Introduction

As remote work becomes more common, many US companies are hiring Canadian talent without opening a Canadian office. The first question that usually follows is:

“Do we need to register for payroll or GST/HST if our worker is in Canada?”

On Reddit, startup communities, and HR forums, US employers phrase the concern in different ways:

• “Can a US company hire someone in Canada without setting up a Canadian entity?”
• “Do we have to deduct Canadian payroll taxes?”
• “Can we classify them as an independent contractor?”
• “Do we need to collect GST/HST?”
• “What happens if CRA reviews the arrangement?”

The answer depends on whether the worker is treated as an employee or independent contractor, where the work is performed, and whether the business is considered to have a permanent establishment in Canada.

This guide explains how hiring Canadians affects tax compliance for US companies and for Canadian workers receiving US-based income.

Key Takeaways

• If the worker is an employee, Canadian payroll registration is generally required.
• If the worker is a contractor, they may need to register for GST/HST and report income independently.
• Classification must follow CRA criteria, not internal preference.
• A US company may unintentionally create a permanent establishment in Canada depending on business activities.
• Both the employer and the Canadian worker must follow compliance rules to avoid penalties.

Employee vs Contractor: The Most Important Determination

Before looking at payroll or GST/HST obligations, classification must be established.

According to the CRA, worker status depends on factors such as:

• control over work schedule
• ownership of tools
• financial risk
• opportunity for profit
  (Source: CRA, “Employee or Self-Employed”)

If CRA considers the person an employee, the US company may be required to:

• register as a Canadian employer
• withhold Canadian payroll deductions
• issue a T4 at year end

If CRA considers the person a contractor, the company does not run payroll, but the worker must handle:

• GST/HST registration if revenue exceeds $30,000
• personal income tax filing
• potential cross-border tax reporting if they are a US citizen or dual filer

If the Worker Is an Employee

Does a US Company Need to Register for Payroll in Canada?

Yes, in most cases.

According to the CRA, employers paying employees who perform work in Canada must withhold and remit:

• Canada Pension Plan (CPP)
• Employment Insurance (EI), where applicable
• income tax
  (Source: CRA, “Payroll Deductions: Who Must Withhold”)

This applies even if:

• the company has no physical location in Canada
• payments are made from a US bank
• the employee is working remotely

Permanent Establishment Consideration

The Canada-US Tax Treaty outlines conditions under which a foreign company may be considered to have a permanent establishment in Canada.

(Source: Government of Canada, Canada-US Tax Convention)

If triggered, corporate filing obligations may follow.

If the Worker Is an Independent Contractor

A contractor invoices the US company and manages their own compliance.

GST/HST Considerations

The CRA requires registration once annual taxable revenues exceed $30,000.

(Source: CRA, “When to Register for GST/HST”)

Legal and accounting, consulting, marketing, software development, and similar services are generally taxable.

Even if the client is outside Canada, the service may be taxable depending on:

• where the benefit is delivered
• the nature of the service
• treaty interpretation

Registration is often required earlier than US companies expect.

Tax Filing for Canadian Contractors

Contractors are responsible for:

• filing a Canadian income tax return
• paying CPP (self-employed portion)
• issuing invoices with correct taxes
• maintaining books and records

If the contractor is also a US citizen, additional IRS reporting applies.

Canada-Based US Citizens: Additional Filing Complexity

A US citizen living in Canada must file:

• a Canadian tax return
• a US tax return
• foreign reporting such as FBAR or FATCA, depending on assets
  (Source: IRS, “Foreign Account Reporting”)

The Canada-US Tax Treaty prevents double taxation through foreign tax credits, but compliance must be managed carefully.

Avoiding Common Compliance Risks

Common mistakes include:

• treating an employee as a contractor
• assuming no registration is required because work is remote
• failing to apply GST/HST on Canadian services
• ignoring permanent establishment triggers
• assuming IRS rules override CRA rules

Non-compliance can lead to:

• payroll reassessments
• penalties
• denied input tax credits
• treaty complications
• cross-border tax disputes

FAQ

Can a US company pay a Canadian employee without setting up payroll?

Not generally. CRA requires payroll deductions for employment income earned in Canada.

Can the company just hire the person as a contractor instead?

Only if the relationship meets CRA’s legal definition of a contractor.

Do contractors have to charge GST/HST?

Yes, if revenue exceeds $30,000, and in many cases even sooner depending on the service.

Do US companies need a Canadian corporation to hire a Canadian?

Not always, but registration may still be required depending on payroll or permanent establishment triggers.

Does the worker owe taxes in the US too?

Only if they are a US citizen, dual filer, or maintain US tax residency.

Navigate Cross-Border Tax Rules With Confidence

Hiring across the border introduces compliance considerations for both US organizations and Canadian workers. Ensuring proper classification, payroll compliance, GST/HST rules, and treaty application helps avoid costly issues later.

Rotaru CPA assists:

• US companies hiring or engaging Canadian workers
• Canadian contractors and employees receiving US-based income
• US citizens living and working in Canada
• cross-border businesses managing payroll and reporting

📍 Book a consultation to ensure your cross-border hiring or income structure is compliant and tax-efficient.