Tax Considerations for “Artist and Performers” in Canada
It can be a daunting process to learn about your taxes, especially, if the information is not consolidated in one place. The purpose of this article is to serve as an informative piece to Canadian artists and performers with regard to their tax considerations, whether self-employed or salaried. It contains pertinent information as directly noted by the Canada Revenue Agency (CRA).
Who Does the CRA consider an Artist?
As per the CRA, an individual carrying out any of the following activities is considered an artist or a performer:
- composed a play, musical, or literary work,
- performed as an actor, dancer, singer, or musician in a play or musical,
- performed an artistic activity as a member of a professional artists’ association that the Minister of Canadian Heritage has certified or,
- created a painting, print, etching, drawing, sculpture, or similar work of art. For income tax purposes, it is not an artistic activity when you reproduce these items.
Self-Employed or a Salaried Artist
Many factors must be taken into consideration in establishing whether an individual is an employee or is self-employed. In some arrangements or contracts, an artist may be an employee for a certain period and, upon completion of the contract as an employee, subsequently becomes self-employed. In other circumstances, an individual can be an employee under one arrangement or contract and, over the same period of time, be self-employed under a second arrangement. An individual, however, cannot be both an employee and self-employed under the same arrangement or contract.
(A) Flexible payment option:
The criteria to be considered a Self-Employed artist is:
- Holds the risks of loss and chance of profits (i.e. makes a profit or loss but no guaranteed income),
- Provides their own materials, equipment and/or instruments,
- Has the authority to work with other agencies and individuals throughout the year,
- Has full control of their own work schedules and has the authority to hire additional contractors and employees.
Note: Self-employed Artists are not covered under the “Employment Insurance Act” and must pay all the contributions required under the “Canada Pension Plan” on their net self-employed earnings.
(B) Criteria of a Salaried Artist:
There is an indication of status of a Salaried Artist between the artist and an agency such as a symphony, orchestra, a ballet company, a film or theatre producer, or a television and other, and where that party, according to the terms of the engagement:
- Have rights over the artist’s work,
- Have the right to choose the nature of the artist’s performance (opera, ballet, theatre, films, musicals, concerts, classical, popular, jazz, etc.), without obtaining consent,
- Have continuing authority to dictate the time and place of the artist’s performance including rehearsals,
- Have an obligation to pay regular salary and benefits,
- Have the responsibility to provide or authorize transportation for the artist.
Note: Artist who are employees have the benefit of coverage by their employers under both the “Employment Insurance Act” and the “Canada Pension Plan”.
Eligible Tax Deductions
- When an artist is considered Self-Employed, the expenses incurred in order to earn income are eligible for deductions as long as they are reasonable. Some examples as per the CRA are as follows:
insurance premiums on musical instruments and equipment; the cost of repairs to instruments and equipment, including the cost of new reeds, strings, pads, and accessories; legal and accounting fees; union dues and professional membership dues; an agent’s commission; remuneration paid to a substitute or assistant; the cost of makeup and hair styling required for public appearances; publicity expenses consisting generally of the cost of having photographs made and sent with a descriptive commentary to producers and the media, and including the cost of advertisements in talent magazines; the cost of videotaping or recording performances where required for their preparation or presentation; telephone expenses, including an applicable portion of the cost of a telephone in a residence where the number is listed as a business phone; capital cost allowance (CCA) (class 8 – 20% declining balance) on instruments, sheet music, scores, scripts, transcriptions, arrangements and equipment;
Transportation expenses related to an engagement (including an audition) in a situation is deductible, provided:
- the engagement is out of town, in which case, board and lodging would also be allowed;
- a large instrument or equipment must be carried to the engagement;
- dress clothes must be worn from a residence to the place of engagement;
- one engagement follows another so closely that a car or taxi is the only means by which the engagement can be fulfilled;
The following deductions are not allowable because they are either capital expenditures or they are personal or living expenses:
- the cost of musical instruments or other equipment necessary for the artist’s performance (however, CCA may be deducted as explained above)
- the cost of sheet music, scores, scripts, transcriptions, arrangements, phonographs, other recordings, or “air checks”.
- videotaping and recording costs incurred specifically for the purpose of study and general self-improvement.
- When an artist is considered a Salaried Artist, who works as an Employee. There are limitations to claiming deductions, 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, per CRA.
If you meet the requirements of an Employed Artist, you are eligible to deduct the lesser of:
- a) the expenses you actually paid in the year.
- b) the lesser of: –
- $1,000
- 20% of your employment income from artistic activities
minus the following amounts you deducted from your income for an artistic activity:
- Musical instrument expenses
- Interest for your motor vehicle
- CCA for your motor vehicle
Note: Any expenses paid in the year to earn employment income from qualifying artistic activities that are not deductible for the year because they exceed the limit above can be carried forward and deducted from the artistic income in the upcoming tax years.
Work Space in Home Expenses
As per the CRA, you can deduct expenses for the business use of a workspace in your home, as long as you meet one of the following conditions:
- It is your principal place of business (Artist’s office, studio, or workspace being located in the individual’s home),
- Used exclusively by the artist or writer to earn business income, in addition to being used on a regular basis to meet clients or customers.
Home expenses relating to such an office can be deductible: insurance, mortgage interest payments, repairs, utilities and other home related expenses.
For this category of deduction, you have to determine what portion of your home is dedicated to running your business for artistic activities.
The formula used is: Square ft of workspace/Total Square ft of your home = % times total Home Expenses.
Note: Home Office expenses deductibles relating to the workspace cannot create or increase a loss from the business for which the space is used. This permits the carry-forward of such expenses to the next year providing either conditions above is met for the following year.
Motor Vehicle Deductions
Personal motor vehicle use to earn self-employment income can be claimed as a portion of business expense. You can calculate the percentage used for artistic activities, trips and apply it to your overall car expenses. In practice, you must keep a log book to track the total kms driven plus business kms driven during the year.
Per CRA, travel between a regular workplace and home is NOT considered business related. You are normally required to work away from your principle place of business or in different places.
Grants and Tax Treatments
Depending on the nature of the project grant and the arrangements under which the funds were received, the project grant may be considered:
- Income for a self-employed business;
- Income for an employment;
- A scholarship, fellowship, bursary, prize or research grant;
In most cases, under the Income Tax Act, all grants and other assistance received by an artist or a performer, is considered “Taxable Income”.
From the CRA’s perspective, they will assess whether the artistic activities are carried out with the intention of earning business income or as a hobby that is personal in nature to determine if the Artist is eligible to deduct expenses against the grants.
- A business must exist in the year the artist received the grants to be able to deduct expenses in that year.
- Generally, a business is an activity that an artist will execute with a reasonable expectation of profit and there is evidence in place to support that intention.
T4A – Box 105: Scholarships, bursaries, fellowships, artists’ project grants, and prizes
As requested by the CRA, all granting bodies are required to report in box 105 of the T4A slips. When you report income using this box, the income turns up on your taxes at Line 130 – “Other Income”
For “Artistic Project Grants” received separately or in addition to other scholarship income, that was used in producing a literary, dramatic, musical, or artistic work (other than a grant received for work completed as part of a business or employment), you may claim the scholarship exemption ($500) to reduce the total amount that must be included in your income.
For tax purposes, enter the total of these amounts (from box 105 of your T4A slips) less your allowable exemption ($500) OR CRA approved eligible expenses, if any, on line 130.
Form T2125, Statement of Business or Professional Activities
Self Employed Artist, would use the Form T2125 of the income tax return to report any sales from artistic activities, grant income and other revenue streams as well as to list all expenses related to your practice.
GST/HST registration
You are required to register for a GST/HST number once your gross income from artistic activities reaches $30,000 in a 12-month period. Once this is achieved, you will need to start charging and collecting GST/HST from your clients and customers, depending on which province the business your charging has their tax base.
It is your responsibility to register voluntarily. The government will not send you a notice or warning to register for a GST/HST number.
CONSIDERATIONS
- Timely remittances– If making payments on time is a weakness, then it may be easier and less costly to pay using dividends. Wages require the regular, on-time payment of source deductions or else penalties are charged.
- Bank Financing: If the plan on purchasing a home or need to qualify for a mortgage, it may be better to pay a monthly/semi-monthly salary. Banks like to see the steady income more than sporadic dividend payments.
- Maternity/Parental Leave: If having children sometime soon is on the cards and would like to earn Maternity or Parental benefits, then it may be better to pay a salary. This will enable one to withhold EI premiums and collect maternity or parental benefits.
- RRSP and Canada Pension Plan (CPP): In order to secure finances for retirement, it may be beneficial to pay a salary that would enable one to build that RRSP contribution room, and contribute into CPP to be entitled to pension payments at a later date.
- Working Income Tax Benefit (WITB) The WITB is a refundable tax credit intended to provide tax relief for eligible working low-income individuals and families. It may be beneficial to pay a small salary from your business to trigger this tax credit on your personal taxes.
CONCLUSION:
Due to the current tax systems in place, results of calculations show minimal tax savings from one form of compensation to another. The decision can be dependent on many factors and circumstances as well as the corporation’s financial status. In most cases, taking a combination mix of the dividends and salary results in tax advantage of lower effective personal tax rates while also benefiting from CPP and RRSP contributions. It is advisable to consult a tax professional and account for various factors such as household income requirements, other spouse/common law partners personal income and other tax and non-tax factors prior to deciding on whether to pay Salary or Dividend or a combination of the two.
Resources:
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-130-other-income/artists-project-grant.html
- IT-525R (Consolidated): INCOME TAX ACT Performing Artists
- IT-504R2 (Consolidated) INCOME TAX ACT Visual Artists and Writers
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-130-other-income/artists-project-grant.html
Income Tax Rulings Documents
- 2018-0759891M4
- 2003-0044841E5
- 2017-0706471E5
- 2004-0076661E5