/HST charged: nil, because the supply is zero-rated. The sale still goes on the return, and the Canadian costs behind it — software, subcontractors, rent, professional fees — keep their input tax credits, so the period likely produces a refund rather than a payment.

The client pays on May 15, when the rate is 1.40, so US$50,000 arrives as C$70,000. You recorded C$67,500 and collected C$70,000, so C$2,500 is an exchange gain, generally income to the corporation for the year — taxable whether or not anyone made an entry for it, and unlabelled on the bank statement.

Now leave the money in a US-dollar account and convert it in November at 1.30. The C$70,000 you recognized on receipt comes back as C$65,000 — a further C$5,000 movement, this time on currency you held rather than on a receivable you were owed. One invoice, three rates, two separate events, and only the first appears on the bill.

The form your client’s accounts-payable department asks for

Somewhere between the signed contract and the first payment, a US finance team will ask you for a form. This is a documentation step on their side, not a filing on yours.

US payers are generally required to establish the status of the parties they pay. Where they cannot, the default is to withhold US tax and remit it, which is why the request usually arrives with a deadline attached. The certification a foreign entity gives is the W-8BEN-E; an individual gives a different form in the same family. You complete it and send it to the payer — it does not go to the IRS, and providing one does not by itself create a US filing obligation.

What it can support is relief under the Canada–US tax treaty, which allocates taxing rights between the two countries. Whether relief is available depends on what the payment is for and on the status of who receives it — service fees, royalties and passive income such as interest and dividends are not treated alike. No rate or threshold appears here on purpose: which provision applies, whether a US taxpayer identification number is needed to claim it, and how your revenue is characterized are facts questions with money attached, worth answering before the first payment rather than after.

The failure mode is quiet: a deposit smaller than the invoice, no letter, no explanation, and recovering the difference is a US process rather than a Canadian one.

A US client is not a US presence

Selling to Americans from Canada is generally not, on its own, a US tax event for your corporation. The treaty is built around a different idea: business profits are generally taxable in the other country only where the business is carried on there through a permanent establishment. Clients in a country and a place of business in it are separate facts, and only the second moves the answer.

• A fixed place of business in the US — leased space, a desk you keep, a warehouse, sometimes a US-based worker’s home office.
• People. Employees or agents in the US, particularly anyone habitually concluding contracts on the corporation’s behalf.
• Time on the ground. Long, repeated engagements at a client’s US premises are a different pattern from flying in for a workshop.

Two wrinkles keep this from being self-serve. Treaty protection generally operates at the US federal level, and individual states set their own rules for when an out-of-state business becomes taxable — which is how a corporation can be protected federally and still owe a state filing. US state sales tax on services is a separate regime again, unrelated to the GST/HST answer at the top of this page.

None of that is a reason to avoid US work. It is a reason to treat the first US hire, the first leased space and the first long on-site engagement as events that trigger a conversation — the cost of finding out late is measured in back filings.

What Cadence does

We confirm the GST/HST treatment of each revenue stream at onboarding — which clients are non-resident, which supplies are genuinely exported, which are caught by an exception — and set the invoice template so a zero-rated sale carries a rate of 0% rather than no mention of tax. The foreign-exchange convention gets set at the same time — which rate translates the invoice, which translates the payment, and where the difference lands — so the exchange gain is a figure in your file instead of a plug in June. Where the GST/HST returns are ours to file, the export revenue and the refund position come off that ledger; on the annual-returns package those returns are an add-on, scoped at the estimate. The mid-year check that catches a first US contractor or a first leased desk sits in the year-round packages, where most consultants and agencies billing across the border land. US filings, state registrations and permanent-establishment questions go to a cross-border specialist — we name that early and work alongside them.