Contracting for a US Company From Canada: Incorporate or Not?

What are my three ways to work for a US company from Canada?

A Canadian resident can work personally as a sole proprietor (an independent contractor), supply services through a Canadian corporation, or become the US company's employee. If the client will contract only with a corporation, check whether yours would be a personal services business (PSB: one where you would be the client's employee if the corporation did not exist).

A sole proprietorship has no separate legal status, so you bear its risks personally; a corporation is a separate legal entity. CRA: Sole proprietorship, Corporations Canada: Corporate obligations. Whether incorporating pays depends on your province, expenses and cash needs; see sole proprietorship or corporation.

Can the CRA call me an employee if my contract says contractor and I get no T4?

Yes. For a Canadian resident contracting personally with a US company, the CRA examines the actual working relationship, not the contractor label, invoices or absence of a T4. CRA: Employment status.

Under the CRA's common-law factors, each fact points one way or the other:

No single row decides it; set hours for one client are one fact to weigh with the rest. CRA: Common-law factors.

The CRA uses these common-law factors when the contract is formed outside Quebec, and the Civil Code of Québec, which tests subordination, when it is formed in Quebec. A contract is generally formed where the payer, as offeror, receives the acceptance. The CRA's page does not address a payer outside Canada, so a Quebec resident cannot assume either approach. CRA: Which approach applies, CRA: Contract formed in Quebec.

You or the payer can ask for a CPP/EI ruling through a CRA account or by mailing Form CPT1, by June 29 of the year after the year the question relates to. CRA: Request methods, CRA: Request deadline.

If the CRA finds the work is employment, a payer that did not deduct CPP and EI owes both shares plus penalties and interest, and your status affects your EI entitlement. CRA: Impact of employment status. The CRA's page does not say how this changes CPP you paid as self-employed or expenses you deducted earlier; see payroll audits and worker-status rulings.

Does one US client make my corporation a personal services business?

One US client is not, by itself, the test. A corporation is a PSB when, among other conditions, you would reasonably be regarded as the client's employee if the corporation did not exist, judged on the same facts as the table above; a single client that directs your hours and methods points that way. CRA: PSB conditions, Income Tax Act, subsection 125(7).

PSB income loses the small business deduction and faces restricted deductions and an additional federal tax of 5%. CRA: PSB tax obligations. A CPP/EI ruling cannot decide that hypothetical employee test, though it can decide your actual relationship with your corporation. CRA: Ruling limitation. The full conditions (including whose shares count), exceptions, tax and ruling requests are in personal services business.

Does the US client need W-8BEN or W-8BEN-E, and will it withhold?

A foreign individual generally supplies W-8BEN and an ordinary Canadian corporation generally supplies W-8BEN-E when the US payer asks for foreign-status documentation; a US citizen, green card holder or other US person gives Form W-9 instead. IRS: W-8BEN instructions. For ordinary service fees for work performed wholly in Canada, US federal nonresident withholding generally does not apply because the income is foreign-source. IRS: Publication 515.

Timing matters: a payment whose source cannot be determined when paid, such as personal-services fees paid before the work is done, is treated as US-source, so an advance or retainer can bring withholding questions. This page assumes you are not a US person; if you are, start with Canadian freelancer with US clients.

Give the form to the requester, not the IRS. It documents status; it does not turn US work into Canadian work or show that your income is exempt. Each form generally stays valid through the last day of the third succeeding calendar year, counted from the year you sign it; give the client a new one within 30 days of a change that makes it wrong. IRS: W-8BEN instructions, IRS: W-8BEN-E instructions. If fees include licences or royalties, or you perform services in the US, the withholding analysis can change; an individual claiming a treaty exemption for services performed in the US uses Form 8233, not W-8BEN. If the client asks for a Form W-9 or sends a 1099, see Canadian freelancer with US clients for an individual or W forms for a Canadian corporation for a corporation.

Does incorporating create a US tax return for Canadian work?

Canadian incorporation does not, by itself, create a US federal income-tax return obligation just because the client is American. For a non-US individual or an ordinary Canadian corporation doing all the service work in Canada, the client's address and payment currency do not determine where the service income comes from. IRS: Service-income source rules.

US workdays, an office or other US business activity require a separate review. A Canadian corporation engaged in a US trade or business generally must file Form 1120-F even if a treaty exempts its business profits, and an individual's US business activity may require Form 1040-NR. IRS: Form 1120-F instructions, IRS: Publication 519. Individual returns are in Canadian freelancer with US clients; creating a US entity is covered by US business for a Canadian resident.

How do CPP, EI and GST/HST differ between the three choices?

A sole proprietor pays both halves of CPP on net business income and has no regular EI. An owner paid a salary by a corporation pays CPP and EI through payroll, except that EI does not apply if the owner controls more than 40% of the voting shares, or is related to the corporation and not dealing at arm's length (unless the CRA is satisfied the job is like an arm's-length one). An employee's pay runs through payroll. Employment Insurance Act, section 5.

Sources: CRA: Impact of employment status, CRA: EI exclusions, special-benefits eligibility.

GST/HST registration follows sales, not structure. For most businesses the small-supplier limit is C$30,000 of worldwide taxable revenue before expenses, zero-rated exports included, from all your businesses and those of your associates. If one calendar quarter passes it, registration is effective no later than the day of the supply that made you exceed the limit. If only the four-quarter total passes it, you stop being a small supplier at the end of the month following the quarter in which you exceed the limit and register no later than your first supply after that. CRA: Registration rules. Whether a service to a US client is zero-rated is in charging GST/HST to US customers. In Quebec, QPP replaces CPP, parental insurance is separate and QST has its own rules; check them before using this comparison.

If the US company hires me as an employee, whose payroll is it?

An employer outside Canada with no place of business in Canada has the same withholding, remitting and reporting responsibilities as a Canadian employer for employment services in Canada. CRA: Non-resident employers. CPP differs: such an employer can opt in to CPP coverage with Form CPT13 (not for Quebec employees, who fall under QPP). If it does not, a Canadian-resident employee can elect on Form CPT20 (type E) to pay CPP personally as self-employed earnings, which means both halves; for this page's tax year the election is due June 15, 2028, the payment April 30, 2028. The Canada–US social security agreement also needs review. CRA: Foreign-employer CPP coverage, CRA: Form CPT13, CRA: Form CPT20, CPP Regulations, section 22, section 29, section 30, CPP Act, section 10, section 13.

Before accepting, settle who the legal employer is, who will run payroll and issue your T4, which province the job is treated as located in and how pension coverage will be confirmed.

These duties may explain why some employers offer contractor terms; that is an inference, not a finding about any employer, and the terms must still match the working facts. For who deducts what and cross-border tax on pay, see working across the border and remote work for employers and clients abroad.

What should I settle before I incorporate?

Before the first invoice, decide who signs the contract, from what date and which accounts the corporation needs. Incorporation alone does not organize its shares, accounts or payment records.

1. Set the contracting party and start date. If the corporation will supply the services, put the contract in its legal name with a clear effective date; have an existing personal contract's transfer reviewed.
2. Organize the corporation. Issue shares, keep corporate records, use a separate bank account and keep books that separate corporate receipts from your own payments. Corporations Canada: Organization after incorporation.
3. Register the right accounts. A new corporation has its own business number; payroll and GST/HST accounts do not move over automatically from a sole proprietorship. CRA: Change of legal status.

An existing corporation can hold the contract, but the PSB test still applies to this client work. CRA: PSB conditions. See starting a second business for whether a separate corporation makes sense, and moving a business into a corporation for an existing sole proprietorship's assets, receivables and goodwill.

What extra filings and records does a corporation add?

An ordinary Canadian-resident corporation files its own T2 for each tax year, even an inactive year or one with no tax payable, generally within six months after year-end. The balance is due earlier: two months after year-end, or three months for a CCPC that qualifies for the small business deduction and the CRA's income-limit test. CRA: Balance-due day, CRA: Who files a T2, CRA: T2 filing timing, Income Tax Act, section 157.

The full list and due dates are in which returns your business files.

As a director, you can be personally liable with the corporation for payroll deductions and GST/HST it fails to remit, unless you exercised reasonable care; no action or assessment can start more than 2 years after you last ceased to be a director. Income Tax Act, s. 227.1, Excise Tax Act, s. 323, CPP Act, s. 21.1, EI Act, s. 83.

Keep contracts, invoices, receipts, bank records, work-location records and support for payments to yourself. Federal business corporations also keep share registers and resolutions and file a separate corporate annual return; check provincial registry rules. Corporations Canada: Records, Corporations Canada: Annual return.

What changes if I move to the US, take a TN job or have US citizenship?

Moving can trigger departure tax on your shares, a TN job adds a US residence test, and US citizenship adds worldwide-income and foreign-corporation reporting. Each makes the Canada-only comparison above incomplete.

• Moving to the US: Ceasing to be a Canadian resident is generally a deemed sale, at fair market value, of most property you own, including shares of your corporation, so departure tax can apply; non-resident control can also end Canadian-controlled private corporation status. See leaving Canada, moving across the border with a company and non-resident owners of a Canadian corporation. A move to the US also makes your W-8BEN wrong: tell the client within 30 days. IRS: W-8BEN instructions, Income Tax Act, subsection 128.1(4), CRA: Corporation types.
• Taking a TN job: US workdays and residence tests need a fresh filing analysis; use Canadians on a TN visa. If both countries treat you as a resident, the treaty tie-breaker starts with where you have a permanent home. IRS: Residency and filing, Canada–US treaty, Article IV.
• US citizenship or green card: Tell the client within 30 days and expect a Form W-9 request. Worldwide-income and foreign-corporation reporting can apply despite living in Canada; use American owners of Canadian corporations. IRS: W-8BEN instructions, IRS: Taxpayers abroad, IRS: Form 5471 instructions.

Example

These are illustrative Canadian-dollar figures, not a tax calculation. A Canadian resident in Ontario is offered C$150,000 of annual contractor fees. Assume ordinary services performed entirely in Canada, no US-person status and C$10,000 of otherwise allowable business expenses.

At C$150,000 a year, billing averages more than the C$30,000 limit in every calendar quarter, so GST/HST registration can fall due in the first quarter, and zero-rated export sales count toward it. If the company controls your schedule and methods and requires personal service, those facts raise employment concerns whatever the invoice says.

Different for you?

• One client controls your work: Review personal services business before relying on corporate tax treatment.
• You want an after-tax comparison: Use sole proprietorship or corporation for personal cash needs, retained earnings and filing costs.
• You remain an individual contractor: Use Canadian freelancer with US clients for returns, currency reporting and sales-tax details, including Quebec.
• You are offered employment or will work in the US: Use working across the border or Canadians on a TN visa.
• You are about to incorporate or change contracts: A PSB finding can change deductions and tax; corporate tax support can review the structure and filings. Gather the contract, control over hours and tools, ownership records, expected income, province, US travel and prior returns.