My_question_is: Applicable to both US and Canada
Subject: Canadian, paid by U.S. company, working in Europe
Expert: taxman at centa.com
Date: Tuesday December 14, 2004
Time: 03:11 PM -0800
QUESTION:
Canadian Musician is being paid from by the U.S. Entertainment firm that
hired her to play in a theatrical show and the funds will be direct
deposited in Canadian account. No work will be done in Canada or U.S. The
show will be presented exclusively in Europe for 1 year. All flights, hotel
and food is paid by the U.S. company. The musician will have no out-of
pocket expenses.
Option 1) The musician can work completely as a contracted person without
benefits.
Option 2) The musician can be paid as an employee at a slightly lower salary
then the U.S. company will also pay for the medical insurance plan that will
cover the musician during all her travels in the various coutries while in
Europe.
In either scenerio, who collects taxes, Canada, U.S. or nobody (wishful
thinking)?
If one has a choice, is there a financial advantage of choosing to pay taxes
in one country or the other?
Thank you for your great site.
---
david ingram replies:
As you have described the situation, the Canadian Musician is taxable on his
or her "world" income in Canada. The reason is that they are a Canadian
citizen who has not established a bone fide residence in another country.
There is NO tax liability to the United States.
There will likely be a tax liability to some of the other countries.
For instance, the France <> Canada Income Tax Convention, states
Article 17
Artistes and Sportsmen
1. Notwithstanding the provisions of Articles 14 and 15, income derived by a
resident of a Contracting State as an entertainer, such as theatre, motion
picture, radio or television artiste, or a musician, or as a sportsman, from
his personal activities as such exercised in the other Contracting State,
may be taxed in that other State.
2. When income in respect of personal activities exercised by an entertainer
or a sportsman in his capacity as such accrues not to the entertainer or
sportsman himself but to another person, that income may, notwithstanding
the provisions of Articles 7, 14 and 15, be taxed in the Contracting State
in which the activities of the entertainer or sportsman are exercised.
3. The provisions of paragraphs 1 and 2 shall not apply to income in respect
of activities exercised by a resident of a Contracting State as an
entertainer or a sportsman in the other Contracting State if the visit to
that other State is principally supported, directly or indirectly, by public
funds of the first-mentioned State, its provinces in the case of Canada, its
local authorities, or their agencies or instrumentalities thereof. In such
case, the income shall be taxable only in the first-mentioned State.
=============
And
The German <> Canada Convention states much the same thing
Article 17
Artistes and Sportspersons
1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived
by a resident of a Contracting State as an entertainer, such as a theatre,
motion picture, radio or television artiste, or a musician, or as a
sportsperson, from that resident's personal activities as such exercised in
the other Contracting State, may be taxed in that other State.
2. Where income in respect of personal activities exercised by an
entertainer or a sportsperson in that individual's capacity as such accrues
not to the entertainer or sportsperson personally but to another person,
that income may, notwithstanding the provisions of Articles 7, 14 and 15, be
taxed in the Contracting State in which the activities of the entertainer or
sportsperson are exercised.
3. The provisions of paragraphs 1 and 2 shall not apply to income derived
from activities performed in a Contracting State by entertainers or
sportspersons if the visit to that State is substantially supported,
directly or indirectly, by public funds of the other Contracting State or a
"Land" or a political subdivision or a local authority thereof. In such a
case, the income shall be taxable only in the Contracting State of which the
entertainer or sportsperson is a resident.
===========================
and the Great Britain <> Canada Tax Convention states:
Article 16
Artistes and Athletes
1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived
by entertainers, such as theatre, motion picture, radio or television
artistes, and musicians, and by athletes, from their personal activities as
such may be taxed in the Contracting State in which these activities are
exercised.
2. Where income in respect of personal activities as such of an entertainer
or athlete accrues not to that entertainer or athlete himself but to another
person, that income may, notwithstanding the provisions of Articles 7, 14
and 15, be taxed in the Contracting State in which the activities of the
entertainer or athlete are exercised.
3. The provisions of paragraphs 1 and 2 shall not apply:
(a) to income derived from activities performed in a Contracting State by
entertainers or athletes if the visit to that Contracting State is wholly or
substantially supported by public funds;
(b) to a non-profit making organization no part of the income of which is
payable, or is otherwise available for the personal benefit of, any
proprietor, member or shareholder thereof; or
(c) to an entertainer or athlete in respect of services provided to an
organization referred to in sub-paragraph (b).
===============
as you can see, Each country has the right to tax the musician and he or she
should be prepared to pay the tax. It can be very unfortunate when a
country catches up as happened with the Toronto touring company of Phantom
of the Opera when Hawaii caught up three years later and sent them all
BIIIIIGGG Tax bills.
Your musician should not worry though. Every cent of tax he or she pays to
France, Spain, Italy, Germany, etc., will be deductible as a foreign tax
credit on the Canadian tax return.
Your musician should be prepared to pay Canada $28,000 Income tax on an
earnings of $100,000 and about $11,000 tax on earnings of $50,000 - In
each case, he or she would owe about $4,000 Canada Pension Plan payments as
well.
At $30,000, the Canadian tax would only be about $5,000.
In each of the situations above, any tax paid to the other countries would
be deducted from the Canadian tax.
This is not unusual by the way. when we do an NBA or NHL professional
athlete, we have to a state tax return for every state they play basketball
or hockey in, usually about 23 tax returns.
I, of course, would be glad to look after the returns for your musician.
Ask a cross-border International real estate rental mutual funds immigration
non-resident income tax expert - David Ingram 's CEN-TA Services in North
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