Done dealing with those confusing government websites? 😅 We gotchu! Let’s break it down and serve you the deets on Income Tax Folio S4-F14-C1, so you’re ready to crush tax season like a boss. #TaxSeasonSlayage 📝💸
The Express Lane to Essential Info 🚀✨
Just keepin’ it real, this post is gonna be a bit of a read… but no worries, we’ve got your back! 📚 Check out the sections below to cut through the fluff and get straight to the deets you’re after.
- Sources of Income
- Employee or Self-employed
- Employment Insurance and the Canada Pension Plan
- Income from a Business
- Income from Employment
- ‘Other’ Income
Sources of Income 💵
- As a Canadian – ‘income’ for a tax year includes any money you make in or out of Canada
- this means any money you are bringing in from employment, businesses, or properties
- self-employment isn’t its own category, as it is simply viewed as a business ⬆️
- Money you get as grants, prizes, etc. aren’t typically considered business or employment income
- Instead, these often fit into the category of ‘other income’
- It’s important to think about the money’s purpose when deciding how to label it
Employee or Self-employed 💼
When filing your taxes, it is important to know if you are an employee, self-employed or both.
A simple way to figure this out is to ask yourself: are you being hired for a contracted service or for regular employment? For example, are you completing a single project for a client as a freelance graphic designer, or do you work at a graphic design agency where you have an employer?
It is completely normal for many artists and creatives to be both employees and self-employed in different roles. For example, you could be self-employed, running your own sticker shop, but be an employee of Starbucks. ☕🎨
Employment Insurance (EI) and the Canada Pension Plan (CPP) 📑
Artists and writers who work for someone else (are employees) can get benefits through EI and CPP. Employers and employees both have to contribute to these plans. Employers deduct the employee’s share and send it to the CRA.
Self-employed artists and writers pay both CPP contributions (both employer and employee parts) when filing their T1 income tax and benefit return. They only pay EI premiums if they choose to join the EI program for special benefits.
We know it’s a lot of info.. so here’s a cute puppy of encouragement 🥰💞
Now let’s keep going. You got this! 💪💪
Income from a Business 👔
A person’s income from a business during the tax year is the profit from that business. This usually includes money earned from being self-employed.
Guide T4002 defines a business as something a person plans to do to make money, and there’s proof supporting that intention.
Before deducting business expenses or write-offs, it’s important to confirm if a business actually exists.
The CRA recommends considering the following:
- How much time you spend on the artistic work
- Whether you showcase your work in public or private
- If you’re represented by an art dealer, agent, or publisher
- How actively you promote and market your own stuff
- The money you make from sales, commissions, royalties, grants, and awards
- Your financial track record over the years
- The types of expenses you claim and how relevant they are
- Your qualifications and recognition in the field
- Whether you’re part of any professional artist or writer groups
- The amount of income earned and how it has grown over time
Overall, for a person to be seen as doing their artistic or writing work as a business, they need to approach it in a commercial or business-like way.
Other Forms of Business Income
When a person gets financial help, such as a grant, that supports their business, it should be included as part of their business income.
For authors, Public Lending Rights (PLR) payments are also a form of business income.
Even though royalties are usually seen as property income, they can be seen as business income if they’re connected to the recipient’s business activities. For example, if someone is in the music business, the royalties from their copyrighted music would be considered business income.
Artists’ inventory includes both finished and unfinished artworks, along with materials and supplies unsold at the end of the tax year Usually, you deduct the cost when you sell the art later. However, artists can choose, under subsection 10(6), to consider the inventory’s value as zero when calculating income for a tax year. This only applies to individuals in the business of creating art, such as paintings, prints, or sculptures.
This section of the Income Tax Folio ends with an explanation of deductions and write-offs. Check out our previous post to answer the question, “WTF is a write-off?”
Income from Employment 🏦
If you are working as an employee, any money received from salaries, wages, bonuses, tips, etc., is considered to be income from employment.
Write-offs/Tax Deduction for Employed Artists and Writers
As an employed artist or writer, there is much less you are able to claim as a write-off. However, the following is a list of expenses that are often deductible as an employee. We encourage you to evaluate your situation and make sure this is accurate as each situation is different. 😊
✈️ Travel expenses (accommodations, food, transportation) for work required travel where the employee covered the expenses.
🎻 Musical instrument costs (maintenance, rental, insurance) for anyone employed as a musician and required to supply their own instrument. This amount cannot be greater than the income earned in the position – if you work as both a self-employed and employee we encourage you to read the specific guidelines here.
🎭 Artistic expenses taken to earn employment income. This one is a bit more confusing. Essentially, you can deduct any expenses that were a result of an artistic activity you participated in to eventually earn employment income. But it must fall into one of four categories:
- Making original art like paintings, prints, sculptures, etc.
- Composing dramatic, musical, or literary works.
- Performing as an actor, dancer, singer, or musician.
- Engaging in an artistic activity and are a member of a professional artists’ association that is certified by the Minister of Canadian Heritage and Multiculturalism
While the wording and information offered by the CRA can be super confusing, they do provide examples of different scenarios and how to approach them that we recommend checking out here.
‘Other’ Income (More on Grants) 📝
When figuring out the tax implications of what artists or writers receive, all the details matter. For instance, if an artist or writer gets money related to a job, it’s usually considered employment income, even if it’s called a prize, grant, or something else.
However, if the money an artist or writer gets isn’t business or employment income, it might be labelled differently for tax purposes as ‘other,’ this includes:
🎨 An art production grant (an amount that is to be used by an artist or writer in the production of a literary, dramatic, musical, or artistic work).
🔎 A research grant (an amount received to help a person continue their research).
🏆 An award (a prize given to a selected person for an accomplishment).
🥇 A prescribed prize (recognized by the general public for achievement in the arts, the sciences or service to the public).
📃 A benefit from registered national arts service organizations (the value of workshops, seminars, and other training programs).
This type of income can generally be reported on line 13010, taxable scholarship, fellowships, bursaries, and artists’ project grants on your income tax return.
An exception to this is if the payer of the grant, award, or prize reports the amount as business or employment income on the T4A given to you.
Whew! That was a lot of info. 😅 Taxes are confusing and a completely normal thing to struggle with, especially as freelance creatives. That’s why Sai is here to support you!
Don’t miss our blog and socials for the 411 on stress-free taxes! We’re here to help you own your financial game. 💪💰 #MoneyEmpowerment
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