another tax question

[hummingbird]

Okay, I've been asked to fill out one of these two tax forms by a music publisher.W-8BEN (Standard)..This allows for a lower withholding (15-20%), but it is dependent on Canada's treaty benefits with the USFORM 8233 ..Exemption form for Non-Resident Aliens (If I fill this form out, I will be withheld at the normal rate) I'm not sure which to fill out. I'm not performing any services IN the US.I'm self-employed, I claim all my income (from where ever I earn it) as business income & then deduct my expenses, and pay tax on what's left. Anyone know anything about "Canada's treaty benefits with the US"? Might be the better form to go with?

[edteja]

The normal rate will be 30% so I'd go with the treaty document, which also allows you to claim it back on your Canadian taxes.

[hummingbird]

thanks, that makes sense!

[simonparker]

Hold your horses, please.First. The Canadian - US treaty rate for Royalties is 10%.Second, you file W8-BEN based on your fact pattern you describe. However, if you are living in the US or have a business there, you might have to file Form 8233, depending on how you structure your business.Third, there are certain provisions in the Canadian income tax code that allow copyrightable works to be tax exempt for Canadian tax purposes. It's not as clear cut as you may think.Please take a moment and review this link for more information.http://www.irs.gov/pub/irs-pdf/p597.pdf

[arkjack]

ARRGHHH... Rats! The one chance I have to help out Hummingbird,.... and I absolutely don't know squat about how to handle US paid royalties to a Canadian citizen. Sorry Vicki.ArkJack

[hummingbird]

yeah, I printed that off earlier and planned to read through it. Don't know if that applies to music. They aren't talking about royalties - I get paid through my Canadian pro so that would be dealt with here. It's licencing fees we're speaking of. For music written & produced in Canada but placed in the US.

[simonparker]

Based on your fact pattern of a PRO in Canada paying royalties from US sources, I would say the following (not meant as tax advice, just tax observations):- Royalty income from US to be taxed by the US at 10%- Royalty income to be reported on T5, and shown on your T1 accordingly- Tax in Canada on royalty income then would be offset by tax credit based on Canada Revenue laws against the tax (withholding) paid in the US on the 10%.So for example, if the US dollar and Canadian dollar are equal exchange rates, and you generated $1,000 of royalty income in the US, you would have withholding tax in the US of $100. On your Canada return, assuming a 40% tax rate (including provinces), on your T1, you would show income of $1000 and taxes due of $400. However, you would also have a foreign tax credit on the taxes paid in the US, so your overall tax to Canada should be $300.Keep in mind that this is a very rough example of how it would work. There are limitations to utilizing tax credits, as well as allowances for deductions against royalty income in Canada. I would contact CRA for any questions.

[simonparker]

BTW,I would think licensing fees would fall under the royalty treaty rate. Again, you would have to research the definition of such or ask CRA.