What is the basis of Canada’s income tax system?
Your liability for income tax in Canada is based on your status as a resident or non-resident of Canada. Your residency status must be established before your tax liability to Canada can be determined.
If you are considered to be a non-resident of Canada, you are generally taxed only on income from sources within Canada, such as your CFL salary.
If you are considered to be resident of Canada, you are generally subject to Canadian tax on your worldwide income. However, if you have income that is sourced to the U.S. or other countries, you are generally eligible to claim a credit against your Canadian tax for the tax paid to the other country.
Will I be considered a resident or non-resident of Canada for tax purposes?
It is a question of fact as to whether you are a resident of Canada for tax purposes. Your facts and circumstances must to be reviewed in their entirety to get an accurate picture of your tax residency status.The following factors will be taken into consideration in determining whether or not you are considered “ordinarily resident” in Canada for tax purposes:
a. Evidence of intention to permanently establish residential ties;
b. Residential ties to Canada; and
c. Residential ties elsewhere.
Significant residential ties to Canada would include:
a. Year-round dwelling available in Canada
b. Spouse or common-law partner living in Canada
c. Dependants living in Canada
If the significant financial ties are insufficient to establish Canadian tax residency, secondary residential ties such as the following are taken into account:
a. Location of personal property
b. Social ties
c. Economic ties (employment, business, investments, etc.)
d. Immigration status
e. Medical coverage
f. Driver’s license and vehicle registration g. Seasonal dwelling
h. Professional memberships
Furthermore, if you spend over 183 days in Canada during any given calendar year, you are deemed to be a tax resident of Canada for that year.
If you are considered to be a dual resident of Canada and U.S. under their respective domestic tax laws, the Canada – U.S. Income Tax Convention (“the Treaty”) provides a series of tie-breaker tests, applied in the following sequence:
1. Location of permanent home (either owned or long-term rental)
2. Center of vital interests (i.e. family, economic and social ties)
3. Habitual abode (i.e. where you physically spend your time)
5. Competent authority ruling
For example, if you have a permanent home available to you only
in the U.S. or only in Canada, you will be considered to be a resident of that country for tax purposes. If you have a permanent home in both countries (or neither country), the first tie-breaker test is not determinative, and you would move to the second tie-breaker test.
Even if you are considered a resident of Canada for tax purposes, if you are a U.S. citizen or green card holder, you will still be required to file a U.S. resident income tax return reporting your worldwide income. For more information, BDO’s publication on the tax consequences for U.S. citizens living in Canada is available on our website.
The remainder of this FAQ has been prepared on the assumption that you will be considered to be a non-resident of Canada for tax purposes.
When does my salary become taxable in Canada?
Assuming all of your games, practices, and training will take place in Canada, all of the taxable compensation you receive from your team will be regarded as Canadian source, and be subject to Canadian tax. However, if your compensation does not exceed CDN$15,000 in any given year, it is exempt from Canadian tax under the Treaty.
For non–residents of Canada, the entire amount of your taxable compensation is subject to Canadian federal tax. Canadian provincial tax is also applicable based on the location where your services are being rendered. Compensation should generally be allocated to the provinces proportional to the number of reporting days in each province during the year.
Is my per diem travel allowance taxable in Canada and/or the U.S.?
Assuming that the per diem travel allowance relates to travel to or from a city other than city in which your team is based, it is likely to be exempt from tax in both Canada and the U.S.For Canadian tax purposes, a “reasonable” amount of travel allowance is exempt from tax under with respect to employment duties conducted away from one’s principal place of work.
For U.S. tax purposes, a deduction is permitted for “ordinary and necessary” travel expenses while away from home in pursuit of a trade or business. The IRS publishes tables as to the maximum levels of per diem allowances for particular urban areas that can be excluded from taxable income without a requirement to collect supporting documentation to substantiate the actual expenses.
Are the travel costs paid directly by my team (hotels, airfare, etc.) considered to be a taxable benefit in Canada and/or the U.S.?
Reasonable costs paid by your team that relate to travel to or from a city other than city in which your team is based are generally not included in your taxable income for Canadian or U.S. tax purposes.
Is the monthly housing allowance provided by my team a taxable benefit in Canada and the U.S.?
A housing allowance relating to the city in which your team is based will generally be taxable in Canada and the U.S.
Is my income from promotional appearances in Canada taxable in Canada?
In most cases, income received from appearances at promotional events is considered to be income from independent personal services (i.e. business income). In that case, the income will likely not be taxable in Canada unless you spend over 183 days in Canada during any twelve-month period.
You should seek individualized tax advice to evaluate the taxability of your promotional appearances in Canada.
Is my income from licensing my name and/or image in Canada taxable in Canada?
In most cases, this type of income is considered to be royalty income, which is generally taxable in Canada at a fixed rate of 10% under the Treaty. However, there are certain types of royalties (e.g. artistic copyrights) that would not be taxable in Canada.
You should seek individualized tax advice to evaluate the taxability of your licensing income in Canada.
What are the personal tax rates in Canada?
Tax rates in Canada vary by province. BDO’s Tax Facts 2013 publication outlines the tax rates for each province and is available on our website. On page 2, there is a chart indicating the top marginal tax rates by province for different types of income. Employment income would be considered “regular income” on this chart. On pages 3 through 7, there are tax calculation formulas for each province which illustrate the federal and provincial tax brackets. For example, the top marginal tax rate in Ontario for 2013 is 49.53% (federal plus provincial tax), and the lowest tax bracket is 20.05%.
Signing bonuses can generally be structured to be subject to Canadian tax at a flat rate of 15% under the treaty, rather than be subject to tax at marginal rates.
What types of tax deductions are available in Canada?
Assuming that you are a non-resident of Canada for tax purposes,
as long as at least 90% of your worldwide income is from Canadian sources, you will be able to claim many of the tax deductions that
a Canadian resident would be able to claim, including the basic personal amount, spousal amount, tuition, donations, and medical expenses. Otherwise, your deductions will be very limited.
The following are some lists of examples of deductions that are available in Canada, and not available in Canada:
Deductions generally available regardless of income level
• Donations to Canadian registered charities
• Tuition (for taxpayer only)
• Child care (only if child living in Canada)
• Canada Pension Plan and Employment Insurance premiums paid
• Unreimbursed travelling expenses (transportation, food and lodging)
Deductions available if > 90% of worldwide income is from
• Basic personal amount ($11,038 for 2013)
• Spouse/common-law partner/eligible dependant amount
($11,038 for 2013)
• Medical expenses for taxpayer and dependants
• Disability credit transfer from dependants
• Tuition credit and education amount transfer from dependants
Deductions generally not available regardless of income level
• Agents’ fees
• Contract insurance re injury
• Moving expenses
• Mortgage interest
• Property taxes
The availability of deductions for employment-related expenses is very limited in Canada. In order to deduct any employment- related expenses, you must obtain Form T2200 from your employer to certify that you are required to pay certain of your own employment-related expenses.
What are the income tax withholding requirements in Canada?
Assuming you have no other Canadian-source income, the tax withheld on your compensation should be sufficient to cover your Canadian tax liability. Ensuring that appropriate tax is withheld is the responsibility of your team’s payroll department.
What are my tax return filing requirements in Canada?
The provincial tax for all provinces (except Quebec) is reported via
the Canadian federal income tax return (Form T1). A separate Quebec tax return (TP-1.D-V) is required to be filed to report compensation earned in that province. Like in the U.S., tax returns are filed reporting income and deductions based on the calendar year.
You should receive a T4 slip (Canadian equivalent of a W-2 slip)
for the calendar year from your team by the end of February of the following year. If you received compensation earned in Quebec, you should receive an RL-1 slip as well.
The T1 and TP-1 (along with payment, if required) are due April 30 of the subsequent year.
How can I avoid double taxation of my Canadian-source income on my U.S federal tax return?
If you are a U.S. citizen or resident alien, you are taxable in the U.S. on your worldwide income. If your Canadian salary is taxable in Canada, you can claim a foreign tax credit on your U.S. tax return (via Form 1116) to avoid double taxation.
A direct credit against your U.S. federal tax on can be claimed for the federal and provincial income tax paid to Canada on your Canadian- source salary, plus your Employment Insurance (EI) premiums paid. The credit is based on the lesser of the Canadian tax and the U.S.
tax on the income, such that you generally are subject to tax at the higher of the Canadian and U.S. average tax rate on the income.
Note that the credit is based on the actual tax per your Canadian tax return, as opposed to what was withheld at source from your salary.
Since Canadian tax rates are generally higher than U.S. tax rates, employees usually find that the foreign tax credit is sufficient to bring the U.S. tax on employment income down to zero. However, if you have other sources of income (e.g. investment income), you may still end up paying some U.S. federal tax, because Canadian tax on salary cannot be used to offset U.S. tax on passive income.
How can I avoid double taxation of my Canadian-source income on my U.S state tax return?
Depending on the state in which you are domiciled, you may or
may not be able to avoid double tax. Some states (such as Georgia) do not grant any form of foreign tax credit for Canadian tax, which results in double tax approximately equal to the total state tax ultimately paid. However, some states (such as New York) do offer a foreign tax credit for tax paid to a Canadian province, typically limited to the extent that a credit for the Canadian tax has not been claimed on the federal income tax return.
If you reside in a state that levies income tax, it most likely offers a tax credit for taxes paid to another “state”. It is a question of whether Canada or its provinces are considered a state for this purpose. The distinction is not always made in the instructions
for the state tax return, and it is often necessary to check state legislation or other publications. Upon your request, we can check to see if your home state offers relief from double taxation.
Am I entitled to participate in the Canada Pension Plan (CPP)?
You are required to participate in the CPP as soon as you start working in Canada. Contribution rates are thresholds are indicated on page 17 of BDO’s Tax Facts 2013.
Contributions of 9.9% are payable on salary over $3,500. The maximum income subject to contributions is $47,600. Contributions are paid 50% by the employer and 50% by the employee, and employee contributions are withheld from salary. Therefore, the maximum employee contribution is $2,356.20 for 2013.
There is no minimum contribution period or amount for benefits to vest. The CPP is a contributory pension plan, so benefits are based on the amount of employer and employee contributions made
over time. Benefits can be applied for as early as age 60. For more information, visit the CPP website.
For U.S. residents, CPP benefits are not subject to Canadian taxation under the terms of the Treaty, and are taxable in the U.S. under the same rules that apply to Social Security benefits.
How much will it cost for BDO prepare my tax returns and provide related tax advice?
We can prepare both your U.S. and Canadian tax returns, if you wish. Alternatively, we can prepare your Canadian return only, and you
or your local tax advisor can incorporate the necessary information from your Canadian return when preparing your U.S. return(s).Our fees will vary depending on what returns we are requested to prepare, the level of complexity of those returns, and whether any special tax advice or assistance is required. Ultimately, fees will based on the time spent on your file, and the hourly chargeout rates of the staff involved. The CFLPA has arranged for BDO to provide all CFLPA players a 10% discount from our normal chargeout rates.
Please contact us if you would like to discuss your personal tax requirements with us. We can provide a fee estimate based on your specific circumstances.