It is not uncommon to hear news regarding blockbuster movies being filmed in Canada. Other than its scenic beauty, Canada offers advantageous federal and provincial tax credits, incentives, and deductions to both domestic and foreign film production companies for carrying out film and television production in Canada, as well as hiring Canadian residents for labour. However, this results in a significant number of non-residents working in Canada; and as non-residents working in Canada, they are subject to Canadian income tax laws on income earned in Canada.
With the recent increase in the number of our cross-border ‘entertainment-industry’ based clients, we think a summarized version of these tax laws would be highly informative for foreign actors and non-actors working in Canada for a film or television production.
In this article, AG Tax analysts have prepared a brief overview on this topic. If you have any tax questions or tax planning needs, please feel free to contact us by phone or through our website.
As per the CRA, generally any person living permanently outside Canada, and not having any residential ties with Canada, is considered a foreign/non-resident person. Thus, a U.S. citizen or resident actor that resides in the U.S. but is working for a film or video in Canada would likely be considered a non-resident actor, and be subject to Canadian income taxes on their acting services provided in Canada. In the case they are providing their acting services through a corporation, then the corporation would be subject to taxes.
Income Subject to Canadian Taxes
Non-resident actors, and/or the corporation through which their services are provided are subject to a standard tax rate of 23% on the gross income from acting, but if the U.S.-based actor is self-employed, working for less than 183 days in Canada, and earning a gross income not exceeding CAN $15,000 during the tax year, then they should not be subject to Canadian taxes.
This tax applies on the acting fee paid to the actor, per diem allowance in excess of CAN$100 per day without receipts, and any amount paid to third parties by the production on behalf of the actor (except for certain reasonable travel expenses such as: airfare, hotels, meals and incidentals and/or any reimbursed travel expense). The actor needs to provide an attestation to the payer for the reimbursed expenses of CAN$100 or less and retain all receipts for possible future verification by the CRA. Failure to provide receipts or vouchers can result in the 23% withholding tax being applied to the unsubstantiated amounts. The CRA also expects the payer to exercise reasonable discretion for accepting attestations from actors. For example, it would not be reasonable to claim a CAN$100 meal allowance when the meals were provided and paid by the production company on the film set.
Canadian Income Tax Liability & Tax Withholding
The above-mentioned 23% non-resident tax is levied only on acting income and not on the income earned by a director or producer for their services. Therefore, if acting is the only source of Canadian income then no Canadian return needs to be filed.
The 23% that is withheld by the Canadian resident or non-resident payer is required to be remitted to the Receiver General (CRA) by the 15th of the month following the payment month. The payer is also required to report, on an NR4 slip, the amount of income and any taxes withheld and remitted to the CRA. A copy of the NR4 should also be provided to the U.S. (non-resident) actor, who should keep it for record purposes, in case it is required for subsequent verification by the CRA.
Reducing Tax Burden Through Certain Elections
A U.S.-based actor or corporation offering the services of the actor may elect to file a Canadian income tax return, and be subject to graduated individual or corporate income tax rates on the net Canadian-source acting income, instead of the 23% tax on the gross amount. This election should be considered if the tax on the net acting income is less than 23% of the gross amount.
Making the election would also qualify the non-resident/U.S.-based actor for reduced tax withholdings, which can be done by filing either:
- Form T1287, Application by a non-resident of Canada (individual) for a reduction in the amount of non-resident tax required to be withheld on income earned from acting in a film or video production, or
- Form T1288, Application by a non-resident of Canada (corporation) for a reduction in the amount of non-resident tax required to be withheld on income earned from acting in a film or video production, depending upon the situation.
Upon verification, the Tax Service Office (TSO) would inform the actor and payer of the estimated tax liability and percentage to be withheld.
If the actor’s corporation elects to file a Canadian income tax return, the actor is deemed to have made the election as well for the payment they would receive from the corporation.
The elective return should be filed before the due dates (i.e. April 30th for individuals, June 15th for self-employed individuals, and 6 months from the fiscal year-end for corporations – note that any tax payable is due 2 months after the corporation’s year-end). Late filing would disqualify the election, and a non-resident tax assessment notice would be issued if the withheld amount was less than the 23% withholding required in case of non-election.
U.S. Income Tax and Reporting
As a U.S. based actor, the individual will also be subject to U.S. taxes on the Canadian-source acting income as U.S. citizens/residents are subject to U.S. taxes on their worldwide income. Fortunately a foreign income tax credit (FTC) can be claimed on the U.S. income tax return for the Canadian tax paid on the Canadian-source acting income.
The election to file a return can be a difficult decision to make for some individuals. By electing to file a Canadian return one could claim qualifying expenses and reduce the income subject to taxes, but on the other hand for some it may seem beneficial to pay the 23% tax and claim a FTC on the U.S. return and save the cost and/or time to prepare a Canadian tax return. In addition to federal tax there is also tax that is owed to the province or territory where the income was earned. If you are reporting self-employment income from a business that was not carried on through a permanent establishment in Canada, you will pay federal tax on that income plus the surtax for non-residents and deemed residents of Canada. .
In such situations, not only will a tax professional be able to analyze both the situations and help the actor decide, but they will also ensure that the returns are compliant in both countries and that allowable deductions and credits are applied wherever possible.
AG Tax LLP Can Help
If you wish to discuss further on the above issue, or have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws. We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.