Your performing artist clients are typically treated like independent contractors. They must declare all of their income, but they are allowed to deduct expenses against their income. In general, the Canada Revenue Agency states any expense is a deductible business cost if it’s a reasonable expense your client has paid or will have to pay to earn business income.
Defining Artistic Activity
For your client’s artistry expenses to be deductible, she must have been employed during the previous year under certain circumstances. Your client must have composed a drama, musical, or literary work. Alternatively, she could have performed an artistic activity as a member of a professional association. Your client is also considered an employed artist if she created a painting, print, etching, drawing, sculpture, or similar piece of work. Any reproduction of an existing piece of art is not considered an artistic activity.
The amount of expenses your client can deduct from being an employed artist is the lowest calculation of a few amounts. The deductible amount is the lessor of the actual expenses paid during the year, $1,000 less certain expenses, or 20 percent of your client’s employment income from artistic activity less certain expenses. The specific expenses to consider for the second and third options include costs for musical instruments, interest paid on a vehicle, and capital cost allowance for a vehicle. If your client’s deductible amount is limited because of the 20 percent or $1,000 options, any unclaimed expenses can be deducted in future years.
Your clients may deduct up to $500 of scholarships or fellowships from their taxable income under the scholarship exemption. Artists deduct any provincial sales tax they pay on certain expenses provided the expenses are deducted from employment income.
Many of the deductions your client receives are considered common business expenses. Any legal, accounting, or advertising expenses to promote their services are deductible. You also subtract specific costs for shows, conference fees, and membership dues for business-related organizations. When on the road, your clients’ meals, entertainment, and general travel expenses are deductible. Expenses for taping, setting up for events, clothing, or other performance-related costs are deductible.
An artist can deduct any expenses specifically related to an office, studio, or workspace, even if it is located in the individual’s home. These expenses can’t create a loss for your client. Your client should keep specific records and documentation of work-related expenses. If your client has a hard time collecting money, she can deduct any collection agency fees or bad debts she writes off. Telephone charges, promotional costs, software required for the business, and consulting fees are also deductible.
Employed vs. Independent Contractor
If your client is employed by a company instead of working independently, there are different tax rules for what she can deduct. The Canada Revenue Agency expects employees to pay their own items when employed, so expenses such as transportation are not deductible. Some employment expenses can be deducted if your client is in a home-based employment, commission payment structure, or trade apprenticeship. In these cases, your client’s employer should complete Form 2200 (Declaration of Conditions of Employment). This form outlines what your client is expected to pay and what will be reimbursed. Any reimbursed expenses are not deductible.
There are specific tax rules applicable to artists. Understand the dollar limit of expenses your client can deduct, what constitutes eligible expenses, and what your client should do if she is employed instead of working as an independent contractor.