If you are an artist, i.e. an actor, musician, sculptor, or any other type of artist you could qualify for tax deductions and tax credits that are not available to other people. You are even allowed longer periods of losses for tax purposes by the Canada Revenue Agency (CRA), provided they are supported by legitimate explanations.
None of these deductions are possible without proper and early planning. In this article, A.G. Tax analysts have listed a few basic points that artists/performers should keep in mind when it comes to Canadian taxation.
Who does the CRA consider an ‘Artist’
As per the CRA, an individual carrying out any of the following activities is considered an artist.
- Composing a musical, dramatic or literary work
- Performing as an actor, dancer, singer or musician in a drama or musical
- Performing an activity as a member of a professional artists’ association certified by the Minister of Canadian Heritage
- Creating BUT not reproducing a painting, print, drawing, sculpture, or any other similar artistic work
Self-Employed or Working As an Employee
The CRA will consider an individual as an employee based on a number of criteria, including if the individual is working for a production which sets their work schedule, pays them a regular salary for performance, and/or has authority and rights over the artist/employee’s work.
However, if the individual has full control over their own work, deals with clients directly, works with different parties throughout the year, and holds the risk of income (ie. makes a profit or loss but not guaranteed income) would be considered as self-employed and running a business. We also would look at criteria such as whether there is reasonable expectation of profit, who provides the tools and equipment required in carrying out the services and who can hire helpers, set their salary, direct them, or dismiss them.
When it comes to people with particular skills like artists and writers the criteria of control, supervision, and authority do not play as important a role in determining the status of employment as a contract with underlying terms and conditions does. It should be understood that no single factor is conclusive, and proper consultation and proofreading of the agreement/contract should be done before finalizing the arrangement. One may even consult and obtain a written certification from Revenue Canada office to confirm their employment status.
What is considered as Taxable Income
In addition to fees, salaries, and allowances received, any grants and bursaries are also included in ‘taxable income’.
As a self-employed artist, you could receive grants from the government or from a benefactor, such as a university, to help produce “a literary, dramatic, musical or ‘artistic work.” Grants such as these are to be considered as ‘business income’ and therefore are subject to taxes. The case is much the same if you’re employed as an artist, whether you’ve been selected through a government program to become a writer-in-residence, had one of your works chosen for the Art Bank Purchase program, or taken a position that exists because of a Canada Council grant.
However, prescribed prizes are not considered taxable income. i.e. “any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or service to the public”. For example, the Governor General’s Literary Award or Sobey Art Award, which comes with prize money attached, would not have to be included while calculating taxable income. Community service awards may also qualify, however it is best to first confirm with the CRA.
Qualifying Tax Deductions
Scholarship Exemption: An artist may exclude the first $500 of total scholarships, fellowships, bursaries, and prizes that were included while calculating their taxable income for the tax year. Part-time students can only partially claim this exemption, which can be estimated by using CRA’s Scholarship Exemption-Part-time Enrolment Worksheet.
Art Production Grant Exemption: If an artist receives an art project grant (scholarship/fellowship/ bursary or prize) for producing a literary, dramatic, musical, or artistic work, they may claim more than $500 under the scholarship exemption. This is known as the ‘Art Production Grant Exemption’, and the grant received should be included while calculating taxable income.
Deduction for paid GST/HST: An artist may deduct any GST/HST or provincial sales tax (PST) they pay on certain expenses incurred while performing employment duties, provided these expenses are deducted from employment income. The rebate received should be reported as part of the taxable income for the particular tax year, and if any GST/HST or PST rebate is received for vehicles or musical instruments bought during the year it will affect the capital cost allowance (CCA) for that year.
Eligible Expenses Deduction: An artist or writer who works as an employee is not allowed any deductions in computing income from employment except those expenses incurred to create, compose (not reproduce) and perform an artistic work or incurred as an artistic member of a professional artists’ association certified by the Minister of Communications/Minister of Canadian Heritage.
The amount claimed may be either the actual expenses claimed, $1000, or an amount equal to 20% of artistic income less artistic activity expenses, such as: musical instrument expenses, motor vehicle interest and capital cost allowance expense, whichever is the least.
Any expense beyond the 20% or $1,000 limit, may be carried forward and deducted from the artistic income in future tax years. If the artistic income and expenses are from more than one employer, it should be totalled to compute the claim amount; a separate claim cannot be made for each employer.
Work Space in Home Expenses Deduction: If the artist’s office, studio, or work space is located in the individual’s house, they may deduct any expenses related to such an office provided it is the principal place of business and used exclusively by the artist or writer to earn business income and/or for meeting clients on a regular and continuous basis.
These expenses, however, cannot create a loss from the artistic business, and therefore may be carried to the future tax years provided they meets the above mentioned conditions for a home office, and indefinitely if the condition is met on a continuous basis.
Gifts and Charitable Donations in Kind: When an artist creates a work of art with the intention of selling it but instead donates it to a qualifying designated charitable institution or public authority, the donation is considered to be a disposition of a property from the artist’s inventory. Conversely, the donation by a writer of original manuscripts, letters, memoranda or similar papers would be considered to be a disposition of capital property since it is not usually the business of a writer to produce and sell such original documents.
If the gift’s fair market value (FMV) is more than its cost amount, the artist may designate any amount for the value of the donated property as long as it is not greater than the FMV; and not less than the amount of any advantage in respect of the gift; or the cost (whichever is greater). This amount will also be used to calculate the eligible amount of the gift required to calculate the tax credit.
Note that the Canadian Cultural Property Export Review Board (CCPERB) should certify the gift.
AG Tax LLP Can Help
If you wish to discuss further on the above issue, or have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws. We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
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