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.
Who is eligible?
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:
- Composing a literary, dramatic or musical piece
- Performing as a musician, singer, actor or dancer in a dramatic piece such as a play or movie or other musical work
- Performing an artistic activity as a member of a professional artist's association that is certified by the Minister of Canadian Heritage
- Creating an original painting, print, etching, sculpture or drawing. For tax purposes, reproducing these items do not count as an artistic activity.
In other words, if you earn money for composing or performing music, you are eligible to claim expenses related to these endeavours.
Salaried employee or self-employed?
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:
- Actual expenses incurred
- $1,000; OR
- 20% of income earned from artistic activities.
These amounts should not include the following expenses, which you will be able to deduct from your income from an artistic activity:
- Musical instrument expenses
- Motor vehicle interest
- Capital cost allowance for your motor vehicle.
Keep in mind, any expenses that meet these rules and are above the amounts allowed can be carried forward to the next year.
Capital cost allowance
Under Capital Cost Allowance (CCA) rules, salaried artists can also claim motor vehicle expenses under the following conditions:
- The artist was required to work in a location other than their employer's place of business or at different locations on a regular basis
- The artist had to pay for their own motor vehicle expenses, as stated in the contract of employment. (Artists may not claim the capital cost allowance if their employer refunds them or offers to refund them for the expenses and the artist refuses)
- The artist's employer did not pay or offer to pay a non-taxable allowance for motor vehicle expenses
- Record of Form T220 filled out and signed by the artist's employer.
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.
Eligible expenses for self-employed musicians
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:
- Renting a rehearsal space
- Maintaining the part of your home you use for professional purposes (if applicable)
- Leasing or renting musical or recording equipment
- Insurance premiums paid on musical equipment and instruments
- Fees associated with instrument and equipment maintenance and repairs
- Interest paid on loans taken out to purchase professional equipment
- Professional development or industry-related periodicals
- Recording costs (i.e., tape, mixing, mastering, studio time, etc.)
- Professional membership and union dues (i.e., SOCAN, SPACQ)
- General office expenses (i.e., computer hardware and software, paper, pens, etc.)
- Manufacturing merchandise (t-shirts, physical records and CDs, etc.)
- Advertising and marketing expenses
- Amounts paid to hire an assistant or substitute performer
- Commissions paid to an agent or manager
- Travel expenses incurred for work-related purposes, both in and out of town
- Costs associated with publishing agreements, such as royalties
- Legal and accounting fees
- Capital Cost Allowance, which covers the depreciation of instruments, sheet music, scores, scripts, transcriptions, arrangements, recording equipment, and office equipment
- Phone expenses - including cell phone expenses and the cost of a phone number listed for professional purposes.
What if your music career is just a side gig?
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!
Should you register to charge GST/HST/PST?
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.
Claiming travel expenses
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:
- Distances drove to local or out-of-area concerts and other events
- Gas and oil
- Licence and registration fees
- Insurance
- Interest
- Vehicle maintenance and repairs.
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.
Are grants and prizes considered taxable income?
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:
- The taxpayer's personal or living expenses (excluding travel expenses, meals and lodging over the course of fulfilling the conditions of the art production grant and while the taxpayer is away from their regular home while working on the project related to the art production grant)
- Expenses already entitled to reimbursement to the taxpayer
- Expenses otherwise deductible for the purposes of calculating the taxpayer's income; OR
- Travel expenses for the artist's spouse, common-law partner, children or anyone else.
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!
