A top tax firm offers tips to help Canadians making a living through music keep a fair share of their earnings
For professional artists like musicians, dealing with taxes can be difficult; not only does it take them away from their true passions, but figuring out the deductions they’re entitled to as well as the taxes they have to pay could be challenging given their unique situation. To assist such talents, Crowe Soberman has published some general tax-planning guidelines.
The first question is to what extent someone derives income from artistic activities. The activities that are recognized for tax-planning purposes include composing a literary, dramatic, or musical piece; performing as a musician, singer, actor, or dancer in a dramatic or musical piece; performing as a member of a professional artist’s association certified by the Minister of Canadian Heritage; and creating an original painting, print, etching, drawing, sculpture, or similar work of art.
Musicians are self-employed when they control their own work and schedule, contract with different clients, and earn income from different sources; for those musicians, artistic activities count as business activities to the extent that they are done with a reasonable expectation of profit, and can deduct most reasonable business expenses incurred in connection with earning their business income. On the other hand, employed musicians — those working for one organization that pays them a regular salary for their artistic work — are more limited in the deductions they can claim.
Self-employed musicians can get deductions for a wide variety of expenses. These include renting rehearsal space, maintaining part of their home for professional purposes, leasing or renting musical or recording equipment, professional development or industry-related periodicals; commissions paid to an agent or manager; and travel expenses for work-related purposes, to name a few.
Those who turn their musical activities into a business venture should think about registering to collect federal and provincial sales taxes. However, GST/HST collection isn’t necessary until they earn more than $30,000 in worldwide taxable sales over four consecutive quarters of the calendar year. By registering to collect GST/HST, musicians can recover at least a portion of the sales tax they incurred on business expenses. Certain provinces like Quebec, Saskatchewan, BC, and Manitoba have separate PSTs, though the taxes for last three provinces generally don’t apply to the sale of intangibles.
Finally, while grants and bursaries are generally taxable income in the eyes of the Canada Revenue Agency, there are legal exclusions for certain grants such as scholarships, fellowships, or bursaries to be used in the production of literary, dramatic, musical, or artistic work. Commonly known as the “art production grant exception,” it allows tax exemptions for certain qualifying awards.