Canadian business - sales to US

If a Canadian business (sole proprietorship) has sales to the US which are zero-rated does this automatically mean this income from US sales is entered into the Foreign income worksheet or grouped with Canadian sales on the T2125?

If a 1042-S slip is issued to a Canadian sole proprietor I am aware the amounts on the slip would be inputted on the Foreign Income worksheet.

However, what if a Canadian business has sales to the US which are services (not goods) and no slips were issued to the Canadian business would this amount get grouped with Canadian sales on the T2125 in Part 3A - Business income or would these amounts go into the foreign income worksheet?

I see entering amounts in the Foreign income worksheet triggers the T2203 to open up.

No. It’s zero rated if the client is in the US (when I prepare returns for people in the US I don’t charge them GST) but foreign sourced is based on where you do the work so all the work I do for US clients is not foreign sourced because I did the work for them in Canada. The T2203 would apply if you were doing work in different provinces - ie multiple offices for a company. Provincial sourcing is also based on where you do the work and not where the client is as far as I am aware.

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I think you’re right.

To clarify, this Canadian business is making sales to the US from Canada.

Does this mean that these Zero-rated US sales are grouped with Canadian sales on the T2125 in Part 3A? Is that how you input your US sales into the T1?

What threw me off was the below paragraph on the 9400-N Information on Form T2203

Use this form to calculate your provincial and territorial taxes if one of the following situations applies:
• You resided in a province or territory of Canada at the end of the year (or the date you left Canada if you emigrated) and all or part of your business income (including income you received as a retired, inactive, or limited partner) for the year was earned and can be allocated to a permanent establishment outside of that province or territory, or outside Canada

I think the keyword maybe earned. These US sales were earned in Canada not the US.

I think what is confusing you is that the income line says Gross sales (include GST). Your US sales don’t have any GST to be be backed out but are included on this line. I sometimes include the GST and sometimes don’t depending on how the client does their bookkeeping but the total at 3G is always net of GST. I think that line is in there to remind non-accountants that are filing their own returns to remember to back the GST out and report that on the GST return instead.

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