US-dollar sales and marketplace payouts in Canadian books

Do I have to report US-dollar income in Canadian dollars?

Yes. Canadian tax results normally use Canadian dollars, even when customers pay in US dollars and the proceeds stay in a US-dollar account. Convert income, expenses and other amounts relevant to the return when they arise under section 261 of the Income Tax Act. A corporation with a valid functional currency election is the main exception.

Keep the original US-dollar amount beside its Canadian-dollar value. The original amount lets you match a sale to the marketplace statement; the Canadian-dollar amount supports the return and books kept in Canadian dollars. A marketplace's own conversion rate on a later payout does not replace the rate for the earlier sale. The CRA's currency folio ties conversion to the day the relevant amount arises.

Which exchange rate can I use?

For income tax, use the Bank of Canada's daily rate for the day the amount arises, or the closest preceding quoted day. The CRA may accept another daily source only when it is independent, verifiable, market recognized, used for the financial statements and applied consistently, among other conditions.

The CRA may accept an average over a period for some income items as a practical measure. It generally will not accept an average when rates fluctuate significantly. A yearly average therefore needs to represent the transactions reasonably; it is not an automatic choice for every sale, expense or closing balance. Keep the rate source and calculation with each batch of transactions. These are the income-tax conditions, and GST/HST has separate conversion rules.

How do I record a marketplace payout after fees, refunds and reserves?

Start with the sales for which your business is the seller, then reconcile every deduction and holdback to the deposit. Recording only the net deposit as revenue hides sales and often hides deductible costs or sales-tax liabilities. The CRA asks platform sellers to record income and expenses, and T2125 starts with gross sales.

If the platform is buying from you for resale, rather than facilitating your sale to the customer, the platform contract may change who your customer is and which amount is your sale. Check the contract and invoices before applying the gross-customer-sales entries. Do not treat a temporary payout hold as a sales return or an expense merely because the cash has not arrived.

Reconcile by settlement period: opening platform balance plus customer collections, less refunds, fees, taxes paid out and deposits, equals closing platform balance. Compare that closing balance with the platform's report and clear it as later payouts arrive. Keep US-dollar and Canadian-dollar reconciliations so exchange differences do not masquerade as missing sales.

Where does GST/HST go on the entries?

GST/HST you must collect on a sale goes to a tax payable account, not sales revenue. GST/HST charged on a marketplace fee is part of the cost unless your business can claim an input tax credit; if it can, record the recoverable tax separately. The CRA's T2125 expense instructions say to reduce an expense by the input tax credit claimed.

If you use the GST/HST quick method, you cannot claim input tax credits on operating fees; include that tax in the fee cost.

When your business must remit GST/HST on a sale, debit the full customer charge due from the marketplace; credit sales before tax and GST/HST payable separately. For a fee deducted from that balance, credit the full fee against the marketplace receivable; debit the fee before tax and, only if eligible, a separate input tax credit receivable. Otherwise include the tax in the fee cost.

Book GST/HST according to who must collect and remit it on that sale; a US-dollar invoice alone does not decide. See When to register for GST/HST for when Canadian tax applies and whether a platform collects it. Do not book tax the platform remits as your own tax payable.

For GST/HST amounts stated in a foreign currency, the CRA's GST/HST conversion memorandum normally uses the day tax is payable. It also permits specified alternative days and a monthly average for the month tax becomes payable, with consistent use and supporting records. This may produce a different Canadian-dollar amount from the income-tax conversion. Keep that difference visible in the GST/HST workpapers. For whether US sales count toward registration, see When to register for GST/HST; for input tax credit rules, see Filing GST/HST and input tax credits.

What if the exchange rate changes before the payout?

Record the sale at its Canadian-dollar value when it arises. When the US-dollar amount due is settled, compare that recorded value with the Canadian-dollar value at settlement and record the difference as a foreign-exchange gain or loss. A difference arising directly from ordinary business sales generally belongs in business income, according to the CRA's foreign-currency guidance.

Keep exchange differences out of sales and marketplace fees. If a platform converts the payout into Canadian dollars, retain its conversion statement and any separate conversion charge. If it pays US dollars into a US-dollar account, settlement of the platform receivable and later use of the US dollars are separate events. The tax character of later currency gains depends on how those funds are held and used; gains tied to business receipts differ from gains on capital transactions (CRA's archived bulletin).

How do I handle a US-dollar bank account at year-end?

For Canadian-dollar reporting, show the account's US-dollar balance and its Canadian-dollar value at the year-end rate, and reconcile it to the bank statement. For current business accounts and unsettled amounts, the CRA audit manual describes adjusting them to the year-end rate and including the resulting exchange difference in income under a consistent current-rate method.

Do not assume every paper gain on foreign currency is immediately taxable. The CRA distinguishes business currency from capital holdings and says an unrealized capital-account gain generally is not recognized for tax merely because the rate changed. Identify whether the balance is working cash from sales or an investment-like holding before completing the tax return (CRA audit manual). Also reconcile any marketplace amount still held at year-end; cash not yet deposited can still be an amount receivable.

Can my corporation keep its books and file its T2 in US dollars?

A Canadian-resident corporation can keep US-dollar books, but filing its T2 in US dollars requires a valid election. Even then, amounts payable under the Income Tax Act must be paid in Canadian dollars (section 261(11)). The US dollar must be its primary financial-reporting currency throughout the first elected year. Investment corporations, mortgage investment corporations and mutual fund corporations cannot elect. A corporation that previously elected or revoked an election cannot make a new one; an existing valid election covers later functional-currency years until revoked (CRA currency folio). Keeping a US-dollar bank account or making many US sales by itself does not qualify. A sole proprietor cannot make this election; the Income Tax Act restricts it to eligible corporations.

The corporation files Form T1296 within the first 61 days of its first elected tax year. An authorized officer signs the form, which directs the corporation to mail it to the CRA's Functional Currency Team. An election cannot simply be switched to another currency or remade after revocation. Revocation cannot occur in the first functional currency year, and its effect is delayed under section 261. Review the currency of the whole set of books, tax attributes and related entities before electing.

What records should I keep for each payout?

Keep enough detail to move from the customer transaction to the marketplace settlement, bank deposit and return. The CRA requires reliable, complete records supported by documents; for GST/HST, records must show how tax was collected and any credit calculated (CRA GST/HST records).

• Sales and refund reports with transaction dates, currencies, customer location and delivery evidence.
• Settlement reports showing fees, chargebacks, taxes handled by the platform, reserves, released reserves and deposits.
• Fee invoices and any GST/HST registration details needed to support an input tax credit.
• Bank statements for both currencies and conversion statements showing the actual deposit and charges.
• The exchange-rate source, dates, method and calculations used for income tax and GST/HST.
• A reconciliation of the platform's closing balance, receivables, refunds and tax accounts at each period-end.

A platform's annual information report may show amounts credited and fees withheld, but it does not replace transaction-level records. If you receive one, reconcile it with your books and explain timing differences. Reportable platforms send information about reportable sellers to the CRA.

How do the amounts reach T2125 or T2?

For a sole proprietor, convert the business records to Canadian dollars and report gross sales on T2125 before deducting fees. Part 3A puts gross sales, including GST/HST collected or collectible, at amount 3A, then removes returns, discounts and included sales taxes at amount 3B. If your sales account excludes GST/HST, add that tax for 3A and remove it at 3B; this does not change book revenue. Adjusted gross sales flow through 3G to line 8000, including any quick-method GST/HST adjustment at 3F. If marketplace pages generate income, complete Part 2, Internet business activities. See Filing GST/HST and input tax credits for the quick method. Report reasonable business fees and related exchange gains or losses in the appropriate income or expense lines (CRA: T2125 expenses).

A partnership keeps the same gross-to-net settlement trail. Each partner reports their share of partnership income on the applicable personal or corporate return; an active individual partner may use T2125, with a T5013 slip where required (CRA: partnerships). A corporation carries its reconciled revenue, expenses and year-end balances into financial statements, then reports their information through the T2's GIFI schedules, including the income statement and balance sheet (CRA T2 guide). Marketplace income from a website also triggers Schedule 88, Internet Business Activities, with the T2. For how self-employed profit is taxed, see Self-employed income; for a corporation's statements, see Year-end financial statements.

Example

Illustrative amounts only. A Canadian business is the seller of record. Its marketplace statement shows US$1,000 of sales, US$100 of refunds, US$80 of fees, US$20 temporarily held and US$800 paid to its US-dollar bank account. Assume no GST/HST applies to these transactions. The illustrative rate when these items arise is C$1.30 per US$1; at payout it is C$1.32 per US$1.

When US$800 reaches the US-dollar account, its value at the payout rate is C$1,056. Clearing the C$1,040 payout receivable leaves a C$16 exchange gain. The US$20 hold is still owed; it is not an extra expense. Assume the deposit remains in the operating account, the hold remains due, and the illustrative year-end rate is C$1.34 per US$1. The bank is then C$1,072, C$16 above its payout-date value; the hold is C$26.80, C$0.80 above its original value. Under the current-rate business method, record these later differences separately from the payout gain. Recording only the bank deposit as sales would hide the gross sales, refund, fee, hold and exchange gains.

Different for you?

• Several marketplaces, currencies or missing settlement reports: reconcile each balance and conversion source before filing; see Bookkeeping help.
• A corporation with US-dollar books or a first T2 year-end: review the functional currency election before its deadline and see Year-end financial statements.
• Unsure whether US sales trigger Canadian GST/HST registration or which fees support credits: see When to register for GST/HST and Filing GST/HST and input tax credits.
• Stock stored in US warehouses or questions about US state sales tax: see Canadian sellers with US inventory and US sales tax for foreign sellers.
• A Canadian corporation may need a US return: see Canadian corporation US tax return.
• A US payer withheld tax, or you need a personal foreign tax credit: see US tax withheld from payments to Canadians or Foreign income on a Canadian return.