By and large, people work for a single company and get a paycheque every couple of weeks in the local currency. If you’re a Canadian citizen doing the usual 9-to-5 thing in a Canadian office, there’s a good chance that you get paid in Canadian dollars. This makes income tax season a little easier, because you don’t have to worry about any sort of currency exchange. By contrast, if you’re a freelance writer or web designer, for example, there’s a good chance that you’ll have at least a couple of customers who will pay you in funds other than the Canadian dollar. American clients are very common.
The same can be said about anyone with a monetized blog. When you sign up for networks like Adsense, ReviewMe, and Kontera, they typically send their payments out in American dollars, either via cheque or to your Paypal account. What are you supposed to do with this income? Obviously, it needs to reported, but you can’t simply plunk these numbers into your income tax forms on a 1-to-1 basis. The Canadian dollar and the American dollar are close to par, but what if you receive Euros, British Pounds, or Hong Kong Dollars? What then?
Thankfully, the Bank of Canada releases information every year on the average exchange rate over the course of the year and it’s usually pretty safe to stick with this average rate, assuming that you have been receiving payment throughout the year. Historical information based on monthly and annual average rates can be found on this page. For the 2007 tax year, I recommend that you go with the 2007 average exchange rates (PDF format).
Looking at that form, the Canadian-US exchange for 2007 averaged at 1.07478127, or about 7.4%. This is the same number that major financial institutions use when they issue T5 forms (if any of your investments were in a currency other than the Canadian dollar). So, if you earned US$1000 on your blog, you should report C$1074.78 on your income tax.
Hockey Mom
January 16, 2008 8:50 am
The Canadian Tax law in itself is a massive book of confusing information and hard even for someone who is (or has been) in the financial services industy. I say pack up all yoru receipts and T1 and T4 forms and find yourself a good accountant… a reputable accountant who understands tax law… not H&R Block where they plunk in numbers in the sections that are red and flashing on their screen, why waste your money go out and buy the QuickTax softawre and do it yourself. But again, if you have more than a hand fulk of US paycheques get yourself and accredited accountant.
Phil
January 22, 2008 5:37 pm
I do quite a bit of work with American clients. I have a Canadian, salaried day job and freelance in American dollars at night :) Fortunately, I use PayPal for all my online transactions. So if I collect $1000 American dollars and then deposit to my Canadian bank account, Paypal takes care of the currency conversion for me before I ever get the money. In my invoicing software, I would show the invoice as $1000, and then on a second line, include the extra $74 (to use your numbers above) as an accurate exchange amount. At the end of year, no calculations are needed because I’ve done it on a day-by-day basis all year long.
Aki Shichiroji
January 25, 2008 8:43 am
Any clue which tax form the American company needs to send you for tax purposes?
Rhetorical
January 25, 2008 9:49 am
If you’re a freelancer, then the American company doesn’t need to send you anything because you are not employed by them.
Aki Shichiroji
January 25, 2008 10:36 am
There’s the quandry. I’m working on contract for that specific service, rather on a job to job basis. While I know they can’t tax me US income tax, i know i still need to declare that income… right? Should I be doing anything aside from declaring it as ‘other’ income?
greg
January 26, 2008 11:49 am
I live in the us and work in canada full time (daily commuter) what are my tax implications? what kind of us tax am I going to be looking at as this is my first year relocated to the us
greg