***Please note: The purpose of this series is to provide general information on immigration tax issues commonly raised by our Canadian clients. Berardi Immigration Law does not practice U.S. tax law. Any information herein is for general informational purposes only and not for the purpose of providing legal or tax advice. To ensure compliance with U.S. tax regulations, you should speak with your tax or financial adviser to assist you in all financial implications for your time spent in the U.S.***
Dear Berardi Immigration Law,
I own a small business in Canada. Right now, we accept unsolicited purchase orders from U.S. customers. My employees are starting to make more frequent trips into the U.S. and we want to further develop our sales there. Am I currently subject to U.S. tax filing requirements? What if I expand my Canadian operations into the U.S.?
Yours truly, Canadian business-owner
Many Canadian business owners mistakenly believe their companies are not subject to tax on U.S. income unless it is earned through an actual office, factory or warehouse space in the U.S. For tax purposes, however, a Canadian business has U.S. tax liability simply if it “carries on trade or business” in the U.S. – even if there is no permanent business establishment in the U.S. The level of activity required for this is relatively low and depends on involvement with U.S. customers, including:
- Actively soliciting sales in the US;
- Shipping goods to the U.S. where title is exchanged;
- Employees attending U.S. trade shows to conduct marketing activities or to solicit orders;
- Employees traveling to the U.S. for sales calls or to install or service company products; and
- Employees traveling to the U.S. to provide consulting services or training.
Income that is effectively connected with U.S. trade or business generally includes business income, salaries attributable to services performed in the U.S., and sometimes even certain types of foreign-source income. You may be able to seek relief from U.S. federal tax under the provisions in the Canada-U.S. tax treaty.
If you have plans to expand your Canadian business into the U.S. this year, allow us to assist you in opening a new office. Please contact our Immigration Attorneys today.