Who this is for
- Canadian sole proprietors serving US customers or working in the US
- Canadian corporations with US sales, workers, offices or related companies
- Business owners arranging coordinated Canadian and US tax preparation
Not covered here
- Detailed treaty, entity selection or transfer-pricing calculations
- Personal return preparation and owner-level foreign reporting in detail
- Procedures for correcting missed returns
- State-by-state or province-by-province filing rules
Which activities make my Canadian business need US tax help?
Many Canadian businesses have no US income tax return to file. US customers alone do not decide the answer: the review must identify who earns the income, where the work happens, and whether the business has US operations or another filing trigger. A treaty can remove US tax without removing the return: a foreign corporation engaged in a US trade or business files Form 1120-F whether or not a treaty exempts the income. Does my Canadian corporation need a US return? decides that question.
For services, the IRS generally sources income where the work is performed, rather than where the customer pays from (IRS: Service income). Goods and other income need their own analysis; for royalties and licence fees, see Royalties and licence fees from US customers.
| What your business does | What needs checking |
|---|---|
| Is a sole proprietor or freelancer with US customers | Where the work is done and whether the income ties to a US business. A nonresident sole proprietor files any required US return on Form 1040-NR, the nonresident individual return, not Form 1120-F |
| Serves US customers from Canada | Whether the business is engaged in a US trade or business, or has US income on which tax was not fully withheld. If neither applies, there is often no US return, but a customer may still ask for a Form W-8 |
| Has a US office or other fixed place of business | A US trade or business, possibly a treaty permanent establishment (a taxable business presence), and US employment tax if people work there |
| Has staff, contractors or agents working in the US, or someone who habitually concludes contracts for you | US employment tax or contractor-payment rules, and the treaty tests for services and agents, which turn on days in the US, revenue share and authority to sign contracts. See Sending employees to work in the US |
| Owns a US corporation | The subsidiary's Form 1120, a US corporation's return, and possible Form 5472; the Canadian owner's foreign-affiliate reporting |
| Owns a single-member US LLC | Its classification: disregarded by default; Form 8832, signed by an owner or an authorized officer, manager or member, elects corporation status, effective up to 75 days before filing (26 CFR 301.7701-3). A disregarded LLC's activities count as its owner's (26 CFR 301.7701-2), so a US business run through it can create the owner's own US return (Form 1120-F or Form 1040-NR). A foreign-owned one may also need Form 5472 attached to a pro forma Form 1120 |
| Pays or receives fees, loans, interest or royalties between related companies | Transaction records, pricing support, withholding, and possible Forms T106 and 5472 |
| Receives payments with US tax withheld | Whether withholding is correct and whether a return is needed to claim a refund or settle remaining tax. See US tax withheld on payments to Canadians |
| Has an owner who is a US citizen or green-card holder, or who becomes a US resident by moving to the US | The owner's worldwide-income reporting (residency tests: Form 1040-NR instructions) and possible Form 5471 for the Canadian corporation, separate from the corporation's own obligations |
These are review triggers, not conclusions. The Form 1120-F instructions and treaty Articles IV, V and XXIX A set the conditions for US business activity, treaty claims (including who qualifies for benefits), withholding cases and income earned through entities the two countries treat differently.
Forms named on this page
| Form | In plain words |
|---|---|
| 1120-F | US income tax return of a foreign corporation |
| 8833 | Discloses a US return position that relies on a treaty |
| 5472 | Reports transactions between a US corporation that is 25% or more foreign-owned and its related parties; a foreign corporation doing business in the US also files it, with exceptions, such as a corporation that has no treaty permanent establishment and files Form 8833 on time |
| 5471 | Reports certain US persons' interests in a foreign corporation |
| T1134 | Reports a Canadian taxpayer's foreign affiliates, such as a US subsidiary |
| T106 | Reports transactions with non-arm's-length non-residents, such as a related US company |
State sales, income and franchise tax need their own check; see Registering a Canadian corporation in a US state and, for stock held in the US, Canadian sellers with US inventory.
Can my regular Canadian accountant prepare the US side?
Yes to preparing, with a PTIN; representing you is narrower. A Canadian accountant who meets the US requirements can prepare a US return, but Canadian credentials alone do not give general IRS representation rights.
A paid US federal return preparer generally needs a current preparer tax identification number, or PTIN. For corporate returns, the paid preparer signs the preparer section and enters the PTIN; an authorized corporate officer separately signs for the corporation. IRS: PTIN requirements; Form 1120-F instructions.
A US-licensed attorney or CPA, or an IRS enrolled agent, has unlimited rights to represent a client before the IRS. A PTIN alone lets someone prepare and sign a return, not represent you. Narrow exceptions let a corporation's own officer or full-time employee represent it, and let any individual represent a person or entity outside the United States when the representation takes place outside the United States (31 CFR 10.7(c)). Form 2848 requires an eligible representative; appointing someone does not create a credential they lack. The IRS credentials guide and When you need a cross-border accountant cover the rest.
Before agreeing to the work, ask who will sign each return, explain any Form 1120-F or 8833 position, and respond if a tax authority questions it.
What does a cross-border accountant actually deliver?
For a Canadian business, cross-border accounting should produce an agreed filing plan and the returns and supporting work that plan requires. Ask for a written scope that identifies each entity, period, jurisdiction and person responsible.
| Deliverable to agree on | What you should receive |
|---|---|
| Filing review | A list of required returns and documented reasons for any no-filing or treaty position |
| Business returns | Copies of the agreed Canadian and US returns, supporting schedules, and filing confirmations |
| Ownership and related-company reporting | Review of T1134, T106 and Form 5472 obligations, with the required reports included or assigned elsewhere |
| Withholding review | The appropriate payer documentation and reconciliation of tax withheld, paid and potentially refundable |
| Coordination between countries | A schedule identifying the taxpayer, income, tax period and relief claimed in each country |
| Deadline and notice work | A calendar of filings, extensions and payments, plus a clear agreement about who handles notices |
T106 has its own filing test; see Foreign property and affiliate reporting. For the rules on setting and supporting related-company charges, see Pricing between Canadian and US companies.
What makes waiting costly?
Waiting can cost more than interest on unpaid tax: some reporting failures carry penalties independent of the tax balance, and late returns can put deductions at risk.
| Filing problem | What is at stake |
|---|---|
| Late Form 1120-F | A foreign corporation that files more than 18 months after the due date can lose most deductions and credits against its effectively connected income, meaning income tied to a US business |
| Late Form 1040-NR (nonresident sole proprietor) | The same rule with a 16 months limit instead |
| Missing, late or substantially incomplete Form 5472 (due with the income tax return, extensions included) | A US$25,000 penalty per reporting corporation for each tax year, and only where Form 5472 is required; recordkeeping failures can also trigger it |
| Form 5472 failure continuing after an IRS notice | If the failure continues more than 90 days after the notice, an additional US$25,000 penalty applies for each related party and each 30-day period or part of one it continues |
| Missing Form 8833 where a treaty position must be disclosed | A US$10,000 penalty per failure for a C corporation, US$1,000 for other taxpayers |
| Missing or incomplete Form 5471 (US-person owner of a Canadian corporation) | A US$10,000 penalty for each foreign corporation and year; if the failure continues more than 90 days after an IRS notice, US$10,000 more for each 30-day period or fraction, up to US$50,000 |
| Late T1134 or T106 | T1134 is due 10 months after the tax year ends, and a corporation's T106 6 months after. The ordinary penalty is C$25 per day for up to 100 days, with a C$100 minimum and C$2,500 maximum; more serious failures can attract larger penalties |
| Unpaid US payroll tax, if staff work in the US | The company owes it, and a person responsible for paying it over who willfully fails to can also be personally liable for the full unpaid withheld income tax and employee Social Security and Medicare tax (26 U.S.C. 6672). The IRS generally has 3 years from the next April 15 or the filing date, if later, and no clock runs until a return is filed (IRM 5.7.3). See Behind on payroll taxes |
Sources: 26 CFR 1.882-4, 26 CFR 1.874-1, Form 5472 penalties, Form 8833, Form 5471 penalties, CRA foreign-reporting penalties and the T106 filing period.
The 18 months limit for a foreign corporation runs from the statutory due date, the 15th day of the fourth month after year-end with a US office or place of business and the 15th day of the sixth month after year-end without one, and does not extend the regular filing deadline. For either return, if the preceding required return was not filed, a qualifying IRS notice can cut the window short. Waivers and protective returns depend on the facts; see Catching up on a Canadian corporation's US returns. Missed affiliate reports have their own T1134 catch-up guide.
How much does a cross-border accountant charge for a Canadian business?
A useful quote identifies the work included rather than pricing the label cross-border accountant. No fee is quoted here because it depends on the agreed scope. A Canadian corporation with US sales and a US subsidiary needs a quote covering each entity's obligations and the coordination between them.
| What changes the price | Why |
|---|---|
| Entities and returns | Each company, owner and country adds returns and reports |
| Years covered | Missing years are prepared one at a time |
| Books and currencies | Unreconciled books, US-dollar accounts and intercompany balances are fixed before any return |
| Review, setup and notices | Filing and treaty positions are decided first; setup, corrections, IRS or CRA letters and representation add work unless the scope includes them |
Ask whether payroll, state sales tax, provincial filings, extensions and payment instructions are included or assigned to someone else. Confirm what happens to the quote if the review identifies another required return. For a defined engagement, see Cross-border tax services.
Which situations can I handle myself?
A Canadian business with work performed entirely in Canada and no US entity, operations or other filing trigger may only need its ordinary Canadian reporting and appropriate customer documentation. The owner still needs to establish those facts and check applicable state obligations.
You can gather records, keep reconciled books and maintain a calendar yourself. A filing review becomes more useful when the answer depends on a treaty claim, a US entity's classification, related-company payments, missing years or disputed withholding.
Guides for tasks owners often take on themselves: US-dollar sales and marketplace payouts, Charging GST/HST to US customers and Filing your corporate return.
What should I prepare before the first call?
Bring records that establish the business's legal structure, US activities and filing history. Include notices and missing returns even if the books are incomplete.
- Ownership: a chart of entities and owners, residence and US citizenship status, incorporation or LLC documents, and classification elections.
- Past filings: Canadian T2s or self-employment returns, US returns and schedules, T1134 and T106 reports, assessments, and filing confirmations.
- Identifiers: the EIN assignment letter, Canadian business number and program accounts, and state registrations.
- Books: trial balances, financial statements, bank reconciliations, currency records, and balances between related companies.
- US activities by state: staff and contractor locations, office and warehouse arrangements, inventory, travel dates, where services were performed, and who negotiated or signed contracts.
- Payments: W-8 forms, Forms 1042-S, withholding records, tax payments, intercompany agreements, invoices, loans, contributions and distributions.
- Deadlines: tax year-ends, extension confirmations and all IRS, CRA or state correspondence.
Tell the preparer what is missing. Ask which uncertainty must be resolved before a filing position or quote can be finalized.
How do I authorize the accountant and coordinate both countries' returns?
IRS and CRA representation require separate authorizations. The engagement should also identify who reconciles the countries' tax treatment before either return is finalized.
| Authority | Authorization to arrange |
|---|---|
| IRS | Form 2848 for an eligible individual representative, identifying the taxpayer, matters, forms and periods; a corporate officer with authority to bind the company signs |
| CRA | Authorization for the relevant taxpayer and business program accounts, with the access level needed for the agreed work |
Form 2848 permits representation; Form 8821 permits information access without that representation authority. The Form 2848 instructions require specific matters and periods rather than a blanket reference to all taxes or years. A form names one taxpayer, so a Canadian parent and a US subsidiary sign separate forms.
For CRA business access, add the representative through My Business Account or confirm a submitted request where required. Select the necessary scope and access level; personal-account authorization should also be arranged when the work includes the owner's return. A corporation in Quebec or Alberta also files a separate provincial return (CRA: T2 return), so check that province's own authorization process too (Alberta). CRA: Authorization overview, authorization steps, and access levels.
Prepare the countries' tax calculations together, and agree in writing who finalizes first and which figures pass between preparers, such as the US income and tax paid behind a Canadian foreign tax credit. A US subsidiary's tax is not automatically the Canadian parent's credit, and income from a foreign affiliate can require relief under different rules. CRA: Foreign tax credit folio, paragraphs 1.28 and 1.32–1.45. The credit itself is covered in Claiming US tax on your corporate return.
How do my bookkeeper and accountants split the work?
Keep one agreed set of books for each entity and assign every tax deliverable to a named role. The cross-border work can sit alongside your existing Canadian accountant if someone owns the coordination.
| Role | Work to assign |
|---|---|
| Bookkeeper | Reconciled transactions, currencies, payroll records, and matching balances between companies |
| Canadian accountant | Canadian returns and year-end work, including foreign reporting if included in the engagement |
| Cross-border accountant | US filing review and returns, treaty and entity issues, and review of how the countries' tax results interact |
| Business owner | Complete activity and ownership records, approval of returns, signatures, payments and confirmation of responsibility for notices |
Decide who sends final adjustments back to the books and who checks that both preparers used the same facts. The two-ledger setup is in Books for a Canadian company and its US company. For changing providers, see Switching accountants.
Example
Illustrative only; all amounts are US dollars, and no tax or fee is calculated.
A Canadian consulting corporation bills US customers US$200,000 while its employees perform all work in Canada. It has no US entity, office, workers or travel. On these assumed facts, customer location alone does not create a US income tax filing requirement; payment documentation and state rules still need checking.
The corporation then forms a US corporation, contributes US$50,000 to it, and the new company hires a US employee. The Canadian and US companies begin invoicing each other for services. The review now covers the subsidiary's return, related-party reporting, employment taxes, Canadian affiliate reporting and the treatment of payments between companies. The Canadian parent's US filing position still needs its own assessment.
The quote should identify those deliverables and assign responsibility for each. Tax the subsidiary pays is the subsidiary's. Whether any of it reaches the parent's Canadian foreign tax credit depends on who paid it, which income it relates to and which relief rules apply.
Different for you?
- You are a sole proprietor or freelancer, not a corporation: the corporate forms may not apply; see Canadian freelancers with US clients.
- You have not chosen a US structure: compare the filing consequences in Canadian business expansion into the US.
- Your Canadian corporation has US activity but no subsidiary: see Canadian corporation US filing requirements.
- You missed corporate US returns: use Missed US returns for a Canadian corporation.
- You missed T1134 for a US company: use Missed foreign-affiliate reporting.
- You own a US LLC: see Canadian owner of a US LLC: filings.
- An owner is a US citizen or green-card holder: see American owners of Canadian corporations.
- Your question concerns your personal returns or US citizenship: see Personal cross-border accountant decisions.
- You hold inventory in US warehouses: see Canadian sellers with US inventory.
- You need someone to review the position and coordinate both countries: use Cross-border tax services and prepare the ownership chart, activity records, returns and notices listed above.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Form 8832 retroactive effective-date limit An entity classification election generally cannot take effect earlier than this before filing | 75 days | IRS: Form 8832 and instructions Checked |
| Foreign ownership that makes a US corporation a Form 5472 reporting corporation At least this share of vote or value held by one foreign person, directly or indirectly, at any time in the tax year. A single-member LLC wholly owned by one foreign person is treated as such a corporation. | 25% | IRS: Instructions for Form 5472 Checked |
| Usual Form 1120-F filing window to preserve deductions and credits Measured from the return due date; exceptions and earlier IRS notice rules can apply | 18 months | IRS: Foreign corporation Form 1120-F filing responsibilities Checked |
| Usual Form 1040-NR filing window to preserve deductions and credits Measured from the return due date, for a nonresident alien individual; an earlier IRS notice can shorten it when the preceding year's return was not filed, and a good-faith waiver can apply | 16 months | eCFR: 26 CFR 1.874-1(b) Checked |
| Form 5472 penalty for failure to file or keep records For tax years beginning after December 31, 2017. Per reporting corporation, per tax year. A substantially incomplete Form 5472 counts as a failure to file. IRC 6038A(d)(1); Treas. Reg. 1.6038A-4(a). | US$25,000 | IRS: Instructions for Form 5472 Checked |
| Form 5472 continuation penalty wait after IRS notice Additional penalty starts when failure continues beyond this period after IRS notice | 90 days | IRS: Instructions for Form 5472 Checked |
| Form 5472 added penalty when a failure continues after IRS notice For tax years beginning after December 31, 2017. For each 30-day period (or part) the failure continues after 90 days from the IRS notice, per related party. No statutory cap. IRC 6038A(d)(2); Treas. Reg. 1.6038A-4(d). | US$25,000 | US Code: 26 USC 6038A Checked |
| Form 5472 repeated continuation penalty period Each period or part of a period after the notice wait | 30-day period | IRS: Instructions for Form 5472 Checked |
| Penalty for not disclosing a treaty-based return position (C corporation) Per failure, under section 6712, for a C corporation. | US$10,000 | IRS: Form 8833 (Rev. December 2022) Checked |
| Penalty for not disclosing a treaty-based return position Per failure, under section 6712; applies to taxpayers other than C corporations. | US$1,000 | IRS: Form 8833 (Rev. December 2022) Checked |
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | US$10,000 | IRS: Instructions for Form 5471 Checked |
| Form 5471 continuation penalty notice period Penalty increases when the failure continues more than this period after IRS notice | 90 days | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty For each period or fraction after the notice waiting period, per subsidiary annual accounting period | US$10,000 | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty interval Measured after the notice waiting period | 30-day period or fraction | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty increase cap Maximum additional section 6038(b)(2) penalty for the annual accounting period; initial penalty is separate | US$50,000 | US Code: Section 6038(b)(2) Checked |
| Form T1134 filing period After the reporting taxpayer's tax year or partnership fiscal period for tax years beginning after 2020 | 10 months | CRA: Information returns relating to foreign affiliates Checked |
| Form T106 filing period for a corporation After the end of the reporting corporation's tax year | 6 months | CRA: T2 guide, Chapter 2 (Form T106) Checked |
| Late-filing penalty for a foreign reporting return, per day For each day the failure continues, up to 100 days | C$25 | Income Tax Act, s. 162(7) Checked |
| Day limit on the ordinary late-filing penalty for T106 and T1134 The daily penalty under subsection 162(7) stops accruing after this many days; more serious failures carry separate penalties | 100 days | CRA: Table of penalties for foreign reporting Checked |
| Late-filing penalty for a foreign reporting return, minimum The penalty is the greater of this and the daily amount | C$100 | Income Tax Act, s. 162(7) Checked |
| Late-filing penalty for a foreign reporting return, maximum The daily amount for the 100-day cap | C$2,500 | CRA: Foreign reporting penalties Checked |
| Trust Fund Recovery Penalty amount IRC 6672 penalty covers the trust-fund portion, not employer Social Security and Medicare contributions or FUTA | The full unpaid withheld income tax and employee Social Security and Medicare tax | IRS: Employment taxes and the Trust Fund Recovery Penalty Checked |
| General trust fund recovery penalty assessment period From the succeeding April 15 for timely employment tax returns, or actual later filing; exceptions apply | 3 years | IRS: Trust fund recovery penalty assessment period Checked |
| Form 1120-F filing date with a US office General filing date; special rule for a June 30 fiscal year-end | The 15th day of the fourth month after year-end | IRS: Instructions for Form 1120-F Checked |
| Form 1120-F filing date without a US office General filing date for a foreign corporation without a US office or place of business | The 15th day of the sixth month after year-end | IRS: Instructions for Form 1120-F Checked |
Primary sources
- IRS: Instructions for Form 1120-F
- IRS: Source of income from personal services
- Department of Finance Canada: Canada–US tax convention
- IRS: Instructions for Form 1120
- IRS: Instructions for Form 1040-NR
- IRS: Instructions for Form 5472
- CRA: Information returns relating to foreign affiliates (T1134)
- CRA: T2 guide, Chapter 2 (Form T106)
- IRS: Form 8833
- IRS: Employment taxes
- IRS: US citizens and resident aliens abroad
- IRS: About Form 5471
- IRS: Instructions for Form 5471
- eCFR: 26 CFR 301.7701-2
- IRS: PTIN requirements for tax return preparers
- IRS: Understanding preparer credentials and qualifications
- eCFR: 31 CFR 10.7
- eCFR: 26 CFR 1.882-4
- eCFR: 26 CFR 1.874-1
- CRA: Table of penalties for foreign reporting
- IRS: About Form 2848
- IRS: Instructions for Form 2848
- CRA: Authorize a representative, overview
- CRA: How to give authorization
- CRA: Representative access levels
- CRA: Foreign tax credit folio S5-F2-C1
- eCFR: 26 CFR 301.7701-3
- 26 U.S.C. 6672
- IRS: IRM 5.7.3, Trust Fund Recovery Penalty
- CRA: T2 Corporation Income Tax Return
- Alberta: Corporate income tax
About this guide
Edited and reviewed by Di Lu, CPA on . It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.