Like most people, while enjoying a live concert or watching a movie, my mind inevitably begins to wander away from the performers on stage towards the Canadian income tax rules that apply to them. They are truly talented and unique, these non-residents of Canada, and as such, special tax rules apply to them.
General Rule for Services Rendered in Canada
In my August 31 post you will recall that we dealt then with Regulation 105 withholding requirements. When a non-resident enters Canada to perform services, he is subject to a 15% levy (plus an additional 9% in Quebec) on account of income tax payable in Canada. This charge applies similarly to musicians, and other performing artists. According to the CRA, these performers are carrying on business in Canada and are subject to tax on their income earned in this country.
In many cases, however, services rendered by a resident of a treaty country, such as the US would be exempt from Canadian taxes. Business income is exempt under most treaties unless the taxpayer has a “fixed base regularly available to him” in this country.
Artistes and Athletes
A special section found in most of Canada’s treaties deals specifically with “Artistes and Athletes”. This provision essentially provides that the above treaty exemption for business income does not apply to income of more that $15,000 in a year, derived as an entertainer such as a movie, theatre, radio or television artiste, a musician or an athlete. Accordingly, these talented people have to “pay to play”, so to speak.
Requirement to File a Tax Return
Whether or not a person is exempt from Canadian tax under a treaty provision, he must file a Canadian income tax return. The 15% tax withheld does not relieve a non-resident of this duty. If the income is exempt under a treaty, then the full amount withheld would be claimed as a refund. If the taxpayer is not exempt, he must report his net income earned in Canada, and the 15% tax withheld is applied as a credit against taxes owing. Failure to file a Canadian return would result in penalties.
Like Me, Some People Are Not Artistic Enough
The question of whether a taxpayer is an “artiste or athlete” can be difficult to answer at times. In the case of Thomas F. Cheek v. The Queen, Toronto Blue Jays announcer Tom Cheek was held not to be a “radio artiste”, because he was simply reporting on the games and was not attracting his own audience by virtue of his talents as a radio personality. The court found he was exempt under the Canada –US Treaty.
More Issues for Athletes
For athletes, questions can become even more complex. US athletes playing for Canadian sports teams might be considered resident in Canada depending on their circumstances, and vise versa. Non-resident employees of sports teams might benefit from treaty protection if they are not present in Canada for more than 183 days in a year. However, self-employed athletes, such as tennis players would likely have no treaty protection.
Special Rules for Film Actors
Finally, a completely separate set of overriding rules applies to actors who provide acting services in a film or video production. These taxpayers, whether they provide services directly or through a corporation, are subject to a flat 23% withholding tax under Part XIII of the Act. This rate applies to income from acting services, including residuals and contingent compensation. Further, these taxpayers are not required to file Canadian income tax returns.
However, a special election is available to actors who choose to file a tax return. Under this election the 23% withholding tax does not apply, and they will be taxed under Part I on their net income earned in Canada. To be valid, this election must accompany a Canadian income tax return filed by the person’s filing due date.
Note that these special rules do not apply, for example, to stage actors or radio artistes. They do not apply to other income earned by the actor, such as from services as a producer or director. Nor do they apply to other personnel working behind the scenes in the film industry. All these other services are subject to the normal 15% Reg. 105 withholding and the requirement to file a return.