Canadian Authors and US Taxes

July 22, 2013
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June 15, 2013
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January 12, 2014

I am a Canadian author. My agent is American. Enter the IRS. Don't buy those Jimmy Choos just yet. 

This blog has nothing to do with creative writing and everything to do with getting paid. If you are a Canadian author and your literary agent is American, you’re in for some paperwork and some waiting time. 

When your publisher(s) send along your advances, the money first goes to your agent, not you. (If you don’t know why things work this way traditionally, this blog from the Books & Such Literary Agency explains how this arrangement works). If your agency is Canadian, they would wire transfer or write a cheque to you for 85% of your advance or royalties, and that would be yours to declare when filing Canadian income taxes.

 
 

But what if your agent is American? Well, if they follow US tax law as they are required to do, they’d have to knock off about 30% withholding tax from your 85% to send to the US Internal Revenue Service (IRS).

But wait, you say, don’t Canada and the US have reciprocal tax treaties? As a Canadian resident, can’t I just file for Canadian income tax? 

Absolutely. As long as you have your Individual Taxpayer Identification Number (ITIN) from the IRS, your American agency will be empowered to send you the full amount to which you’re entitled, and then it’s all between you and Canada Revenue Service.

This process can take months, however, so don’t spend your advance until you actually have it. Gird your loins. First there’s the documentation you need:

a) A letter from your US publisher stating that you need an ITIN. The publisher’s tax accounting department is used to sending out this sort of letter; my agent prodded them for it. I didn’t have to do anything except wait. 

b) Your passport or a certified copy of your passport. There is no way I’m letting my actual passport out of my hands or the Canadian government’s hands. So I went and got a certified copy. And that’s certified, not notarized, meaning certified by the entity that issued the passport, meaning Passport Canada. So just go to your nearest Passport Canada office with your passport, and fill out the form requesting a certified true copy. It takes about 3 – 5 days. You can also get a form from them that lets you authorize someone else to pick it up for you (The Helpful Husband, in my case).

The fact that you can get a free certified copy of your passport is somehow not documented anywhere on the Passport Canada site but my agent told me about this. Until March 31, 2014 this service is free. After that, it will cost $45.

Once you have both those pieces of documentation, you need to fill out a Form W-7 from the IRS to get your ITIN. Read through the instructions very carefully and go online to make sure of the tax treaty number

I can’t make any promises that my situation is the same as yours or that the tax treaty numbers will still be the same by the time you fill out one of these forms, so you need to verify for yourself. 

Yes, that was my disclaimer you just read – and the following is the hard part of what you have to fill in:

Section: Reason you are submitting the Form W-7 (my  action/response in italics):          

  • Select [A] Nonresident alien required to get ITIN to claim tax treaty benefit.
  • Also select [H] Other > Exception 1(d). Please see enclosed letter from publisher
  • Also fill in Additional information for A and F: Treaty country Canada and treaty article number XII Royalties

Then you mail the form and letter to the IRS address provided on the W-7 form and wait -- for about 60 days, according to the instructions on the form. I sent mine by registered mail so I’d know when it arrived at their location in Austin, Texas. 

About 67 days after my documentation got to the IRS, I received my ITIN in the mail. A couple of days after that, the certified copy of my passport arrived back in the mail.

Now you need to fill out another IRS form, the Form W-8BEN, which is pretty straightforward. This one just asks for your ITIN.

Mail the ITIN document and Form W-8BEN to your agent, who sends it on to your publisher for their files. I scanned and emailed the documents to my agent before putting the documents in the mail, so she could see I had my ITIN and could start cutting the cheque. Now your agent can send the money they’ve been holding for you. Finally. But you do get all of it.

WARNING: Your ITIN may expire after 5 years. Check the IRS website.

BIG NOTE: Ask your agency if they can wire you the money instead of writing a cheque. I don't know about your bank, but mine takes 30 days, yes, THIRTY DAYS to clear a foreign cheque. You may get charged a service fee by your bank for accepting the wire transfer, but at least you'll get the money right away. Find out from your bank about fees and cheque clearing times.  

But wait, you say. Janie, don’t you have a Canadian publisher? Do your payments from your Canadian publisher also get this treatment? 

It’s counter-intuitive, but yes. Since my Canadian publisher sends the funds to a US agency, the payment is coming to me through an American entity and therefore subject to US withholding tax.

There’s one more scenario: what if your agent is American and your publisher is Canadian? You don’t have a US publisher to issue that letter stating you need an ITIN? Well, your agent would ask your Canadian publisher to write a letter saying that they will be sending the money to the agency (a US-based company) and the agency would also write a letter saying they confirm this, and will be sending the money to you.  That would be your substitute documentation for (a) above.

Yes, it would’ve been way faster if I had a Canadian agent, but reducing red tape isn’t the main reason you sign up with a literary agency. All this is just a one-time delay and once it’s done, it’s done. I'm not complaining, this is all part of being in the business of writing. You just need to know and plan ahead.

UPDATE: As of 2018, my agent has organized with my Canadian publisher to wire money directly to my Canadian bank account.

OK, I am kind of omitting something. It’s all done and dusted for tax exemptions between Canada and the USA, but ... have I mentioned that I also have an Italian publisher and that in order to get payment I need to provide the Italian tax department with a certificate of Canadian residency?

NOTE: This blog was migrated from an older website and comments didn't survive the trip. Feel free to add new comments!

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