GST/HST on US Income: Answering a CRA Letter on Zero-Rated Sales

Why can a Canadian business charge no GST/HST on sales to US customers?

Most services sold to a customer who is not resident in Canada are zero-rated: the GST/HST rate on the sale is nil, but it is still a taxable sale that counts toward registration and belongs on returns. The general rule is section 7 of Part V of Schedule VI of the Excise Tax Act, and a zero-rated supply carries a tax rate of nil under section 165. Consulting and professional services are zero-rated under a separate section, section 23, with its own exclusions.

The supplier decides whether each sale is zero-rated and must keep enough evidence to support the decision, and the CRA can assess tax that was not collected on a sale wrongly treated as zero-rated (CRA memorandum 4.5.3, which states the CRA's position; the Act governs). That decision is what a CRA letter tests. A post-assessing review, which checks the amounts on a return and which the CRA says is not an audit, may ask the reason for a discrepancy, whether you made zero-rated supplies, and whether you made other supplies without collecting GST/HST (CRA).

A case is not simple when:

• your sales passed the small-supplier limit and you never registered, or you hold a business number but no GST/HST account;
• some customers are in Canada, or a sale is one of the kinds that is not zero-rated;
• a platform, agency or marketplace pays you and you have not read which company the contract is with;
• returns were filed with no tax and no proof on file, or were never filed;
• the letter sets a deadline or follows an assessment;
• a corporation or several years are involved.

Gather sales by customer and month, every contract, payer agreement and payout statement, any signed declaration of non-residence, the registration date and the returns filed, and the books the sales came from.

What do I send when the CRA asks about GST/HST on US income?

Answer the letter's questions for the periods it names, by the date it gives. First note the officer's name and the case number, and confirm the contact is genuine through the CRA's business enquiries line, 1-800-959-5525 (CRA). A post-assessing review asks for a brief explanation that validates the amounts on the return, not for your books and records. A letter that opens an audit is a different process.

If building the list shows a taxable sale that carried no tax, or a period with no return, deal with that as set out in the sections below, so the reply matches the corrected position. If you cannot rebuild the sales from invoices, see rebuilding books from bank statements. For an audit letter or input tax credit questions, see GST/HST reviews and audits.

Do I have to charge GST/HST if I invoice in US dollars?

Currency does not decide it. Section 7 turns on whether the customer is a non-resident person and on what you sold; it has no currency condition (Schedule VI, Part V). A US-dollar invoice to a customer resident in Canada is still a taxable sale, and a Canadian-dollar invoice to a non-resident can be zero-rated. For recording US-dollar sales and exchange rates, see US-dollar sales and marketplace payouts.

Which sales to US customers are still taxable?

A sale is not zero-rated under the general rule when it falls in one of the exclusions in the Act (Schedule VI, Part V; CRA memorandum 4.5.3).

Goods follow other rules. For goods, and for whether to charge at all, see charging GST/HST to US customers.

What proves each customer is a non-resident?

A dated, signed declaration from the customer is the documentation the CRA describes, backed by the contract and the facts. A registrant is responsible for determining whether a customer is a non-resident and for keeping satisfactory evidence (CRA memorandum 4.5.1). The memorandum says the documentation should be dated and signed by the non-resident and effective on the date of the supply, so a declaration signed later may not cover earlier sales. It says the CRA will consider other documentation. In a typical arm's-length arrangement the CRA treats a supply as made to a non-resident when the supplier contracted for it with that non-resident person, so without a declaration the contract naming the paying company matters most. Ask for a declaration now to cover later sales.

The memorandum's samples cover an individual (not resident in Canada for GST/HST purposes, will report any change), a business (signed by an authorized person with personal knowledge), and sales that also need proof the customer is not registered.

Keep for each customer:

• the signed declaration, with its date, signer and effective date;
• the contract or accepted terms, naming the contracting company;
• invoices and proof of payment;
• where the property was, for a service in respect of property;
• proof the customer was not registered under the regular rules, where the sale needs it.

Keep records for 6 years from the end of the year they relate to (CRA).

Who is my customer when a platform, agency or marketplace pays me?

The customer is the company that is liable under the agreement to pay you, not the audience that watches or buys. The Act defines the recipient of a supply as the person liable under the agreement to pay for it (section 123), and the CRA looks at the contracting parties (memorandum 4.5.1). Where the viewers, readers or buyers live usually does not decide it; the contract does, unless you sell to them directly, in which case they are the customers.

Read the agreement and each payout statement for the paying company's legal name and country:

• A paying company that is not resident in Canada: the sale can be zero-rated if no exclusion applies. A non-resident with a permanent establishment in Canada is treated as resident for the activities carried on through it (section 132).
• A paying company that is resident in Canada, such as a Canadian company named in a platform agreement, or a Canadian sponsor: usually a Canadian customer, and the sale is generally taxable at the rate for the place of supply. If the work was for that company's permanent establishment outside Canada, section 132(3) treats it as non-resident for that activity; check which establishment the contract belongs to.
• An agency that signs for a client: the contract decides who is liable to pay. If it does not say, treat that as an open question before you answer the CRA.

The CRA asks online creators to track sales to buyers in Canada and in other countries (CRA). One account can hold both kinds of payer, so list each payer on its own line.

Do I have to be registered if I charge no GST/HST?

Yes, once sales pass the small-supplier limit, even if every sale is zero-rated, unless another exception in section 240 applies. Zero-rated sales count toward the $30,000 limit, and so do sales made outside Canada (CRA; section 148). A service performed in whole or in part in Canada is generally supplied in Canada (section 142), so work done from Canada for an American customer counts. The Act treats a person who is required to register as a registrant, whether or not the person applied (section 123).

Below the limit, registration is optional: a small supplier engaged in commercial activity in Canada may register voluntarily (CRA).

A business number is not a GST/HST account. The GST/HST account is a program account added to the number: the nine digits, then RT and a four-digit reference (CRA). A number with no RT account is not a registration.

I'm registered: do I still file when I charged no tax, and what does filing late cost?

Yes. A registrant must file a return for every reporting period, including a period with no tax to remit (section 238; CRA). The CRA calls a return with nothing to report a nil return. Zero-rated sales go on the return as revenue with no tax on them, and the tax line takes all GST/HST you were required to collect as well as what you collected (CRA return instructions).

When every sale is zero-rated, the return usually shows no tax collected, so the penalty, which is based on the amount owing, may not apply. See late GST/HST filing penalty for relief and the full rules, and missed nil GST/HST returns for periods with nothing to report.

I never registered and went over the limit: what do I do now?

If you passed the limit, registration was required from the effective date even though you did not apply: register, then file a return for every period from that date. Taxable sales from that date, including sales to Canadian customers, carry tax. The effective date depends on how you passed the limit (CRA).

1. Add up worldwide sales by calendar quarter, zero-rated sales included, together with sales by associates. Financial services and sales of capital property are left out.
2. Find the effective date from the table. The Act requires the application before the 30th day after the first supply made other than as a small supplier (section 240); the CRA's examples say within 29 days of the effective date. If that window has passed, the requirement does not go away.
3. From the effective date, GST/HST applies to sales that are not zero-rated. Sales before it carry no tax.
4. File a return for each reporting period since the effective date. Nearly all registrants must file electronically (CRA). If you may want a voluntary disclosure, read that section first: its application must include these returns.

A registrant answers for the tax on taxable sales from the effective date whether or not customers were charged: the supplier collects the tax as the Crown's agent, and net tax counts amounts that became collectible (section 221; section 225). A sole proprietor owes it personally. If a corporation does not remit net tax, its directors at the time it was due can also owe it, with interest and penalties, but only after the Crown's collection steps against the corporation fail or it is bankrupt or in liquidation or dissolution, and not if the director used reasonable care to prevent the failure. The CRA must assess a director within two years after that person last ceased to be a director (section 323). Whether the price already included that tax, or customers can be billed now, is a separate question: see registered but did not charge GST/HST. For the limit and how to apply, see when to register for GST/HST.

How do I fix returns already filed, or file the ones I missed?

Correct a filed return with the CRA's adjustment route, not a new return, and file each missed period as its own return. Which applies depends on the period.

See correcting a filed GST/HST return for what the letter must contain and how a correction is treated.

When is a voluntary disclosure still open to me?

It is open only if the CRA has not started an audit or investigation of the information, and the application meets the program's other conditions (CRA eligibility):

• it is made before an audit or investigation has begun against you or a related taxpayer about the information;
• it includes all relevant information and documents for the required periods;
• the information includes an error or omission that carries interest or penalties;
• the information is at least one year, or one reporting period, past its filing due date;
• it includes payment of the estimated tax owing, or a request for a payment arrangement.

Relief depends on whether the application is prompted (IC00-1R7).

A verbal or written communication about an identified compliance issue makes an application prompted, such as a letter or notice that identifies a specific error or sets a deadline to correct one. So does the CRA having already received third-party information about your possible non-compliance. An education letter that only gives general guidance does not (CRA decision).

So a letter asking why no GST/HST was charged can turn an unprompted application into a prompted one, or, if it opens an audit, close the program for that information. Which of these your letter is depends on its wording. If no letter has come, you cannot tell from your own records whether the CRA already holds third-party information about your possible non-compliance; if it does, an application is also prompted. The application is Form RC199, with all the returns, forms and schedules needed to correct the non-compliance, which for GST/HST means the most recent four years (CRA). Returns still unfiled are part of what it must include, and relief on penalties or interest the CRA has already assessed is typically not available (CRA eligibility). So settle whether a disclosure is open before filing the late returns on their own. A date in a CRA letter should not pass while you do; whether a disclosure is still open after a letter is a question for the CRA or a representative.

A missed charge on a taxable sale to a registered customer who would have been entitled to a full input tax credit can be a wash transaction. The program gives full penalty and interest relief on those where the conditions in memorandum 16-3-1 are met (CRA memorandum 16-5-1). A zero-rated sale is not a wash transaction.

Relief covers interest and penalties, not the tax. Where every unreported sale was zero-rated, no tax is owing and no late-filing penalty is charged, so an application typically is not eligible: it needs an error or omission that carries interest or penalties. For income tax and the program in general, see reviews, audits and voluntary disclosure.

Does Quebec change any of this?

Yes, for a business located in Quebec: Revenu Québec generally administers the GST/HST for a business whose physical location is in Quebec, so registration, returns and a GST/HST letter go through Revenu Québec rather than the CRA (CRA). The disclosure program described above is the CRA's: confirm with Revenu Québec which program applies to your account.

QST is a separate Quebec tax. Whether a sale to a US customer carries QST is decided under Quebec's rules, not this page's, so do not assume the GST/HST answer carries over. For QST on sales to US clients, see Canadian freelancer with US clients.

Example

These examples are illustrative. Amounts are in Canadian dollars unless stated.

An online creator who never registered

A Toronto video creator earns C$90,000 a year: C$75,000 from payers whose agreements name US companies, and C$15,000 from Canadian sponsors. She never registered. Her sales are well over C$30,000 across four quarters, so registration is required even though most of her sales are zero-rated. Where her viewers live does not matter here; each agreement's paying company does. Assume each US agreement qualifies as zero-rated, the general place-of-supply rule applies to the sponsor services, and each sponsor's only Canadian business address is in Ontario. The qualifying US sales from the effective date carry no tax but go on the returns, with the agreements as proof. The Ontario sponsor sales carry HST at 13% from the effective date: if the sponsor prices were tax-extra, C$1,950 on C$15,000 for a full year.

A registered consultant and a Texas company

A registered consultant bills a Texas company US$60,000 a year, US$5,000 a month, for advice delivered remotely from Canada. Consulting sits outside section 7, but section 23 zero-rates it for a non-resident customer, so her returns show the sales with no tax. A CRA letter asks why. She sends a monthly sales list, the contract, the company's signed declaration of non-residence effective on the first invoice date, and the returns, with a tie-out of the sales line to her books after converting each invoice to Canadian dollars. Advice about real property in Canada would be an exclusion, so she checks each engagement.

A designer with two years of missing returns

A designer in Alberta started in January of year one. Each year she sells C$55,000 to US clients and C$20,000 to Canadian clients, spread evenly through the year, and she has filed no GST/HST returns. Assume her design services follow the general place-of-supply rule and each Canadian client's only Canadian business address is in Alberta, so GST applies and no HST. Her sales pass C$30,000 during the second quarter of year one, so small-supplier status ends at the end of July and the effective date is August 1, if she makes a sale that day. About C$8,000 of that year's Canadian sales fall after it.

• Year one: sales before the effective date carry no tax. The C$8,000 of Canadian sales after it carry GST at 5%: C$400, if the prices were tax-extra.
• Year two: C$20,000 of Canadian sales carry GST of C$1,000 on the same basis.

Her US sales are zero-rated. Those from the effective date go on the returns: about C$23,000 for year one and C$55,000 for year two. The earlier US sales stay in her books and in the limit calculation. She prepares a return for each period from the effective date, with a sales list by customer. Those returns show tax owing, so interest runs and the late-filing penalty can apply as well. No CRA letter has come, so before filing she asks whether a disclosure is still unprompted, including whether the CRA already holds payer information. An application must include those returns.

Different for you?

• A CRA letter is open, or you passed the limit without registering: which sales are zero-rated, what proof to send and by when, whether returns must be filed or fixed first, and whether a disclosure is still voluntary all depend on the letter and the records. The sales list by customer and the filed returns are what a reply rests on, and getting them in order is bookkeeping.
• The CRA has estimated an amount or sent a demand: see unfiled GST/HST returns and estimated assessments.
• You are registered but did not charge tax on sales that were taxable: see registered but did not charge GST/HST.
• You sell goods, or are unsure whether to charge at all: see charging GST/HST to US customers.
• You are unsure whether you passed the limit, or how to register: see when to register for GST/HST.
• The CRA is reviewing input tax credits or auditing the account: see GST/HST reviews and audits.
• You also file in the US for the same income: see Canadian freelancer with US clients.
• Your business is in Quebec: Revenu Québec generally handles the GST/HST, so the letter may come from it rather than the CRA. The same sales list and filed returns apply: bookkeeping.