Tax Time – Canadian Tax Returns Due By June 30

While perhaps unwillingly, most players in the North-American entertainment sector have become rather well-versed in the various obligations facing both artists and buyers in relation to performances in Canada, but a little refresher never hurts! One of those obligations facing artists is that of filing annual Canadian tax returns.

Non-resident corporations (this includes American LLCs and U.K. LLPs by the way – these entities are not recognized as “look-throughs” in Canada) are required to file T2 corporate tax returns no later than June 30th following the tax year in question.

That means corporate tax returns for 2016 are due in – 2 weeks!

So what happens if you don’t file a T2 return? There are 2 consequences

  1. Non-compliance: if any of your filing obligations are not met on time, you will be considered “non-compliant” by the Canada Revenue Agency, and you will no longer be eligible for R105 tax waivers or reductions.
  2. Late filing penalty: the penalty is $25 per day up to $2,500 dollars and yes, the CRA absolutely does assess this penalty for every year that is not filed. If you actually have to pay tax, you will also be charged interest on your amount owing, but to be clear, even if you are treaty-exempt and have no tax liability, or if you obtained a tax waiver prior to your services in Canada, you are still required to file and the penalty will be applied to you if you don’t.

What if you are an individual? Do you have to file an individual (T1) return? This answer seems to be shifting as well – while the traditional thinking was that you didn’t have to file unless you actually had to pay tax (the CRA’s own website still reflects this directive) we have started to see non-filing notices sent to individual artists, most often headline artists who applied for tax reductions based on income and expense. While many CRA agents still have the same understanding that there is no filing obligation for individuals unless there is tax owing, a few senior managers have expressed their disagreement with this. This is still truly a “grey area” so for our part, we are dealing with individuals on a case by case basis for now, but at the very least, we know the $2,500 late-filing penalty does not apply to individuals, only interest on amounts owing. This means if you don’t actually owe tax, the only consequence if you fail to file a return may be non-compliance.

If you are an individual and had taxes withheld throughout the year, a tax return will likely allow you to recapture some of that withholding based on your net profit in Canada for the year, so there are certainly many cases where you may want to file a T1 return for your own benefit, regardless of the obligation.

There is still time to prepare your return so if you performed or produced shows in Canada in 2016, you should definitely contact your tax preparer if you haven’t already (or contact us – we can handle all your Canadian tax matters and we promise to make it less of a drag!)

 

T4 Information Returns

Canadian withholding taxes and waivers have long been part of the landscape of Canadian taxes, and the vast majority of non-resident artists and Canadian buyers were well aware of these regulations. In recent years however, the Canada Revenue Agency (CRA) has been placing an increasing emphasis on compliance with annual filing requirements. Remaining tax compliant is now a necessary condition for any artist who wants to benefit from Tax Waivers, not to mention avoid penalties or assessments being levied against them by the CRA.

Non-resident artists performing in Canada through a corporate entity in a given year are required to file a Canadian T2 Tax Return – this is the primary element of tax compliance. A new element has entered the compliance requirements in recent years: that of filing T4 Information Returns.

T4A-NR forms are essentially tax receipts which a payer must issue to all staff having been paid for services in Canada in any given year – for a touring artist, this generally means supporting musicians, techs, and tour managers traveling with the artist on their Canadian dates. The form indicates the fees paid to each individual, and any tax amounts withheld from their fees, for work in Canada. These forms must be issued regardless of whether or not taxes were withheld from fees paid to staff.

The artist must send a copy of all T4A-NR forms along with a T4A-NR Summary to the Canada Revenue Agency no later than February 28th following any given year in which the artist performed in Canada.

This is actually not a new requirement – in other words, the law did not recently change in this regard. Never heard of it? We are not surprised! The CRA turned a blind eye to this requirement for many years in connection with touring artists.

It was not until late 2014 that we started seeing artists being penalized for not filing these T4 Returns for work in Canada in previous years. Unfortunately, throughout 2015 we continued to learn of penalties being assessed against new clients for the non-filing of these T4 Returns, and so we now consider these filings to be an unavoidable requirement for maintaining tax compliance in Canada.

We are very aware of the increasing burdens of Canadian tax requirements on touring artists and we remain dedicated to ensuring our clients’ Canadian tax matters are managed as efficiently and cost-effectively as possible.

Not sure if you are required to file T4 Returns this year? Wondering what the risks are of not filing in past years? Do not hesitate to contact us, we will be pleased to assist you with any non-resident tax issues.

 

Possible Relief for Secondary Withholding Administration

August, 2015

The Canadian Government recently introduced Draft Legislation with the intent of reducing the circumstances in which a Non-Resident Employer- Artist is required to file for a R102 Waiver to avoid the necessity of withholding 15% from their employee wages.

Currently under Canadian law, all Non-Residents who have staff working for them in Canada are required to withhold 15% on their wages in the absence of a Waiver issued by the CRA. In the context of touring artists, this kind of Waiver relieves the artist’s obligation to withhold taxes from the wages it pays to its musicians, crew, and other staff traveling on their Canadian tour. But of course securing this R102 Waiver creates an additional level of work for the touring artist who are faced with incurring risk of being taxed and penalized by the CRA if they do not secure this Waiver and then do not withhold 15% from their staff wages (and remit these withholdings to the CRA).

Regrettably this proposed legislation does not eliminate the need for Artists to file for R102 Waivers in all circumstances. Under its current language, it would only apply to US staff who are earning less than $ 15,000 Can in Canada during any calendar year and all non-artistic staff (i.e. tour manager, technicians, etc..) from Tax Treaty countries with Canada. Therefore this legislation would not apply for instance for musicians from England, France and Germany. But given that a majority of Non-Resident Artists performing in Canada are from the US, and given that most US staff earn less than $ 15,000 Can in any calendar year, this legislation becoming law would be a significant help to US artists touring Canada.

It should be emphasized though that this Draft Legislation has not yet been formally debated by the Canadian Parliament and given that Canada is currently in the midst of a Federal Election campaign (which may result in a change of government), there is no guarantee that this legislation will become law. There may be greater clarity around this towards the end of 2015.

If you would like to see the Draft Legislation, it can be found here on page 17 under the heading: “Withholding for Non-Resident Employers”:

http://www.fin.gc.ca/drleg-apl/2015/ita-lir-0715-l-eng.pdf

R.A.M. Management Sends Tax Reform Recommendations to Canadian Ministers

June, 2015

Our office, R.A.M. Management – Attorneys at Law sent a detailed letter to
the Canadian Minister of Finance and the Canadian Minister of Revenue making
extensive recommendations on how to lessen the burden of tax requirements
for Non-Resident Artists performing in Canada.

Over the past year our office has been increasingly concerned that the
increasing burden of tax requirements on Non-Resident Artists will result in
Non-Resident Artists losing interest in performing in Canada.

Among our recommendations are:

– Not applying withholding tax to deposits
– Eliminating penalties for failure to file T-4 Information Returns for
staff.
– Eliminating the need for Artists to file T-4 Information Returns in
certain circumstances.
– Reducing the penalties for failing to file a T-2 Tax Return
– Extending the scope of the Secondary Withholding exemption as proposed in
Budget 2015.

To see a copy of our letter, please click here: 

Letter To Canadian Ministers (Link)

 

CAPACOA suggests changes to R105 Administration

April, 2015

The Canadian Arts Presenting Association (CAPACOA) recently sent a detailed letter to the Canadian Minister of Finance and the Canadian Minister of Revenue with suggestions on how to streamline the Regulation 105 Waiver procedure. The letter outlines how complicated it has become for a Non-Resident Artist to successfully file for an R105 Waiver which is resulting in Non-Resident Artists losing interest in touring Canada or requesting higher performance fees from Canadian presenters (to offset the loss of the 15% withholding tax).

In the their letter, CAPACOA makes 4 specific recommendations to improve the situation:

– Develop Performing Arts Specific Guidelines
– Exempt Performance Deposits from Withholding
– Streamline the R105 Application Process by use of Electronic Filing System
– Increase and Index the Waiver Threshold of Artist Fees not Subject to Tax.

CAPACOA’s letter is written on behalf of seventeen performance arts organizations, representing more than 1,000 stakeholders in the performing arts sector.

A full copy of the letter can be seen here:

http://capacoa.ca/documents/services/advocacy/150316_working_group_letter.pdf

CRA Implements Longer Individual Tax Number Application Processing

As all our clients know, the R-105 tax waiver application process includes the application for a Secondary Withholding waiver – that is, a waiver from the artist’s obligation to withhold taxes from the fees it pays to its musicians, crew, and other staff traveling on their Canadian tour. In order for this Secondary Withholding waiver to be processed, each individual traveling to Canada must have an Individual Tax Number (ITN) from the Canada Revenue Agency.

Group members who do not yet have an ITN must obtain one, which means providing:

  • A digital copy of their current passport
  • A signed ITN application form, a one-pager requesting basic personal information such as Name, Address, Phone Number, and Social Security Number

We used to submit these items with the other R-105 application, that is no later than 30 days before the artist’s first Canadian performance, but the rules regarding ITN applications have changed. The CRA now processes these requests through a separate department and requires ITN application documents to be submitted 6 weeks before the first date – that means 2 weeks earlier than the rest of your tax waiver application.

So, whether your whole group is coming to Canada for the first time, or you just have a new guitarist who needs an ITN, be sure to contact us as soon as possible so we can help you with your applications and avoid unnecessary delays!

Did we lose you at “Secondary Withholding”? Find out about it in our FAQ.

LINKS
CRA: http://www.cra-arc.gc.ca/E/pbg/tf/t1261/README.html
FAQ: http://taxwaivers.ca/faq/#faq4
Contact us: http://taxwaivers.ca/contact-us/

Are you or one of your clients scheduled to perform in Canada?

Canadian Tax Waiver information for entertainers, managers, and accountants

Should you or your client apply for a Tax Waiver?

Taxwaivers.ca is a service offered by RAM Management – Attorneys at Law