28 May 1996 External T.I. 9601625 - INCOME OF NR, ACTORS AND ATHLETES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

5-960162
XXXXXXXXXX M. Séguin
(613) 957-8953
Attention: XXXXXXXXXX

May 28, 1996

Dear Sirs,

This is in reply to your letter dated January 4, 1996, wherein you requested the Department's interpretation of section 115 of the Income Tax Act (the "Act") and Articles XIV, XV and XVI of the Canada U.S. Tax Convention (the "Treaty") for the following situations:

1.A self-employed actor (a US resident) comes to Canada for a couple of weeks to shoot scenes for a film being made by a U.S. production company. While in Canada he stays in a hotel and then returns to the U.S. to complete the film.

You ask if the actor is subject to Canadian income tax or if subparagraph 115(1)(a)(ii) does not apply because the activities in Canada are so transitory as not to constitute "carrying on business" in Canada. If he is subject to Canadian income tax, you ask how is the income related to services performed in Canada calculated for the purposes of Article XVI of the Treaty and would a portion of any subsequent "residuals" also be subject to Canadian tax.

2.A self-employed actor (a U.S. resident) comes to Canada to shoot an entire film being made by a Canadian production company in Canada. Again, he stays in a hotel during his stay in Canada and then returns to the U.S.

3.A U.S. resident athlete is employed by a Canadian team with regularly scheduled games in both Canada and the U.S. If we assume that the team plays a total of 20 games in the season and 15 of those are played in the U.S., you ask if this athlete would only be subject to Canadian tax on 25% of his income earned from the team i.e. does he exclude the income earned in the U.S. on the basis of the number of games played in the U.S. or on the basis of the number of days in the U.S. while employed.

Our comments

First situation

We assume that the payment made by the U.S. production company does not qualify as remuneration as defined in subsection 100(1) of the Regulations of the Act (the "Regulations"). In that case, the U.S. production company would be liable for taxes that must be withheld and remitted on the payment made to the actor for an amount in respect of services performed in Canada under paragraph 153(1)(g) of the Act at a rate of 15% as prescribed under subsection 105(1) of the Regulations.

As far as determining whether or not the activities in Canada constitute "carrying on business in Canada", even though these activities are transitory, we are of the opinion that being a self-employed actor, the services performed in Canada would constitute "carrying on business in Canada". Consequently, the actor would be subject to Canadian income tax by virtue of subsection 2(3) and subparagraph 115(1)(a)(ii) of the Act. The non-resident actor would have to file a Canadian income tax return. Any income tax payable could be offset by the amount of the tax withheld under subsection 105(1) of the Regulations.

Moreover, Article XVI of the Treaty gives the host state, notwithstanding the provisions of Article XIV of the Treaty, the right to tax the income of a visiting performing artist if that income exceeds $15,000 for a particular calendar year.

Finally, the calculation of the income related to services performed in Canada, would have to be done on a reasonable basis. Subsequent "residuals" would also have to be considered in that determination if they can reasonably be sourced to services performed in Canada. It does not seem possible to provide guidelines that are any more specific than this in a technical interpretation.

Second situation

The previous comments would also apply to this situation. All income received by the actor for this film would be subject to Canadian income tax.

Third situation

We assume that the person in your hypothetical situation could not be considered to be a factual resident and that he is not a deemed resident of Canada.

Concerning employment income, a non-resident of Canada will be subject to Canadian tax by virtue of subsection 2(3) and subparagraph 115(1)(a)(i) of the Act on such income from the duties and employments performed in Canada.

Where the duties of a particular office or employment are performed partly in Canada and partly outside of Canada, a reasonable apportionment of the related income is necessary. This apportionment is usually calculated on a per diem basis having regard to the rate of remuneration applicable at that time.

The apportionment for athletes should reflect the actual number of days an athlete was present in Canada in a team's season beginning with the first day of pre-season training camp until the last day on which his team plays in a play-off game.

Where an athlete spends a part of a day in Canada, such day would be considered a day present in Canada. This method applies to regular seasonal salary and performance bonuses based on performance over the entire season. Other remuneration in respect of athletic services may require the use of a different formula.

The Canadian team will have to make an estimate of such determination in order to withhold any amount required by virtue of paragraph 153(1)(a) of the Act and section 100 of the Regulations.

The foregoing comments represent our general views with respect to the subject matter of your letter.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch