If you’re like many small business owners, once you have achieved success in Canada you may set your sights on the United States. And why not – with a market 10 times the size of Canada, there are potentially big opportunities for growth when offering goods and services to the U.S. But the differences in currency, taxes and other business complexities, can make some owners hesitate to make the leap.
Here are 5 financial tips that may help grow your small business across the border.
1. Open a U.S. Bank Account
If you will be accepting payments and paying bills in U.S. dollars, you will want to open a U.S. business bank account. This will help you save on exchange rates which can quickly add up if you regularly convert funds from Canadian dollars to U.S. dollars.
2. Charge Sales Tax
A big question for many Canadian companies is whether they need to charge GST/HST or PST to U.S. clients. The answer is: it depends on where the customer takes delivery of the goods or services.
If the client purchases your goods and services within Canada, you will need to charge tax at the rate set for your province or territory. If this is the case, the customer may be eligible to receive a GST/HST refund. For goods or services that are delivered to the customer in the U.S., you are not required to collect GST/HST or PST.
For more information, read the “Overview of charging and collecting sales tax” published by the Government of Canada, “General Information for GST/HST Registrants” from the Canada Revenue Agency, and be sure to consult your accountant.
3. Accept Payments
If you have a physical store and/or a web site, you are likely already set up to take credit card payments. If you will be shipping products across the border, you will need to investigate the export requirements and associated costs, and include these as part of your shipping fees. Should your U.S. business grow, you may want to consider opening a distribution centre south of the border.
If you offer services to U.S. companies, you may find more companies choosing to pay invoices online rather than sending cheques by snail mail. There are several options to choose from.
Most banks now offer easy to use e-transfers that can be done simply by providing a customer with your e-mail address and password.
Other customers may choose to use wire transfers. This is a more expensive option as banks charge fees which can vary based on the amount of funds wired. It is important to note that there are fees on both ends — your client will be charged to send the funds and you will be charged a fee to accept the money into your account. Ask your bank representative for details about the fees for wire transfers.
4. Get a U.S. Credit Card
If you plan to travel to the United States to meet with clients or attend trade shows, it can make good business sense to apply for a U.S. credit card. That way you can pay your U.S. expenses with U.S. dollars to avoid the hassles of daily currency fluctuations. Many U.S. credit cards come with points or cash back options so you don’t have to miss out on rewards you would receive with your Canadian credit cards.
5. Pay Income Tax
If your business accepts payments in U.S. dollars, you may have questions about how this will be reported on your taxes. Each year, the Canada Revenue Agency publishes an annual average exchange rate by currency as reported by the Bank of Canada. This average can be used to convert your U.S. income to Canadian dollars for reporting your company’s taxes. If you have questions, be sure to contact your accountant.
The benefits of growing your small business across the border can easily outweigh the challenges – all it takes to succeed is a bit of research and planning.
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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.