Canadian musicians can deduct the expenses they paid to earn income from an artistic activity. This includes composing or performing a song or other musical piece. If you are a performing artist, composer or producer in Canada, keep reading to find out what you can deduct on your next CRA tax return.
If you rely on your artistic activities to earn income, you are considered an employed artist. In the eyes of the CRA, you can claim arts-related expenses if engaged in any of the following activities:
In other words, if you earn money for composing or performing music, you are eligible to claim expenses related to these endeavours.
What you can claim depends on your status as an employed artist or salaried employee. For reference, consult the CRA guidelines to determine if you are self-employed or an employee. Generally, self-employed individuals control their own work and schedule, deal with clients directly, and earn income from a variety of sources in the context of musical activities. This means that you can treat these music activities as a legitimate business and deduct a wide range of business expenses. An employee is someone who works for an organization or production company that pays a regular salary for music writing or performance skills.¬†People who fit this profile can still claim certain expenses, but with limitations. More specifically, employed musicians who are salaried employees can claim the lesser of:
These amounts should not include the following expenses, which you will be able to deduct from your income from an artistic activity:
Keep in mind, any expenses that meet these rules and are above the amounts allowed can be carried forward to the next year.
Under Capital Cost Allowance (CCA) rules, salaried artists can also claim motor vehicle expenses under the following conditions:
As a salaried employee, if your employer requires you to purchase your own musical instrument, you can also claim a Capital Cost Allowance for your instrument's depreciation. To do this, you will need to fill out Form T7777 - Statement of Employment Expenses. You may also be able to reclaim the GST/HST associated with the cost of purchasing an instrument. To do so, fill out the GST370 Employee and Partner GST/HST Rebate Application. You can only file one GST370 form per calendar year.
If you write or perform music for a living, you can deduct a variety of business expenses tied to these activities, including the costs associated with:
Think you don't make enough money as a musician to claim music-related tax deductions? Think again. The eligible expenses described above add up fast, and it's easy to sink hundreds and even thousands of dollars into a music hobby. Thankfully, Canadian musicians can recover some of that money devoted to their passion. Even if your music-related expenses cancel out any income you earn from writing, performing, or even teaching music, these "losses" can serve to offset the income tax amounts you paid in the context of your day job (if you have one). So hang on to those receipts!
Once you decide to treat your musical activities as a business venture, you may be wondering whether you should register to collect federal and provincial sales taxes. As with any other business, you are not required to start collecting GST/HST/PST until you make $30,000 in four consecutive quarters. It is worth noting that amounts distributed by SOCAN do not contribute to this threshold. But, registering to collect GST/HST/PST can allow you to recover a portion of the sales tax you incurred on these expenses. If you have a lot of expenses, it's something you might want to consider. After your band or music project surpasses the $30,000 threshold, you will be required to charge sales taxes on any money you make. Planning ahead can relieve you of certain stresses in the long run.
If you are a touring musician, claiming vehicle expenses isn't just limited to the Capital Cost Allowance mentioned above. As a business owner, you can also deduct the following costs:
If you use a personal vehicle to get to gigs and performances, MileIQ can help you track the kilometres you've driven. This will make claiming motor vehicle expenses on your next income tax return a breeze. The best way to use MileIQ is to track all of your drives with the app and classify them either as business or personal drives. At the end of the year, the app will tell you what percentage of motor vehicle expenses you can claim on your income tax return.
The CRA considers grants and bursaries as taxable income. However, there is such a thing as an "art production grant exception". Under this rule, the funds from an award - such as a fellowship, scholarship, bursary or prize -used to create a new artistic work are tax exempt. According to the CRA, the art production tax exemption is based on a reasonable expense amount "incurred in the year to fulfill the conditions of receiving each art production grant, up to, but not exceeding, the total amount of each grant that is used in computing the taxpayer's income." Applicable expenses that incurred the year immediately preceding or following the year of the grant or prize qualify as tax exempt, too. In this context, reasonable expenses cannot include:
Certain prizes remain tax exempt. More specifically, "any prize that is recognized by the general public and that is awarded for meritorious achievement in the arts, the sciences or service to the public" is not considered taxable income. Examples given for such prizes include the Nobel Prize and the Governor General's Literary Award. However, you will probably pay income tax on money awarded from a Canada Council for the Arts Grant. Keeping an accurate record of your expenses can help lessen your tax burden at the end of the year!