As the weather begins to warm, downtown Toronto livens up. Come summer, streets and attractions are abuzz with thespians and tourists alike, outdoor patios fill with revelers, and festivals and parades abound.
You will also often find streets lined with movie trailers. World-class amenities, a suitable infrastructure, and favourable federal and provincial tax incentives make Toronto an attractive place to film motion pictures. "Hollywood North" – as Toronto is known – is a hotbed of film activity over the summer, culminating with the world-renowned Toronto International Film Festival (TIFF) in September.
This booming industry creates many jobs for Canadians and brings many non-Canadian stars to the city. These performers - who are residents of the U.S. and elsewhere – while working in Canada do not just have lines to learn; they must decipher the complex tax laws of two countries.
To help sort out some of these complexities, here is an overview of the Canadian tax implications for self-employed actors, ones who are residents of the U.S. and work in Canada, including those who do so through a corporation.
Under the Income Tax Act of Canada, any self-employed person carrying on business in Canada is subject to Canadian income tax; his country of residency or citizenship does not affect that result.
Most U.S. self-employed individuals who provide services in Canada for a short period can escape Canadian taxation thanks to the Canada-U.S. Tax Treaty. Special clauses of the treaty apply to artists residing in the U.S. and working in Canada. The term "artist" includes theatre, film, radio, television and music performers.
Based on these clauses of the Canada-U.S. Tax Treaty, Canada can tax an artist on the income he derives from services performed in Canada, if the income from these services exceeds $15,000 CAD. This could create a significant compliance obligation for actors. So, in order to continue enticing foreign actors to perform here, Canada has eased the compliance burden specifically for actors. These rules are discussed in the following.
The term "actors" refers only to non-resident actors in film or video production, such as feature films, movies-of-the-week, television series, documentaries, video productions and commercials. The legislation however does not apply to others within the movie industry, such as directors, producers or other behind-the-scenes personnel. The legislation also does not apply to anyone in other sectors of the entertainment industry, such as musical performers, ice or air show performers or international speakers.
Under these rules, all gross revenue earned by non-resident actors performing in Canada is taxed at a flat rate of 23% with no deductions permitted. Every actor then has the following choice:
- Treat the 23% as his final tax liability and not file a Canadian return; or
- Treat the 23% of his gross acting income withheld as an advance against his tax liability; file a personal Canadian income tax return; compute tax at marginal rates on his net income (gross revenue less expenses) and apply the amount that was withheld against the computed liability.
Actors who choose to file a personal Canadian income tax return can deduct reasonable expenses from their gross revenue. These expenses must have been paid for by the actor, and must have been for things required to earn the acting income in Canada. Deductible expenses (net of any reimbursements) include managers and agent's fees, wardrobe and make-up costs, meals and travel expenses, and professional development fees, such as acting coaches. There are also specific time limits to decide whether to file a return or not.
For 2013, the Canadian and provincial personal income tax rates for individuals are graduated (that is they increase as the actor's income increases):
- In the province of Ontario, the rates range from 20% to 49.5%.
- In the province of British Columbia, the rates range from 20% to 44%.
(Note: Toronto, Ontario and Vancouver, British Columbia account for the majority of U.S. film and television work in Canada).
So, it may be beneficial for an actor who earns income in lower brackets to file a return based on his net income. Similarly, it is usually beneficial for a high-income performer to pay the flat rate of 23% on the gross revenue. Actors should consult a tax advisor who can crunch numbers and advise which way to go.
All non-resident actors working in Canada are subject to the upfront 23% tax withholding on their gross income, when they perform their services, regardless of the eventual tax liability in Canada. An actor filing a tax return, or one whose annual income falls below the $15,000 taxation threshold, can apply to have the up-front tax withholding reduced or eliminated.
Actors falling under these rules should remember that all citizens or deemed residents of the U.S. must report their worldwide income to the IRS. A mechanism exists preventing anyone subject to tax in both countries from paying tax twice on the same income. When completing his U.S. personal income tax return, an actor can get a reduction in his U.S. taxes for the taxes he paid to Canada (subject to certain limitations). In many situations, the 23% tax paid to Canada is less than the applicable U.S. taxes due on that income. In this case, the U.S. may grant a full credit and the actor sees no difference in their overall tax liability. (Of course, he is paying some of his tax money to the Canadian government rather than the U.S.).
These rules apply only to self-employed actors residing in the U.S. and performing in Canada. In many cases, actors are considered employees who may operate through a corporation. There are similar tax rules for actors in these situations, but there are significant differences and added compliance obligations that they should discuss with a tax advisor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.