U.S. – Canada
Cross-Border Tax
Accountants

Our accountants are experts at knowing what your tax obligations are on both sides of the Canadian – US border. If you have started doing business with U.S. customers, you may be required to file a U.S. corporate tax return and pay U.S. taxes. You may also have additional information reporting requirements that carry penalties for non-compliance.

As a general rule, under the Canada – U.S. Tax Treaty, you are only subject to U.S. tax on the income from a “permanent establishment”—a fixed place of business in the U.S. or a project to which you regularly send employees to the U.S. to conduct business. See U.S. Corporate Tax Return for more details.

If you’re planning to do business in the U.S., advance planning is required to set up a proper tax-effective structure, including determining whether or when you may require a U.S. subsidiary or affiliate.

To learn if you need to file a personal tax return in the US, please visit our personal tax page here.

If you have additional questions, please do not hesitate to reach out and we will set up a consultation with you to determine your tax compliance obligations.

U.S. Limited Liability Corporations (LLCs) are simple, flexible structures that are very effective for U.S. business activities. For U.S. tax purposes, LLC earnings may flow through to the LLC’s partners or owners, rather than being taxed in the entity.  

Your U.S. business partners may suggest an LLC as your business structure. However, Canada does not recognize the flow-through provisions of the LLC so your Canadian corporation could face double taxation on U.S. activities. We can set up a more effective corporate structure for these situations and mitigate the tax if an LLC is required.

A loan or transfer of funds from a U.S. corporation to a Canadian subsidiary, or from a Canadian corporation to a U.S. subsidiary, is subject to rules limiting the amount of interest that can be deducted.  Both Canada and the IRS impose reporting requirements governing the transfer of funds, and severe penalties may be imposed for non-compliance, especially by the IRS. Dividends to a parent company located in the other country are subject to withholding taxes, Canada’s foreign affiliate tax rules, and new U.S. laws introduced at the end of 2017. It is crucial to understand the applicable laws and get early advice in order to cost-effectively transfer funds.

If you are a resident of Canada for tax purposes, you are generally required to report and pay taxes on your worldwide income, including income from a business in another country. However, Canada has tax treaties with many countries to avoid double taxation, which means you might be able to claim a foreign tax credit for taxes paid in the other country. Additionally, the tax treatment of foreign income can depend on various factors, including the type of income, the country in which the business operates, and the specific provisions of the tax treaty between Canada and that country. 

A cross-border tax arrangement refers to any situation where tax implications arise from activities or transactions that cross international borders. This can include scenarios where individuals or businesses earn income, hold assets, or engage in transactions that involve more than one country, leading to potential tax consequences in multiple jurisdictions.

Cross-border tax arrangements can be complex due to the interaction of different tax systems, treaties, and regulations across countries. They often require careful planning and consideration to ensure compliance with tax laws in each relevant jurisdiction and to optimize tax outcomes.

Examples of cross-border tax arrangements include:

1. International business operations: When a company operates in multiple countries, it may be subject to tax laws in each country where it has a presence, leading to issues such as transfer pricing, withholding taxes, and the allocation of income and expenses across jurisdictions.

2. International investments: Individuals or businesses investing in foreign assets or securities may face tax implications both in their home country and in the country where the investment is located, such as capital gains taxes, foreign tax credits, and reporting requirements.

3. Expatriation and immigration: Individuals who move between countries may be subject to tax residency rules that determine their tax obligations in each country, as well as rules for the treatment of income earned abroad and foreign assets held.

4. Cross-border transactions: Transactions involving the transfer of goods, services, or intellectual property across international borders can give rise to tax issues related to customs duties, value-added taxes (VAT), and other indirect taxes, as well as income taxes.

Yes, the Canada Revenue Agency (CRA) requires Canadian residents to report their worldwide income, including income earned from foreign sources. This means that if you are a resident of Canada for tax purposes, you are generally required to report and pay taxes on your income from all sources, both within Canada and abroad.

However, Canada has tax treaties with many countries to avoid double taxation, which means that you may be able to claim a foreign tax credit for taxes paid to another country on the same income. This helps prevent the same income from being taxed twice, once in Canada and once in a foreign country.