Canada is known as Hollywood North because many movies and television shows and commercials are filmed here. Everyone knows this – including the Government of Canada. That is why it is surprising that so little information is available to inform non-resident actors, actresses, performers, directors and producers about their obligations under Canada's GST/HST laws. There isn't a clear policy inviting the film production industry to Canada and informing the key service providers of what they need to do to comply with Canadian GST/HST laws.
Unlike the United States, Canada has a federal sales tax called the goods and services tax and in some provinces harmonized sales tax 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 five per cent. HST is imposed in Ontario, Quebec (QST), Nova Scotia, New Brunswick, Newfoundland/Labrador and Prince Edward Island at varying rates between 13 and 15 per cent.
An issue arises for non-resident performers, directors, producers, etc.: Do they need to charge GST/HST on their services? These people and other non-resident employees on sets in Canada earn fees for their services either directly as employment income or as independent contractors or through a company. Many have companies that enter into a service contract with a service/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 article. It is important to note that the test for income tax is different than for GST/HST because they are different types of taxes.
Whether a specific contract is subject to GST/HST depends 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 they are "carrying on business in Canada,” they are 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 they earn 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 may come 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 may move to Canada for a year or longer to film a television series or movie that is set in Canada or perform in a long-running theatre engagement in Canada. This person is likely 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 is set out in GST/HST Policy Statement P-051R2 (2005) "Carrying on business in Canada," which is the Canada Revenue Agency's written administrative position on the general subject. There isn't a specific policy for actors, actresses, directors, producers, etc. Policy Statement P-051R2 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 Statement P-051R2 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 claims input tax credits (i.e. refunds). In some cases, it may be better for companies of actors, actresses, directors and producers to register and collect the GST/HST rather than be audited by the CRA.
Cyndee Todgham Cherniak, LexSage Professional Corporation