Canada is known as Hollywood North because many movies and television shows and commercials are filmed in Canada. However, unlike the United States, Canada has a federal sales tax called the goods and services tax (“GST”) and in some provinces harmonized sales tax (“HST”) is imposed. GST/HST is exigible in respect of supplies of services (including the services of acting or directing or performing in a movie, video, television program/series, commercial, music video, acting in a theatre production or musical, etc.). GST is imposed in all provinces and territories at a rate of 5%. HST is imposed in Ontario, Quebec (called QST), Nova Scotia, New Brunswick, Newfoundland/Labrador and Prince Edward Island at varying rates between 13%-15%.
An issue arises for non-resident actors, actresses, performers, directors, producers, etc. – Do they need to charge GST/HST on their services. Non-resident actors, actresses, performers, directors, producers and others who work on sets in Canada earn fees for their services either directly as employment income or as an independent contractor or through a company. Many actors, actresses, directors, etc. have companies that enter into a services contract with a services/production company that is producing a work in Canada.
When the actors, actresses, performers, directors, producers and others earn employment income (that is, they are an employee of the person who pays them for their services), GST/HST is not payable or collectible. The reason for this is that the definition of “commercial activity” excludes an office or employment.
The term “commercial activity” does include business activity and adventures or concerns in the nature of trade. When the actors, actresses, directors, producers and others enter into a services contract (either as an independent contractor who contracts directly or through a services/production company), GST/HST may be collectible/remittable on top of the consideration payable for the acting/directing services. In other words, an actor who provides services as an independent contractor or through a production company may be required to charge, collect and remit GST/HST. The acting or directing services are considered to be taxable (from a GST/HST perspective, not necessarily income tax) supplies made in Canada. Another issue is Canadian income tax – but we will not be addressing income tax and withholding tax in this post. It is important to know that the test for income tax is different than for GST/HST – they are different types of taxes.
Whether or not a specific contract is subject to GST/HST on the facts. The most important question is whether the actor, actress, director, producer, etc. is “carrying on business in Canada” or carrying on business with Canadians. If the actor, actress, director, producer, etc. is “carrying on business in Canada, the actor, actress, director, producer, etc. is required to register for GST/HST purposes and to charge, collect and remit to the Government of Canada GST/HST on the service fees charged in the contract (with respect to the fees earned in relation to activities in Canada). If the actor, actress, director, producer, etc. earns a portion of the fees based on the success of the movie or work, a portion of that amount may also be subject to GST/HST.
Whether a person is “carrying on business” in Canada is a factual question that must be reviewed on a case-by-case basis. At one end of the spectrum, an actor/actress/performer/director/producer comes to Canada one time for a few days to film a few scenes on location. This person is not likely to be considered to be carrying on business in Canada. At the other end of the spectrum, a person moves to Canada for a year or longer to film a television series or movie that is set in Canada or to perform in a long running theatre engagement in Canada. This person is likely to be considered to be carrying on business in Canada. The range of scenarios in the middle is endless – this is where further consideration of the facts is always necessary..
The starting point of the analysis as to whether a person is “carrying on business” in Canada is set out in Policy P-051R (2005) “Carrying on business in Canada”, which is the Canada Revenue Agency’s (“CRA”) written administrative positions on the general subject of carrying on business in Canada. There isn’t a specific policy for actors, actresses, directors, producers, etc. Policy Statement P-051R has a number of examples. Examples 18-21 deal with the provision of services in Canada by a company. In most cases where an employee performs services in Canada, the CRA takes the position that the company is carrying on business in Canada. Given the complexity of the factual analysis for actors, actresses, performers, directors and producers and the amount of money involved, it is important to ask the questions as the contract is being negotiated. Policy P-051R sets out a number of factors that the CRA will consider. However, no one factor is considered to be determinative.
The CRA issued a headquarters letter in 1999 (HQR0001927) in which it took the position that the following scenarios would be considered by the CRA to involve a performer carrying on business in Canada:
- a non-resident performer who provides acting services in Canada during the making of thirteen episodes of a series for television; or
- a non resident performer who provides acting services in Canada during the shooting of three specific films in one calendar year.
The CRA took the position that a non-resident performer who provides acting services in Canada during the shooting of a film may not be considered to be carrying on business in Canada. That being said, more recently, the CRA has taken the position that a non-resident performer who provides acting services in Canada in connection with a single film was carrying on business in Canada based upon other relevant facts, including the fact that the film was produced by a Canadian incorporated entity (not a non-resident production company), the amount of remuneration earned for the acting services, the living arrangements of the performer while in Canada, and the length of time in Canada the performer would spend filming.
Most Canadian productions involve a Canadian company as the buyer of the acting, directing or producing services. If that entity is registered for GST/HST purposes, it may recover GST/HST paid to actors, actresses, directors, producers, etc. As a result, the entire production may be structured so that any GST/HST payable is a flow-through. In other words, the actor’s company collects the GST/HST and remits it and the production company that pays the GST/HST gets in back. Sometimes, it is better for companies of actors, actresses, directors and producers to register and collect the GST/HST rather than being audited by the CRA.
We have provided legal services to many actors, actresses and directors directly or through their Canadian agents or U.S. accountants. We have to review the questions each time the actor, actress, director, producer, etc. comes to Canada for another movie, television series, guest appearance, theatre or musical performance, etc. It is necessary to have GST/HST addressed within the services contract.
If you have any questions about GST/HST, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com.