YouTube and App Store Income in Canada: T2125 and US Tax Withheld

App store or video platform income on the T2125: gross or net?

Report your income before the US tax that was withheld, in Canadian dollars, not the bank deposit. Whether you also add back the platform's cut depends on who the seller is (next section).

Gross income is the total before expenses, you must report all your income, and a business is an activity you intend to carry on for profit, with evidence to support that intention (Guide T4002). When it is a business, the CRA treats online-sales income as self-employment income on Form T2125, and its instructions list social media influencer income in Part 3A (peer-to-peer sales; Part 3A). Whether a channel or app is a business is in influencer and content creator expenses.

A payout statement mixes four different things. Each one lands somewhere different:

A case is not simple when the seller is unclear under the platform's terms, the statements, tax summaries and deposits give different totals, earlier years were filed on the deposits, US tax was withheld for several years, more than one platform or year is involved, or a corporation owns the channel or app. Gather the year-end payout and tax summaries, every payout statement, the bank deposits, any US forms and the prior returns.

Is the platform's cut an expense, or never part of my income?

The platform's cut is either your expense or never part of your income, depending on who the seller is under the platform's terms. The CRA's platform pages do not say which applies to an app store or a video platform. For ride-share drivers the CRA says charges the platform keeps may be claimed as expenses (CRA: sharing economy), which fits the first row below.

Profit for income tax is the same either way. Gross sales are not, and gross revenue also feeds the GST/HST limit below. Deducting a cut that the statement already netted counts it twice. If the terms do not make the seller clear, settle it before you file; see the last section.

I paid US tax on my video platform income: is the withheld amount still income?

Generally yes. Tax a payer withholds from your payout is treated as tax you paid, so your income is the amount before withholding. The CRA's folio treats the recipient of foreign-source income as having paid what the payer withheld and remitted on their behalf (Folio S5-F2-C1, paragraph 1.37).

The withheld tax is not an ordinary T2125 expense. The usual route is a credit (next section). The Income Tax Act also allows some foreign tax to be deducted instead of credited (subsection 20(12)); which one fits a given year is a choice made on the return, not a way to count the tax twice.

How do I claim US tax withheld on payouts in Canada?

Claim it with Form T2209 for the federal credit; outside Quebec, Form T2036 may add a provincial or territorial credit. If your statements show no US tax, there is nothing to claim. First settle whether the tax is business-income tax (on a business you carry on in the US) or non-business-income tax; withholding on a creator who carries on no business in the US is generally the second kind. Total the eligible tax for the year, convert it at the same rate as the income, and:

1. Complete Form T2209 for the year and enter its total federal foreign tax credit (line 13 on the latest published form) on line 40500 of your return (CRA: line 40500).
2. Outside Quebec, if the federal credit does not use all the eligible non-business tax, complete Form T2036 for the provincial or territorial credit on what is left.
3. In Quebec, do not complete Form T2036; the CRA sends Quebec residents to Revenu Québec for the Quebec credit.
4. Keep the official receipts or statements showing the foreign tax paid. On a paper return, attach them with Form T2209 and a note of your calculation.

The credit is the lesser of the foreign tax paid and the Canadian tax on your net income from that country. Three traps sit inside that rule:

• Only foreign-source income counts, and the treaty can decide the source. A payout can mix US-source and Canadian-source parts. The folio treats income from a business carried on in Canada as Canadian-source (paragraph 1.48), but a treaty can deem income to arise in the other country (paragraph 1.49), and Article XXIV of the Canada–US treaty treats income the US may tax under the treaty as arising in the US (Article XXIV). Working from Canada does not by itself end the credit; the kind of payment and the treaty decide. If the treaty does not let the US tax the payment, the tax is not creditable (next bullet). The creditable part is a judgment, not the statement total.
• Tax above the treaty rate is not creditable. The credit follows the treaty rate, and the folio says to seek a refund of the excess from the foreign tax authority (paragraph 1.35). See US tax withheld on payments to Canadians for when the credit applies and for the refund route.
• The credit cannot exceed the Canadian tax on that income, and unused non-business tax is not carried to another year (folio paragraphs 1.24 and 1.77). The deduction in subsection 20(12), above, is the alternative. Foreign business-income tax has its own carryover (subsection 126(2)), which matters if you carry on business in the US.

For how foreign tax credits work in general, see foreign income on a Canadian return.

Which exchange rate converts a US-dollar payout, and what do I keep?

Convert each amount at the Bank of Canada rate for the day it arose. The Income Tax Act uses the spot rate for that day (section 261); the CRA takes that to be the Bank of Canada rate on the day, or the closest earlier day if none was quoted (Folio S5-F4-C1, paragraphs 1.3 and 1.4).

Convert the withheld tax at the same rate as the income (Folio S5-F2-C1, paragraph 1.42). Earnings for December that are paid in January generally belong to December, because Part 3A counts sales whether you have received the money or will receive it; see December sales paid in January.

Keep a dated copy of each Bank of Canada rate you used, next to the statement and the deposit. Records are generally kept for six years from the end of the last tax year they relate to (Guide T4002). Average rates, USD bank accounts, held-back funds and exchange differences are in US-dollar sales and marketplace payouts.

How do I book one payout?

Book the earnings as income, the cut by the seller reading that applies, and the withheld tax as tax paid, so the entries add up to the deposit. Convert the earnings at the rate for the day they arose, the withheld tax at the same rate as the earnings, and the deposit at the rate for the day it arrived:

Income equals the deposit plus the US tax withheld, plus the platform's cut only if you are the seller and the statement netted it off (book that cut as an expense). If the pieces do not add up, a line may be missing (a reserve, which is money the platform holds back, a fee or a refund), or the gap is the exchange difference between the earning date and the deposit date, which you book separately.

Which documents show the true gross?

A payout statement shows your earnings before the withholding; a bank deposit never does. The CRA expects records of all transactions to support income and expense claims (Guide T4002).

Add the withheld tax back to the deposits, and the cut too if you are the seller. If the total still differs from the statements or the tax summary, find the reason before you file.

Where does the total go on the T2125?

Business income goes in Part 3A. The gross sales, commissions or fees go in amount 3A, which includes GST/HST collected or collectible; amount 3B removes the GST/HST, returns, allowances and discounts. The adjusted gross sales go on line 8000, and line 8299 is gross business income (Part 3A; Guide T4002, chapter 2).

Each business gets its own T2125. Whether a channel and an app are one business or two is a question of facts. For tax on the profit, CPP and instalments, see how self-employed income is taxed.

Do I have to register for GST/HST, and does the payout include any?

A person who makes taxable supplies in Canada in the course of a commercial activity in Canada must register unless a small supplier (Excise Tax Act, subsection 240(1)). The small-supplier limit is $30,000 in a single calendar quarter or over four consecutive quarters. The CRA counts revenue before expenses from all your businesses and those of your associates, including zero-rated supplies (taxable at a zero rate) and supplies made outside Canada (CRA: when to register). Sales to buyers abroad may be zero-rated, and they count toward the limit, but passing the limit alone does not require registration if you make no taxable supplies in Canada. The gross you settle here is part of the number that is tested. The dates and the deadline to register are in when to register for GST/HST; sales to US customers are in charging GST/HST to US customers.

A payout statement may show sales tax apart from the price. The CRA has separate digital-economy rules for cross-border digital products and services, qualifying goods and platform-based short-term accommodation (CRA: how to charge and collect), so who charged the tax on a Canadian buyer's purchase depends on the sale. Ask the payer what a tax line is before you book it.

How do I stop US withholding on future payouts?

If you are not a US citizen or resident, give the payer a signed Form W-8BEN before the payment; a US citizen or resident uses Form W-9 instead. Without a W-8BEN, the payer may have to withhold at 30% (IRS: Instructions for Form W-8BEN).

• Line 9: name Canada as the country where you claim residence for treaty purposes.
• Line 10: complete it when the claim has conditions beyond line 9, such as royalties, where the treaty has different rates for different kinds, or business profits not attributable to a US permanent establishment.
• Tax identification: to claim certain treaty benefits, give a US SSN or ITIN on line 5 or a foreign tax identification number on line 6; without it the claim may not be accepted.
• Validity: a form generally lasts through the last day of the third calendar year after the year you sign it, unless a change makes it wrong.

A treaty claim helps only for income the treaty covers, and the treaty rate depends on the kind of payment (Article XII). Whether your payout is a royalty or business income, and which rate follows, is in royalties and licence fees from US customers. A form given now does not repay tax already withheld.

Example

Figures are illustrative. Foreign amounts are in US dollars (US$) and converted at an assumed C$1.35 per US$1; Canadian amounts are in Canadian dollars (C$).

A video channel run from Alberta

A creator's statement shows US$5,000 earned, US$300 US tax withheld (on part of the earnings only) and US$4,700 paid.

• Gross income: US$5,000 x 1.35 = C$6,750.
• Tax withheld: US$300 x 1.35 = C$405, the amount that goes into the Form T2209 calculation. Outside Quebec, Form T2036 looks only at eligible tax the federal credit leaves unused.
• Deposit: US$4,700 x 1.35 = C$6,345. The deposit is not the income.

The T2209 claim is at most C$405, and only to the extent the income is foreign-source. It is also capped by the Canadian tax on that income and by the treaty rate.

A developer in Ontario

A store statement shows US$20,000 of customer sales, a US$6,000 platform commission and US$14,000 paid out.

Profit is the same, but gross sales differ by C$8,100. Who the seller is under the platform's terms decides which row applies, and it should be settled before filing.

A creator with no treaty form on file

A creator earns US$1,000 a month for 12 months and gives the payer no Form W-8BEN. Assume the payer treats the whole US$1,000 as US-source and withholds 30%, so US$300 comes off each payment: US$3,600 for the year, against US$12,000 of income (C$16,200 gross, C$4,860 of tax).

If the treaty would have set the rate at zero for this income, the folio treats all of the US$3,600 as excess: no Canadian credit, and the recovery is a refund claim to the IRS. If the treaty rate was above zero, only the tax up to that rate counts. A valid W-8BEN that claims the treaty benefit can cut withholding on later payments to the treaty rate, which is zero where an exemption applies; it does not repay the US$3,600.

Different for you?

• Your statements, tax summaries and deposits show different totals, or earlier returns used the bank deposits: settle the gross for each year before you file; earlier years may need correcting. Get bookkeeping help.
• You are not sure whether you or the platform is the seller: it sets your gross sales, your expense and your GST/HST count, and should be settled before you file. Get cross-border tax help.
• US tax was withheld for years and nothing was claimed: earlier returns may need correcting, and some of the tax may be a US refund claim instead of a Canadian credit. See US tax withheld on payments to Canadians and get cross-border tax help.
• Years of payouts were never reported: see unreported income and voluntary disclosure and get bookkeeping help.
• A corporation owns the channel or app: the T2125 sections above do not apply. See claiming US tax on your corporate return and get corporate tax help.
• You are a US citizen or green-card holder living in Canada: you use Form W-9, not W-8BEN, and the payouts may also be reportable in the US. See Americans living in Canada and get cross-border tax help.
• The payer sent a 1099-K or 1042-S, or you are unsure whether the payout is a royalty or business income: see US payment platform forms for Canadian sellers and royalties and licence fees from US customers.
• You want to write off gear, props or a studio: see influencer and content creator expenses.