Tag Archives: taxation

Canadian Waivers and Taxation for Foreign Artists

robert-bairdby Robert Baird, President Baird Artists Management (BAM!)

Ignoring the taxation requirements of a foreign country can lead to unforeseen complications, as this letter illustrates:

We sent an American ensemble to Canada in 2013. We had obtained an approved R-105 waiver in advance. Consequently, no taxes were withheld. We did not realize that we needed to file a Canadian tax return. When we applied for a waiver last summer, we were surprised to have it rejected. The presenter withheld 15% and we’d like to get it back. What do we do now? 

R-105 Waivers are used in Canada to reduce or eliminate the 15% required withholding on services provided in Canada by a nonresident. Even with an approved R105 waiver in Canada, you are still required to file a Canadian income tax return the following year; otherwise, subsequent waiver applications will be denied until your tax filings are up-to-date. This is made clear in the approval letter from Revenue Canada. R105 waivers do not represent the final Canadian tax obligation of a foreign artist: the ultimate tax liability can only be determined after an assessment of a Canadian tax return.

There are two types of R105 waiver applications:

1) Treaty-based waivers—Treaty-based waivers are granted if there is a treaty between Canada and another country. Currently, there are more than 80 tax treaties in force. (Visit http://www.fin.gc.ca/treaties-conventions/in_force-eng.asp for a list.) Generally, where there is a treaty, if an artist earns less than $5,000 a year in Canada, with certain restrictions on time spent in Canada, a waiver will be granted. For American artists the amount is less than $15,000 per year.

2) Income/expense waiver—If you do not qualify for a treaty-based waiver, you can still apply for an income/expense waiver. You submit a summary of your gross Canadian income and claim applicable expenses against that amount. The net income is then assessed for tax liability. A waiver may be granted or the required withholding may be less than the required 15%. Applicable expenses include: professional service fees (managers, agents, etc.); accommodations and/or meals; travel to Canada and between places in Canada; mileage for personally owned or rented vehicles used in Canada; equipment rental other than vehicles; and remuneration paid to other persons providing services in Canada (for example, resident or nonresident employees, or subcontractors).

[Note: Fees paid to nonresidents require the 15% withholding unless you acquire an approved R105 or R102 waiver for them as well].

Whether you received an approved waiver or had monies withheld, you should always file a Canadian tax return. It’s a requirement for future waiver approvals and you may receive a refund of monies withheld. Individuals should file a T1 return by April 30 and corporations a T2 return by June 30 of the following calendar year. In addition, if you used subcontractors or employees, you will need to issue T4A-NR slips to each individual, remit withheld monies to the receiver general of Canada by the 15th of the month, following the month in which the payment was made to the nonresident and file a T4A-NR information return (T4A-NR slips and summary form) by the last day of February in the year following the year in which the amounts were paid. Note that there are significant penalties for failing to file tax returns and required forms as indicated.

Nonresident artists need to be aware of waivers and tax filing requirements when coming to Canada to perform.

—I welcome your questions and concerns.
Please write to me at: robert@bairdartists.com. While I cannot answer every question I receive in this column, I will feature as many as I can and I promise to answer every e-mail I receive.

To read this article in French visit: www.internationalmusician.org/la-fiscalite-canadienne-et-les-dispenses.

United States Taxation for Foreign Artists

by Robert Baird, President Baird Artists Management (BAM!)

The issue of United States Taxation for foreign artists came up in a recent letter:

I have a band that is looking to play a corporate event in the US at the end of June. My accountant just informed me of the Central Withholding Agreement that could keep as much as 30% of our income—the final total being left at their discretion. My accountant tells me that it is likely just a matter of incorporating the business, which can be done fairly quickly. Can you help?

Dealing with taxation in any country is complex. The regulations regarding taxation for a foreign artist are customarily contained in a tax treaty between the two countries, and will apply differently to individuals than to businesses. However, it is not simply a matter of incorporating an individual or a performing group as a business because the IRS considers who the “beneficial owner” of the income is and, if any individual is named in the corporation, then the income is considered personal, not corporate.

In the US, the requirement is that anyone paying a foreign artist has to withhold 30% in taxes on US income. Anyone who withholds tax, be it a promoter, a venue, a presenter, a manager, or an agent, is designated by the IRS as a “withholding agent.” If the foreign artist fails to file a tax return and pay the required taxes, then the “withholding agent” is liable for any unpaid tax.

There are exceptions to this general principle:

A tax treaty may exempt a business from paying tax in a foreign country if it is recognized as a business by the IRS and has no “fixed establishment” in the US.

A tax treaty may allow a certain level of income for independent personal services to be earned tax-free, if the individual has no “fixed base” in the US and spends no more than a certain number of days in the country. For example, the Canada-US Tax Treaty allows an individual artist to earn $15,000 annually without taxation. However, earning more than $15,000 annually would make the individual taxable for the whole amount.

An individual (not a business) can enter into a Central Withholding Agreement (CWA) with the IRS whereby the IRS will estimate the actual tax liability of the artist and withhold less than the required 30%.

In years past, it was often enough to provide a US employer with a W-8BEN or a Form 8233 to avoid the required 30% tax withholding. Now, this is no longer regarded as sufficient. An employer cannot rely on these forms to avoid enforcement of the IRS requirement.

If it transpires that a foreign artist has been “over-taxed,” then a refund can be obtained by filing a tax return. Even if your income is exempt from US income tax, it’s a good idea to file annually. Individuals should file a Form 1040NR or Form 1040NR-EZ. Businesses should file a Form 1120-F.

At some point in the future it may become necessary to have your tax filings current before you are granted a work visa for the US. It’s a good idea to comply with all requirements for foreign taxation.

—I welcome your questions and concerns. Please write to me at: robert@bairdartists.com. While I cannot answer every question I receive in this column, I will feature as many as I can and I promise to answer every e-mail I receive.