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ARTICLE 17 | ARTIST REGIMES | ARTIST EXPENSES | CIRCUS COMPANIES

Tax Treaties – Article 17 – Artistes & Sportsmen

Most tax treaties contain a provision specific to artists and sportspersons that serves to permit taxation of income of artists and sportspersons in the country of source regardless of other exceptions permitted under articles 7 and 15. The OECD model tax treaty article reads as follows:

Notwithstanding the provisions of Articles 7 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 sportsman, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.
Where 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 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised.

As a result, performing artists and sportspersons are generally subject to tax in the countries in which they perform. Some countries have negotiated exceptions to source taxation provided for in Article 17 which apply to not for profit and cultural exchange programs. The United States reserves the right to negotiate an exception to source taxation on de minimis earnings.

Paragraph 2 of Article 17 ensures that income from artistic performances can be taxed in the country of source even if payment is made to a corporation which would not ordinarily be subject to tax in the source country due to Article 7 of the tax treaty.

Artist Regimes

Certain countries have established artist regimes to simplify the administration and the payment of tax by foreign artists. General characteristics of an artist regime include:

alternative tax rates for artists;
some form of co-ordination between withholding on payments between companies for artist services and payment between the presenting company and the individual artist;
a final tax withholding or simplified annual reporting requirements.

Artist regimes are more commonly found in Europe and to a lesser degree in Asia.

Artist Expenses

Independent contractors may claim all expenses incurred to earn income as an artist as allowed by law.

In Canada, artists having the status of employee may claim a deduction for expenses incurred to earn employment income as an artist. Expenses are limited to the lesser of:

the expenses paid by you in the year and

the lesser of:

$1,000 or
20% of your employment income from artistic activities

This limitation is further reduced by the amount deducted as musical instrument expenses and by the amount deducted as motor vehicle costs.

The deduction for employed artists is only available at the federal level.

Employed musicians may claim a deduction for musical instrument expenses for:

maintenance costs;
insurance costs;
depreciation;
rental fees.

Musical instrument expenses cannot exceed your income for the year as a musician.

The deduction may be claimed on your Canadian and Quebec returns.

Please note that expenses that are reimbursed by your employer are not considered paid by you in the year.

For details on the types of expenses artists may deduct, please refer to the Canada Revenue Agency’s IT-525R and Revenue Quebec’s IN-118 section 8.

In the US, artists may claim unreimbursed employment expenses paid in the year as a miscellaneous itemized deduction provided the expenses are ordinary and necessary. These deductions are only available to the extent that they exceed 2% of the artist’s adjusted gross income and the artist must be otherwise itemizing their deductions (i.e. not claiming the standard deduction). Ordinary expenses are common or accepted in your profession. Necessary means the expense is helpful or appropriate in your field. The expense does not need to be required by your employer in order for it to be necessary.

Qualified performing artists may deduct their expenses as an adjustment to income rather than as a miscellaneous itemized deduction.

Circus Companies

Creating a company, whether it is a not for profit created under the laws of Canada or Quebec or an LLC organized under the laws of the US, or another business structure, your company likely has additional tax and administrative obligations.

This may entail:

business registrations;
opening of payroll accounts and operating a payroll for employees;
withholding on payments to non-resident contractors;
reporting of dividends paid in the year;
collection of sales tax;
corporate tax return filings;
workers’ compensation obligations.

It is very important that you understand your obligations as the authorities may apply penalties and interest on non-compliant businesses.