How to invoice a U.S. company

by Kyle
(St Catharines Ontario)

My partner has a graphics design business and does work for a U.S. company (who recently acquired an Ontario business).

How should his invoices be done (regarding HST, etc)? How does getting income from the U.S. affect his income tax?

Thank you, Lake!

Your partner probably should visit a certified accountant familiar with cross border rules for a consultation on place of supply rules. It's a very complicated area.

Is the Ontario business a separate entity from the U.S. business?

If yes, who is your partner working for … the U.S. company or the Ontario business?

At the end of the page for the link I gave you on place of supply rules, there is a flow chart from Deloitte's on services in Canada. Follow it through to assist you in your determination. It won't really help you with non-resident sales treatment.

It is my understanding that sales to non-residents are zero rated. However now that the U.S. business has a Canadian presence, GST/HST registration may be required.

I guess it's going to boil down to who is s/he working for and where was the service delivered as HST is generally based on the delivery location. The flow chart helps you to determine the delivery location.

As for the tax effect … as long as the sales are properly recorded and accounted for, your partner's business (whatever structure that is) is taxed on net profit … assuming the business does not have a U.S. presence and is located in Canada.

Like I said, it would be very worthwhile to have a consultation with a certified accountant versed in cross border issues. The small amount of money spent now could save you thousands down the road and better sleeps at night knowing you are handling the transactions correctly.