December 11, 2014 – The Performing Arts Alliance under the initiative of CAPACOA has put together a working group to explore ways of improving the administration of Regulation 105 withholding tax.
|A major event such as Festival International de Jazz de Montréal presents each year a large number of foreign artists.|
Engaging foreign artists can be challenging. There are the visa issues, and then there are the tax issues. Regulation 105 (R105) Withholding has been in effect for thirty years and has worked relatively well for most of this time. However, in recent years, office restructuring at the Canada Revenue Agency and increase in standards for compliance have turned R105 and waiver processes into real hurdles both for Canadian engagers and non-resident artists/companies. As a consequence, some companies are no longer interested in touring to Canada unless the Canadian engager is willing to pay a higher fee to offset the tax withheld.
Since the spring, several arts organizations including Intrepid Theatre, Dance Victoria, Festival de Jazz de Montréal, and Regroupement des événements majeurs internationaux have sent letters expressing their concerns to the government. In order to unite everyone’s efforts and to achieve greater impact, CAPACOA convened a series of meetings with fifteen arts organizations. In the last meeting, on December 8, participants agreed to form a working group comprised of representatives of:
This working group identified a series of recommendations to improve the administration of R105 with a live performance lens. Over the next months, the working group will request meetings with the government and with the Canada Revenue Agency to discuss these recommendations. Additional follow-up activities will include a session at the CAPACOA conference as well as the development of information to help arts organizations deal efficiently with R105.
Every arts organization who makes a payment to a non-resident artist or company for services rendered in Canada must withhold and remit an amount in accordance with the requirements under the Canadian Income Tax Act. The rate of withholding is 15% of the gross amount paid.
The only alternative to the withholding and remitting requirements is for the non-resident to obtain a waiver, or a reduction in the withholding tax. Where a non-resident can adequately demonstrate that the withholding tax normally required is in excess of their ultimate Canadian tax liability, the CRA may reduce or waive the withholding tax accordingly. The onus is on the non-resident to demonstrate to the CRA that a waiver or a reduction of the amount required to be withheld is justified. This may be based on the application of the treaty of their country of residence or through an estimated income and expense statement. A request for a waiver should normally be filed 30 days before the services are to begin in Canada, or 30 days before the first payment is due for these services.
Even if the payer withholds and remits tax from the non-resident’s income or even if a waiver is granted, the non-resident will likely have to file a Canadian income tax return to get a refund of any excess amounts that were withheld or else to certify that they are exempt from paying tax in Canada.
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