As your career grows and you start venturing to the USA for opportunities, you have to be aware of various items relating to the US tax system. I will cover two key items that artists should be aware of. If you are considering immigrating to the USA, the subjects covered in this article do not apply. The subjects in this article only relates to Canadian residents traveling to the U.S. for opportunities.
The first thing you must be aware of is that Canadian artists who have booked performances down in the US are subject to 30% withholding tax on your gross income. The implication of this could leave you in a negative cash position after deducting all your expenses relating to the trip. In order to recover the withholding taxes, you will have to file a US tax return, which could take months to get a refund.
Luckily, the Internal Revenue Service (“IRS”) provides some relief if you enter into a Central Withholding agreement (“CWA”). A CWA is an agreement entered into by the non-resident alien (NRA) athlete or entertainer, a designated withholding agent and an authorized representative of the Internal Revenue Service. The agreement is for a specific tour or series of events and withholding is based upon the budget provided and net profits estimated. By filing a CWA, the withholding taxes are withheld on net income rather than gross, which will make a significant difference to your cash flow needs.
Whether you file or do not file a CWA, you are required to file a non-resident US income tax return, referred to as a 1040 NR form. For more details about the CWA go to the following link: http://www.irs.gov/Individuals/International-Taxpayers/Central-Withholding-Agreements
The second item is if you spend plenty of time down in the US, you have to be careful about the sojourning rules that could essentially deem you as a US resident.
If an individual spends 183 days or more in the US they will be considered to be a US resident (subject to some very minor exceptions). As such, he/she will be subject to US taxation on Worldwide income and may need to file several other forms although some relief may be available if the individual is considered a Canadian resident under the Canada-US Treaty.
If an individual spends less than 183 days in the US in the year, but the total of their time as determined by the following formula (substantial presence test) is 183 days or greater, they would be considered U.S. residents.
The total of:
If determined to be a resident under this scenario, the individual would be subject to the same considerations as discussed in the “presence of 183 days or more” scenario above.
If an individual is in the US for less than 183 days but is considered a resident under the substantial presence test, they may complete:
Form 8840 – Closer Connection Exception Statement for Aliens to except themselves from residency.
Specific U.S. advice may be needed in these areas. Please consult your accountant on any of these matters.
by Sam Arraj, CPA, CA