Artists and performers are subject to tax in Canada, just like anyone else who earns income. However, in addition to the basic rules, there are industry-specific rules that also apply. The most important distinction to make for artists and performers is the one between self-employed independent artists and salaried artists.
Self-Employed Artists and Performers
Self-employed artists are subject to the same general rules as all other independent contractors: They must declare all of their income, and they are entitled to deduct all expenses they incur to earn that income. While the rules are straightforward in appearance, the line is sometimes blurred for artists. Rent for a recording studio, the purchase of paints and canvases, or website design costs are clearly deductible expenses, but what about attending a gala evening? Is that a personal expenditure or a business expense? As an artist, are you out having fun or making yourself better known in the community? The answer is not always clear. The best practice in these cases is to keep all of your receipts and make a reasonable judgment on each expense at tax time. Document your business expenses clearly and take notes so that you will be able to explain why they are business related if the Canada Revenue Agency audits your returns. Self-employed artists and performers are also subject to the GST/HST. If you make taxable supplies of your services of more then $30,000 annually, you will probably need to register for, collect, and remit the GST/HST to the government periodically. You will also be entitled to input tax credits on the GST/HST you pay on anything you buy to render your services.
As a rule, salaried employees are entitled to very few deductions. Artists benefit from two interesting exceptions to this rule. First, there is a special deduction for expenses paid in 2016 to earn employment income from an artistic activity. To claim this deduction, you must have been employed in a artistic field as defined in the Income Tax Act. If that is your case, you can deduct the lesser of these three amounts:
- The expenses you actually paid for the year
- 20% of your employment income from artistic activities
If your expenses are over the limit, you can carry them forward to future years. Examples of allowable expenses are advertising costs and travel expenses. If you supply personal raw materials for your employment as an artist, those would also be deductible. Second, musicians can take advantage of a musical instrument expense deduction. If you are an employed musician, and your employer requires you to provide your own musical instrument, you can deduct expenses you paid that relate to the musical instrument. The deductible expenses are the maintenance costs, rental fees, insurance costs, and even capital cost allowance. Artists and performers have some special benefits under Canada’s tax system. The key to maximizing them is to understand the difference between independent contractors and salaried employees and then documenting your files for the CRA.