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.
DATE September 9, 1986
TO- Source Deduction Division
FROM- Specialty Rulings Directorate K.B. Harding 957-2129
ATTENTION Mr. K.C. McLean Director
RE: Taxation of non-residents in the movie/film industry
In our meeting of August 21, 1986 you requested we review a written briefing entitled "Taxation of Non-Residents in the Movie/Film Industry".
We offer the following comments:
1. We would suggest you replace paragraphs 1 and 2 under the heading "Tax Treaties" on page 1 with the following:
"The 1942 Canada-United States Income Tax Convention (1942 Convention) was superseded by the Canada-United States Income Tax Convention (1980) (1980 Convention). The latter entered into force on August 16, 1984 and generally has had effect for the taxation of income from employment and business income with respect to taxable years beginning on or after January 1, 1985. However, the transitional rule provides that if greater relief was afforded under any provision of the 1942 Convention that provision will continue to have effect for the first taxable year with respect to which the provisions of the 1980 Convention would otherwise have effect.
"1942 Convention
"Business profits of a resident of the United States were taxable in Canada only to the extent that such profits were allocable to a permanent establishment in Canada.
"A U.S. resident employed in Canada was exempt from Canadian tax if he was present in Canada for a period or periods not exceeding 183 days during a taxation year and one of the following conditions were met:
(a) his compensation did not exceed $5,000, or
(b) his compensation was received for personal services as an officer or employee of a resident, or corporation or other entity of the United States, or
(c) his compensation was received for personal services as an officer or employee of a permanent establishment in the U.S. of a Canadian enterprise.
"A self-employed U.S. resident was exempt from Canadian tax to the extent that he was present in Canada for a period or periods not exceeding 183 days during a taxation year and his fee did not exceed $5,000.
"1980 Convention
"Business profits of a U.S. resident are taxable in Canada only where the resident carries on business in Canada through a permanent establishment and then only to the extent that such profits are attributable to that permanent establishment.
"U.S. residents employed in Canada are exempt from tax in Canada if
(a) remuneration does not exceed $10,000 (Canadian), or
(b) the recipient is present in Canada for a period or periods not exceeding 183 days in the taxation year, and the remuneration is not borne by an employer who is a resident of Canada or by a permanent establishment or a fixed base which the employer has in Canada.
"Self employed individuals will be exempt from tax in Canada where they do not provide personal services in Canada through a fixed base regularly available to them in Canada."
2. With respect to the second paragraph on page 2, we tax the "star company" at corporation rates where the income accrues to the company rather than the "star". This is not clear in your proposal.
3. Page 4, first paragraph under the title "Issues":
We suggest you add the words "independent contractors" after the words "U.S. residents" and add the words "pursuant to Regulation 105" after "15% withholding tax".
4. Second last line on page 4:
We suggest you delete the reference to "athletes" since the briefing concerns the Movie/Film Industry only, and that you replace the words "non-resident entertainers" with "non-resident entertainment income."
5. Page 5, 1st paragraph:
We suggest that the term "tax credit" be changed to "foreign tax credit" to make it clear for the reader. In addition, it should be made clear that what XXXX is suggesting is that the personal service corporation should be collecting 15% withholding under Regulation 105 rather than personal rates relating to the star. (Technically speaking we do agree not with XXXX on this point).
6. Page 5, item 3, paragraph 1:
The reference to "permanent establishment" in the last line should be changed to "fixed base".
7. Page 5, item 3, paragraph 1:
We suggest that the words "self-employed" be inserted before "backgrounders" in line 3 and also between "other" and "non-residents" on lines 3 and 4. In the last sentence insert the word "such" before "backgrounders" and delete "who are self-employed" after "backgrounders".
8. Page 5, item 3, paragraph 2:
We suggest that you add the words "or the remuneration exceeds $10,000 (Canadian)" at the end of the last sentence.
9. Page 7, item 3, second line:
Change the words "permanent establishment" to "fixed base".
10. Appendix A, Title:
Add the words "By U.S. Residents"
11. Appendix A, Dependent (Employee) Personal Services, 1980:
We suggest the second item be amended as follows:
"If annual income exceeds $10,000 the individual is taxable in Canada if
- individual is present in Canada for a period or periods exceeding 183 days in a taxable year, or
- remuneration is borne by an employer resident in Canada, or
- remuneration is borne by a permanent establishment or fixed base which the employer has in Canada."
12. Appendix A, Dependent (Employee) Personal Services, 1942
We suggest items 1 and 2 be amended as follows:
"Individual exempt from tax if he is present in Canada for a period or periods not exceeding 183 days in a taxation year, and his compensation does not exceed $5,000."
"If annual income exceeds $5,000 the individual is taxable in Canada if
he is present in Canada for a period or periods exceeding 183 days in a taxation year, or
- his compensation for personal services is received from other than a U.S. employer or a permanent establishment in the U.S. of a Canadian enterprise.
13. Appendix A, Independent (Self-Employed), 1942
In item 1, change the words "is less than $5,000" to "does not exceed $5,000". Also, change the words "less than 183 days" to "183 days or less".
14. Appendix A, Independent (Self-Employed), 1980
In item 1 and 2, change "permanent establishment" to "fixed base".
15. Appendix B
Since these are your procedures we have no comments except under heading "Post 82-83", in the third sentence it would appear that the sentence should read "Guarantees introduced and where such are provided a waiver would be issued on the basis of treaty protection."
We trust these comments are useful for your purpose.
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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