Blog: Performing in Canada: What you need to know about tax refundsMarch 7th, 2017
Are you a non-resident of Canada who performed a concert or other musical performance on Canadian soil? Did you earn your fees through a personal loan-out corporation or other corporate entity? If so, please read on, as you may be coming up on a deadline and an opportunity you do not want to miss.
Every non-Canadian resident artist who performs a musical performance (or any live show) may be subject to Canadian taxation. For an American artist, there is no treaty-protection for any gross fees earned greater than $15,000 in a calendar year. For most other artists around the world, there may be no treaty protection at all and those artists are subject to Canadian tax on any income earned.
As you are undoubtedly aware, the promoter is required to withhold 15% for Canadian taxes on your gross fees (plus an additional 9% if the performance is in Quebec). However, what many US tax practitioners are not aware of is that this 15% tax withholding is not your final tax liability, but simply represents a prepayment towards your final tax liability.
At the end of each calendar year, the promoter will provide you with an information tax slip, called a T4A-NR, disclosing in Canadian dollars the relevant amount earned for your shows and the withholding taxes that were applied against those fees. Two copies of this slip are produced; one goes to the artist to assist in preparation of his or her Canadian taxes and the other goes to the Canada Revenue Agency (“CRA”), the departmental agency in charge of administering tax collection on behalf of the Canadian government.
Every non-resident entertainer corporation then must file a Canadian corporate income tax return on or before six months after the end of their taxation year. The Canadian tax return would report the gross income less any expenses relating to the Canadian performance. A federal tax rate (presently, 25%) would apply to the net income earned from these performances.
Failure to file a Canadian return on a timely basis will result in a minimum $2,500 late-filing penalty (and could be substantially higher) per year. And, provided you never filed your return, there becomes no statute of limitations for the CRA to assess this penalty and request a return. In recent years, it has become common practice for the CRA to review the slips in their possession and issue tax assessments to artists for any unfiled years. Given that the CRA does not have expense information and just data corresponding to the gross revenue earned, the assessments normally create an additional tax liability of 10% of the gross revenue (25% gross versus 15% gross).
Receiving this assessment can be a costly exercise to correct. First, the artist must formally go through an objection process with the CRA. Generally, there is a 90 day window for this objection to occur. Second, since there is no statute of limitations for the CRA to request these returns, we have seen assessments of tax years going back upwards of even five years prior. Therefore, simply getting the information to properly create an income and loss statement to compute the 25% tax can be challenging
Further, assuming you can successfully object to the assessments, your Canadian tax liability will change. In most cases, the 15% withholding on your gross payment will be higher than 25% of your net revenue. This would result in a partial refund of the Canadian taxes paid at source. Thus, foreign tax credits taken on your US (or other foreign) tax return will be overstated. It may be difficult to amend a prior return if a significant time period has lapsed. Therefore, if you are unable to amend a prior return, you may have subjected yourself to a higher global tax rate than otherwise would have been applicable.
To add further insult, Canada has a rule stating that refunds will not be granted if not applied for within three years. Given that Canada has no statute of limitations to request an unfiled tax return and most artists’ tax returns result in refunds of Canadian taxes, it is extremely common for many assessments to occur beyond the period when Canada will grant a refund! This often results in a higher global tax liability than would otherwise occur had the return been filed within the proper time period. Therefore, it is imperative to file a Canadian return within the period that Canada will still refund overpayments of taxes.
It behooves you to review all concerts performed dating back to at least 2014 to see if any took place in Canada. If so, and if no Canadian tax return has ever been filed, now is the time to act as time is running out! Further, if you act before the CRA finds you, you may be eligible to enter into the CRA’s voluntary disclosures program and avoid the late-filing penalty as well.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article.
Connect with the Authors
Adam Scherer, BA, CPA, CA
Adam is a Tax partner at Crowe Soberman whose client portfolio includes high-net-worth individuals, owner-managers, professional athletes, film directors and producers, U.S. corporations operating in Canada, and individuals immigrating to and emigrating from Canada. Connect with Adam at: 416.963.7174, firstname.lastname@example.org or twitter @SobermanTax.
Jeffrey Steinberg, BA, CPA, CA
Jeffrey is a partner in Audit & Advisory at Crowe Soberman, as well as the co-leader of the firm’s Sports & Entertainment practice. He is knowledgeable, practical and results-oriented in the professional service he provides clients and his holistic approach to client needs is what separates him from others. Connect with Jeffrey at 416.963.7105, email@example.com or twitter @SobermanSports.