Kept Your Canadian Clients After Moving to the US? Which Country Taxes the Fees, and Whether Regulation 105 Applies to You Now

The freelancer's move south rarely comes with a client purge, and the Canadian clients who stay create a question their invoices don't answer: who taxes this now? The answer is organized by one fact — where the services are physically performed — and the structure is cleaner than the anxiety suggests. Canadian side, work performed from the US: a non-resident's income from services performed outside Canada is not Canadian-source and is not taxable in Canada, full stop — the Canadian client's location does not make the fee Canadian-source; the location of the work does. No Canadian return, no Canadian tax, and no Regulation 105 withholding — the 15% withholding regime applies to payments to non-residents for services rendered in Canada, and a consultant working from a US home office for a Canadian client renders no services in Canada. The Canadian client may nonetheless withhold out of caution or habit; the consultant's response is a written statement of non-residency and of the work's location (and, where the client insists, a Regulation 105 waiver application to the CRA on the basis that no services are performed in Canada), with any withholding taken in error recovered by filing a Canadian return to claim the refund. Canadian side, work performed in Canada: the consultant who flies back for on-site engagements performs services in Canada for those days — the fees for the Canadian work days are Canadian-source; Regulation 105 withholding at 15% applies to the payments for them (the client's obligation, and one clients enforce once they understand it); and the treaty's business profits article then decides whether Canada actually taxes the income: a US resident's business profits are taxable in Canada only if attributable to a permanent establishment in Canada — a fixed place of business, a dependent agent, or (under the treaty's services provision) the presence of the individual in Canada for 183 days or more in any twelve-month period with more than 50% of business revenues from Canadian services in that period, or a single project running 183 days or more. Below those thresholds there is no permanent establishment, the Canadian-source fees are not taxable in Canada under the treaty, the Regulation 105 withholding is refunded by filing a Canadian return with a treaty-based claim (or avoided in advance through a treaty-based waiver application), and the income is taxed only in the US. Above them, Canada taxes the business profits attributable to the permanent establishment, the consultant files a Canadian return (T1 as a non-resident with the business income, or T2 if incorporated), and the US allows a foreign tax credit. US side: the consultant is a US resident taxed on worldwide income — every fee, Canadian client or not, wherever performed, is reported on Schedule C (or through the US entity, if incorporated there), subject to self-employment tax (with the totalization agreement governing which country's social security system applies where any Canadian coverage question arises — a US resident working in the US is in the US system), and with the foreign tax credit available for any Canadian tax actually paid on permanent-establishment income. The entity layer adds its own rules: a consultant who moved with a Canadian corporation and keeps billing through it has the CCPC and CFC questions the corporate-move guides cover; a consultant who formed a US LLC or corporation bills through a US entity that Canadian clients treat as a non-resident supplier — the same Regulation 105 analysis applies to the entity's services in Canada, and a US LLC's Canadian-source income (if any) runs through the hybrid-entity issues. GST/HST is the other half of the invoice: a non-resident supplier not carrying on business in Canada is not required to register or charge GST/HST, and services supplied to Canadian clients from outside Canada by a non-registrant carry no GST/HST; where the consultant is still registered from Canadian days, the GST account guide covers deregistration or continued registration and the zero-rating of exports. The record-keeping that makes the sort defensible: a work-location log (days and clients, US versus Canada), engagement letters stating where services are performed, invoices that identify the performance location where mixed, and the non-residency letter on file for every Canadian client's accounts payable department — the documents that answer the CRA's occasional question and the client's habitual withholding.

Key takeaways

• Work location decides Canadian tax: services performed from the US for Canadian clients are not Canadian-source — no Canadian tax, no Canadian return, and no Regulation 105 withholding, whatever the client's instinct.
• Regulation 105 attaches to Canadian work days only: on-site engagements in Canada trigger 15% withholding on the fees for those services — the client's obligation, recovered or waived where the treaty applies.
• The treaty's permanent establishment test governs Canadian tax on Canadian work: no fixed place, no dependent agent, under 183 days in twelve months (with the revenue test) and no 183-day project — no Canadian tax; above the thresholds, Canada taxes the attributable profits with a US credit.
• The US taxes everything: worldwide fees on Schedule C (or through the US entity), self-employment tax in the US system, and a foreign tax credit only for Canadian tax actually imposed on permanent-establishment income.
• GST/HST turns off for the non-resident non-registrant: services from outside Canada carry no GST/HST; the still-registered consultant deregisters or zero-rates exports per the GST account guide.
• Documents do the work: a work-location log, engagement letters and invoices stating performance location, and a non-residency letter for each client's payables team — the file that ends withholding arguments.

The client-by-client sort

For each Canadian client: where is the work performed (US, Canada, mixed)? For US-performed work: non-residency letter delivered, no withholding, no Canadian tax. For Canadian-performed work: days counted toward the treaty thresholds, Regulation 105 withholding expected on those fees (or a waiver applied for), a Canadian return with a treaty claim if below thresholds, Canadian tax on attributable profits if above. Across all clients: the US Schedule C carrying every dollar, the self-employment tax, the credit for any Canadian tax actually paid. Reviewed each January against the log — because the consultant who drifts past 183 Canadian days in a rolling twelve months has acquired a Canadian permanent establishment without changing a single invoice.

Worked example

A Montreal marketing consultant relocates to Austin and keeps four Canadian clients. Three are served entirely from Texas: her non-residency letters go to their payables departments; one client withholds 15% anyway on the first invoice — her letter and a follow-up call end it, and a Canadian return filed the next spring recovers the C$2,100 withheld in error. The fourth requires quarterly on-site weeks in Montreal — about 48 days a year: those fees are Canadian-source; the client withholds 15% under Regulation 105 on them; her day count (48) is far below the 183-day threshold and her Canadian-work revenue is a fraction of her total — no permanent establishment; she files a Canadian non-resident return with a treaty-based claim and recovers the withholding in full. US side: every fee from all four clients on her Schedule C, self-employment tax in the US system, no foreign tax credit (no Canadian tax was ultimately imposed). GST/HST: her old registration is cancelled through the closing process, and her invoices to Canadian clients carry no GST/HST as a non-resident non-registrant. Her log, engagement letters, and client letters sit in one folder; her only ongoing risk is the day count, which she tracks — because a fifth client wanting her in Toronto three days a week would put her over the threshold within the year, at which point Canada would tax the Canadian work, the credit would kick in on the US side, and the same folder would carry a Canadian business return.

Official sources

"Paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations (Regulation 105) are the authority to withhold tax on fees, commissions, and other amounts paid to non-residents of Canada, other than employees, for services rendered in Canada. The rate of withholding is 15% of the gross amount paid." The amount withheld "is considered a payment on account of the non-resident's overall tax liability to Canada." — Canada Revenue Agency, Payments to non-residents for services provided in Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/payments-non-residents.html

"The business profits of a resident of a Contracting State shall be taxable only in that State unless the resident carries on business in the other Contracting State through a permanent establishment situated therein." Under Article V(9), a services permanent establishment arises where an individual is "present in that other State for a period or periods aggregating 183 days or more in any twelve-month period, and, during that period ... more than 50 percent of the gross active business revenues of the enterprise consists of income derived from the services performed in that other State by that individual." — Canada-United States Tax Convention, Article VII, https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997-2007.html

Practitioner note

Keeping Canadian clients after moving south is simpler than the invoices suggest once the work-location rule is understood: US-performed services are not Canada's to tax, Regulation 105 reaches only Canadian work days, and the treaty's permanent establishment thresholds decide the rest. Our setup for relocating consultants is a folder — location log, engagement letters, client non-residency letters — and an annual day-count review, because the one way this goes wrong is a consultant who quietly accumulates Canadian days until Canada has a permanent establishment nobody planned.

See also: For whether to sell the Canadian business before or after you move, see whether to sell the Canadian business before or after you move; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the relocated-consultant setup — client-by-client work-location analysis, non-residency documentation and Regulation 105 waiver or refund handling, treaty permanent establishment monitoring, US worldwide reporting with credit coordination, and GST/HST deregistration. See cross-border pricing or book a call.