If you’re an artist or performer in Canada, you have to pay taxes just like everyone else who’s earning income. Aside from the basic rules, there are industry-specific rules that you need to know about. As an artist or performer, the most important distinction you need to understand is 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’re entitled to deduct all expenses they incur to earn that income. The rules may appear straightforward, but when you’re an artist, the line’s sometimes blurred. Rent for a recording studio, the purchase of paints and canvases, and website design costs are clearly deductible expenses, but what about attending a gala evening? Is that a personal expenditure or a business expense? Are you attending that event for fun, or are you working to expose yourself to a bigger audience? 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 can explain why they’re business related if the Canada Revenue Agency (CRA) audits your returns. Self-employed artists and performers are also subject to the goods and services tax (GST) or harmonized sales tax (HST). If you make taxable supplies of your services of more than $30,000 annually, you probably need to register for, collect, and remit the GST/HST to the government periodically. You’re also entitled to input tax credits on the GST/HST you pay on anything you buy to render your services.
Deductions for Artists Who Are Salaried
As a rule, deductions for salaried employees are minimal. Artists benefit from two interesting exceptions to this rule. First, there’s a special deduction for expenses paid in 2018 to earn employment income from an artistic activity. You’re able to claim this deduction if you’re in a recognized artistic field as defined in the Income Tax Act. Any of the following must apply to you:
- Composed a musical, dramatic, or literary work
- Performed as a musician, singer, dancer, or actor in a musical or dramatic work
- Performed an artistic activity as a member of a professional artists’ association that’s certified by the Minister of Canadian Heritage; or created a print, painting, drawing, etching, sculpture, or similar work for art.
For the last guideline, it’s not considered an artistic activity if you reproduce the items.
If you meet the requirements for employed artists, you’re able to deduct the lesser of these three amounts:
- The expenses you actually paid for the year in 2018
- 20% of your employment income from artistic activities
Carrying Forward Allowable Expenses
If your expenses are over the limit, feel free to carry them forward to future years. Examples of allowable expenses include advertising costs and travel expenses. Because artists and performers often see fluctuation in their activities from year to year, this can be especially useful. For example, a writer may spend most of one year writing a novel and then another year focusing on touring to promote the book. Similarly, a musician may spend a year in the recording studio, and then head out on the road to perform the material on stage the following year. Carry-over allows you to deduct travel and promotional expenses and lower your tax liability, even during the years when you’re taking time to recharge and create new art.
The personal raw materials you supply for your employment as an artist are deductible. Second, you can take advantage of a musical instrument expense deduction. If you’re an employed musician and your employer requires you to provide your own musical instrument, you can deduct expenses that involve the instrument. The deductible expenses are the maintenance costs, rental fees, insurance costs, and capital cost allowance. Artists and performers have some special benefits under Canada’s tax system. The keys to maximizing your benefits are understanding the difference between independent contractors and salaried employees and documenting your files for the CRA.
Tracking your expenses while you’re traveling from town to town can be hectic. Focus on sharing your artistic creations with the world by utilizing an easy-to-use online tax solution. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.