My_question_is: Applicable to both US and Canada Subject: Canadian, paid by U.S. company, working in Europe Expert: taxman at centa.com Date: Tuesday December 14, 2004 Time: 03:11 PM -0800 QUESTION: Canadian Musician is being paid from by the U.S. Entertainment firm that hired her to play in a theatrical show and the funds will be direct deposited in Canadian account. No work will be done in Canada or U.S. The show will be presented exclusively in Europe for 1 year. All flights, hotel and food is paid by the U.S. company. The musician will have no out-of pocket expenses. Option 1) The musician can work completely as a contracted person without benefits. Option 2) The musician can be paid as an employee at a slightly lower salary then the U.S. company will also pay for the medical insurance plan that will cover the musician during all her travels in the various coutries while in Europe. In either scenerio, who collects taxes, Canada, U.S. or nobody (wishful thinking)? If one has a choice, is there a financial advantage of choosing to pay taxes in one country or the other? Thank you for your great site. --- david ingram replies: As you have described the situation, the Canadian Musician is taxable on his or her "world" income in Canada. The reason is that they are a Canadian citizen who has not established a bone fide residence in another country. There is NO tax liability to the United States. There will likely be a tax liability to some of the other countries. For instance, the France <> Canada Income Tax Convention, states Article 17 Artistes and Sportsmen 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as theatre, motion picture, radio or television artiste, or a musician, or as a sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. When income in respect of personal activities exercised by an entertainer or a sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised. 3. The provisions of paragraphs 1 and 2 shall not apply to income in respect of activities exercised by a resident of a Contracting State as an entertainer or a sportsman in the other Contracting State if the visit to that other State is principally supported, directly or indirectly, by public funds of the first-mentioned State, its provinces in the case of Canada, its local authorities, or their agencies or instrumentalities thereof. In such case, the income shall be taxable only in the first-mentioned State. ============= And The German <> Canada Convention states much the same thing Article 17 Artistes and Sportspersons 1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from that resident's personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in that individual's capacity as such accrues not to the entertainer or sportsperson personally but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised. 3. The provisions of paragraphs 1 and 2 shall not apply to income derived from activities performed in a Contracting State by entertainers or sportspersons if the visit to that State is substantially supported, directly or indirectly, by public funds of the other Contracting State or a "Land" or a political subdivision or a local authority thereof. In such a case, the income shall be taxable only in the Contracting State of which the entertainer or sportsperson is a resident. =========================== and the Great Britain <> Canada Tax Convention states: Article 16 Artistes and Athletes 1. Notwithstanding the provisions of Articles 7, 14 and 15, income derived by entertainers, such as theatre, motion picture, radio or television artistes, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised. 2. Where income in respect of personal activities as such of an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised. 3. The provisions of paragraphs 1 and 2 shall not apply: (a) to income derived from activities performed in a Contracting State by entertainers or athletes if the visit to that Contracting State is wholly or substantially supported by public funds; (b) to a non-profit making organization no part of the income of which is payable, or is otherwise available for the personal benefit of, any proprietor, member or shareholder thereof; or (c) to an entertainer or athlete in respect of services provided to an organization referred to in sub-paragraph (b). =============== as you can see, Each country has the right to tax the musician and he or she should be prepared to pay the tax. It can be very unfortunate when a country catches up as happened with the Toronto touring company of Phantom of the Opera when Hawaii caught up three years later and sent them all BIIIIIGGG Tax bills. Your musician should not worry though. Every cent of tax he or she pays to France, Spain, Italy, Germany, etc., will be deductible as a foreign tax credit on the Canadian tax return. Your musician should be prepared to pay Canada $28,000 Income tax on an earnings of $100,000 and about $11,000 tax on earnings of $50,000 - In each case, he or she would owe about $4,000 Canada Pension Plan payments as well. At $30,000, the Canadian tax would only be about $5,000. In each of the situations above, any tax paid to the other countries would be deducted from the Canadian tax. This is not unusual by the way. when we do an NBA or NHL professional athlete, we have to a state tax return for every state they play basketball or hockey in, usually about 23 tax returns. I, of course, would be glad to look after the returns for your musician. 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