As the winners and losers at this year’s Oscars are announced, we take a look at the financial complexities of being a celebrity and the temptation of many to dodge their tax bill.
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- The higher your income the more tax you are liable for, though for some Hollywood stars that doesn’t necessarily mean they pay it.
- A Hollywood star bringing in US$10 million could be required to pay up to 37% in tax.
- Blaming poor advice from an accountant is top of the list for some stars who have tried to dodge the IRS.
When the nominations for the 96th Academy Awards were announced in January this year, many people erupted over the fact that Australian actress Margot Robbie and American director Greta Gerwig missed out on nominations for the box office juggernaut Barbie.
Despite pulling in more than US$1.4 billion at the box office so far, using a doll to comment on the patriarchy and the effects of feminism failed to convince the judges of Robbie’s acting skills. It must be some consolation then, according to Entertainment Tonight, that Robbie took home US$59 million in combined salary and box office bonuses, due to her company, LuckyChap, also producing the film.
While the academy may have chosen to ignore Robbie’s acting talents, the tax department most certainly won’t. But just how much tax Robbie is up for is complicated – depending on level of income, deductions available and the jurisdiction’s tax laws, says Jim Bell CA, director at James Bell Accounting & Advisory in Auckland.
“Often, high-earning individuals, including movie stars, may be subject to higher income tax rates. Additionally, the location of their residence and where they earn income can impact their tax liabilities,” Bell says.
How do Hollywood salaries work?
Actors are usually paid on a project-by-project basis and their income will largely depend on past salaries they’ve commanded, previous box office earnings and how well known they are.
In this year’s Oscars line-up, best supporting actor nominee Ryan Gosling was reportedly paid US$12.5 million for his portrayal of Ken in Barbie. It’s a mere portion of what Robbie earned, but one that still comes with a hefty tax bill. If the Canadian-born actor is up for the highest US income tax rate of 37%, in its simplest calculation that would attract a tax bill of roughly US$4.6 million.
Using the same calculation, nominee for best actor Cillian Murphy, who took home US$10 million for his role as Robert Oppenheimer, ‘father of the atomic bomb’ in Oppenheimer, would be up for US$3.7 million, plus any taxes due in his home country of Ireland.
Gifts that can cost you
On top of that, the largesse of others in the form of gift bags can also bring a nasty surprise.
Last year’s Oscar nominees’ bag of goodies was worth approximately US$123,000 provided by various companies. It might seem generous, until you factor in that the Internal Revenue Service (IRS) determines it to be income and recipients are promptly hit with a tax bill.
At the highest rate of 37%, that’s US$45,510, and will be higher if the star is based in California and subject to an additional 13% income tax rate.
Who gets the taxes?
Where movie stars may be liable to pay tax is complicated, Bell says, particularly if they film in Hollywood, but live in Australia or New Zealand, for example.
“Both jurisdictions may require tax to be paid. A person living in New Zealand and who is a tax resident in NZ is required to pay tax on their worldwide income. However, NZ and the US have a tax treaty in place to avoid the incidence of double tax.
“It basically means you get a tax credit in your home country tax return, up to certain limits, for overseas tax paid on overseas earned income,” says Bell.
But there are a few other things to consider, too.
“What may be allowed as an expense against income in one jurisdiction, may not be allowed in the other jurisdiction.
“Various investment vehicles may also be taxed differently in different jurisdictions. Ultimately, it has to be that the home country tax laws are applied to these vehicles or the income earned from them, notwithstanding the tax laws applied in the overseas country,” he says.
Dodging the tax department
Hollywood is full of stories of celebrities who forgot, neglected or deliberately avoided paying their massive tax bills. Unlike others out of the public eye who have done the same, being a household name means there is little chance of getting away with it.
In the US, the IRS has made sure certain celebrities learned the hard way that they’re not above the law. Whether they deliberately falsified a tax return or inadvertently chose an inept tax adviser, more than a few celebrities have been caught committing fraud.
Blaming the adviser seems to be a common theme for guilty stars. Country singer Willie Nelson found himself back on tour in 1991 to pay off US$16.7 million to the IRS, with interest and penalties. Likewise, actor Stephen Baldwin faced a bill of US$400,000, which he says was the result of receiving bad advice from lawyers and accountants. Compared to Wesley Snipes, these two didn’t fare too badly. In 2008, he was sentenced to three years in jail for not paying US$7 million in tax. Snipes served almost the entire time, released only three months early.
People may try and avoid a hefty tax bill for several reasons, says Bell.
“It’s hard to say. It could be because of bad advice, or not seeking advice in the first place. Some people may have a lack of cash available to them – either through wasteful spending habits or having cash tied up in non-cash investments that are not easily turned into liquid assets [cash] in order to pay the tax bill on time.
“Others may just have a possible personal aversion to paying tax,” he says.
Whatever the reason, commanding a whopping salary also brings with it a tax bill – and when it is so publicly reported, there is nowhere to hide from the tax department, for Oscar stars used to living life in the spotlight.
This article was first published by Acuity Mag at the following URL: https://www.acuitymag.com/people/how-much-tax-do-oscar-winners-pay
