Taking a job across the line: what US work does to a Canadian contractor’s taxes

The 12-month clock decides the income tax answer

Under Article V(3) of the Canada-US treaty, a building site or construction or installation project becomes a permanent establishment only if it lasts more than 12 months. Come in under the clock and the US cannot tax the project's profits federally — a position we document with a Form 8833 disclosure on a protective 1120-F. Run past it and the site was a PE from day one, not month thirteen, with real US tax attributable to it.

The clock measures the site, not the contract, so phases, punch-list returns and supervisory time all count. We scope the calendar with you before mobilization, because planning the schedule beats arguing the dates afterward. And US states are not bound by the treaty: a state can tax a job its own rules reach even when the federal government cannot, so registration and state returns get checked state by state.

Sales tax lands on your materials, not your invoice

In most states a contractor is treated as the consumer of the materials it installs: you pay sales or use tax when you buy lumber, pipe and fixtures, and you generally do not charge the customer sales tax on completed real-property work. A bid built on Ontario habits — charge 13 percent HST, recover your inputs — quietly gives away margin in a state where tax is a hard cost buried in the material buyout.

Materials and tools hauled down from Ontario are not invisible either: states impose use tax on goods brought in for a job, and the border wants CUSMA origin paperwork on the way through. On the Canadian side the flip is friendly — work on real property situated in the US is outside the scope of GST/HST, so there is no HST on your US invoice while your Canadian inputs still support input tax credits.

Crews across the line: three files, not one

Sending your own employees onto a US site opens three separate files. Work authorization comes first, and it is an immigration lawyer's question — we flag it, we do not answer it. Payroll comes second: short assignments can often stay on Canadian payroll, and a certificate of coverage under the Canada-US totalization agreement keeps CPP applying instead of US Social Security, though state payroll registration can trigger faster than the federal rules. Public work comes third: US federal and federally assisted jobs carry Davis-Bacon prevailing wages and weekly certified payroll on Form WH-347 — a reporting rhythm with no Canadian equivalent, built into the job cost from bid day.

US subs and US iron: the paper mirror

You already run T5018 discipline at home; the US mirror is the W-9 and Form 1099-NEC. Collect W-9s from US subcontractors before the first cheque, because once your project amounts to a US trade or business, information filings follow — and chasing tax IDs in December is the expensive way to learn that. Equipment cuts both ways: US purchases coming home clear customs with CUSMA origin support and 5 percent GST at the border (recoverable as an input tax credit), while Canadian equipment heading south temporarily should move under temporary-importation paperwork so it comes back duty-free.

Scope the border before you price it

Most US-job losses we see were priced in, unknowingly, at bid time: sales tax on materials nobody costed, certified payroll nobody staffed, a schedule that drifted past twelve months without anyone watching the treaty clock. We review the contract, the calendar and the state footprint before you sign, then keep the cross-border filings aligned with the job as built. The job-costing and holdback side of the ledger lives with our construction bookkeeping team, so the US file and the WIP schedule tell one story. AnalytIQ is a boutique, cloud-first Brampton firm; fees are fixed and quoted after a discovery call.

Source: IRS — Canada-US Income Tax Convention, Article V.