Out-of-province sales

The question is whether out-of-province sales to the USA require the completion of any additional schedules on T2 of an Ontario business other than including the US sales on the S125 along with the other Candian sales?

The Ontario business sold equipment and services (training) to a few US customers. Those US customers found them online and wanted to purchase.

Sales were a total of around $60,000 to a couple of different states. None of the sales had tax charged (zero rated). I did inform the client that any US tax compliance must be discussed with an accountant who practices/has knowledge of US tax. (I even referred him to one)

I briefly looked at the economic nexus state thresholds and it looks like the sales were under the threshold for all states (Most are at least $100k per state).

The equipment was either shipped or delivered by the business to these US customers. There was a sale of equipment and some training to most US customers and one customer strictly received services (training) on how to use the equipment.

Do these US sales impact the T2 or do those sales just get entered into schedule 125 along with all the other Canadian sales with no further attention required?

Any sales will “impact” the T2. Anything you enter on Schedule 125 impacts the T2. So I am not sure what you are asking.

You would have to report based on “permanent establishment”. If all your sales are from a permanent establishment in Ontario, those sales, whether to USA or Alberta for example, have to be reported but no extra calculations have to be made on Schedule 5.

If there are multiple permanent establishments in different provinces, it would have to be reconciled on Schedule 5.

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Correct, any sale will impact T2. I wanted to know if additional schedules would have to be completed for US sales.

I looked at subsection 400(2) of the regulations for the definition of a permanent establishment.

Also, I looked at IT-177R2:

Based on the above items I do not believe there was a permanent establishment outside of Ontario for this business.

Finally, I read:

  • 402 (1) Where, in a taxation year, a corporation had a permanent establishment in a particular province and had no permanent establishment outside that province, the whole of its taxable income for the year shall be deemed to have been earned therein.

At this point I believe no extra calculations have to be made on Schedule 5 for these US sales and they can just be included in S125 with the other Ontario sales unless I am missing something.

You are not missing anything - they are sales like any other for his tax purposes. You will need to determine Canadian dollar values at time of sale or an average rate at year end if they were paid in US funds.

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