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Information on withholding tax on residuals and contingent compensation
This page contains the following information:
Withholding tax on residuals and contingent compensation
A 23% non-resident tax applies to payments of residuals, buy-outs of residuals, and contingent compensation (commonly referred to as participations) made to non-resident actors for film or video acting services they provide in Canada. Payments of residuals and contingent compensation are considered to be delayed compensation for film or video acting services provided in Canada. A Canadian or non-resident payer is ordinarily responsible for withholding, remitting, and reporting the tax to the Canada Revenue Agency (CRA). When the payer does not withhold the full amount of non-resident tax, the non-resident actor has to calculate the amount owing and remit it directly to the CRA.
If a payer does not withhold the 23% non-resident tax on contingent compensation, the CRA may issue an assessment notice to the actor, the payer, or both for the tax not remitted.
When the actor performs film or video acting services through their corporation, then the 23% tax is applied on payments from the payer to the actor corporation. For the subsequent payment from the actor corporation to the individual actor, the 23% tax only applies to any amount that exceeds the payment from the payer to the corporation.
Definitions
Union contracts specify that the producer will pay residuals in addition to the fixed compensation if the producer uses the production in a different market or manner (motion picture, public television, commercial, etc.), than originally indicated, or uses/exhibits the production more times than certain thresholds specified in the union agreements. For example, the amount paid may be a percent of the fixed or minimum compensation for the actor, or a percent of the profits that the union divides amongst the actors by units based on salary and hours worked.
Contingent compensation - participations
Contingent compensation is a feature of an actor's contract with the producer that allows the actor to share or "participate" in the success of the production. Usually, the production will be a feature film. Contingent compensation payments may be calculated as a percentage of the production's gross or net profits, revenues, box office receipts, etc., as per the terms of the contract.
To ensure that payers withhold tax or that actors remit tax, the CRA may request that payers provide detailed information on the residual or contingent compensation payments they have made. The CRA will refuse to apply the administrative policy to non-resident payers who do not co-operate in providing requested information on contingent compensation or residual payments.
If the CRA determines that this policy results in a high level of uncollectible amounts, or that requests for information are not generally satisfied, it may revise or withdraw the policy.
Information on services provided in Canada by non-residents is gathered from public and internal sources. The information is collected under the authority of the Income Tax Act and is protected by the provisions of the Privacy Act.
Payments from a Canadian or non-resident payer to a non-resident actor
Effective June 30, 2006, the CRA had proposed a new administrative policy for non-resident payers withholding tax on contingent compensation and residual payments to non-resident actors.
Further to concerns expressed by the film industry, the Government of Canada has determined that a review of the tax treatment of certain contingent compensation payments and residuals paid to a non-resident actor in respect of services performed in Canada is warranted. This review will ensure that the concerns raised by the film industry on the taxability of residuals and contingent compensation payments under the current law are fully considered. Accordingly, the CRA will maintain the status quo in relation to this issue and defer any administrative changes, including the one proposed for June 30, 2006, pending that review.