“It’s the most wonderful time of the year” said no one ever about tax season.
And, it can be even more stressful for artists who are self-employed.
We put this guide together to help minimize the headache taxes can inspire.
Here are our tips for Canadian artists coping with tax season:
1. Do I need to file for my art?
If art is a hobby, then no. You don't need to file. But if you're making a profit from your art, you do need to submit taxes.
As per the CRA (Canada Revenue Agency), an individual carrying out any of the following activities is considered an artist:
Composing a musical, dramatic or literary work
Performing as an actor, dancer, singer or musician in a drama or musical
Performing an activity as a member of a professional artists’ association certified by the Minister of Canadian Heritage
Creating BUT not reproducing a painting, print, drawing, sculpture, or any other similar artistic work
2. Get a separate bank account
We know bank lineups can be daunting, but trust us, this will save you lots of aggravation trying to separate personal from business. Use this account for only business transactions – buying art supplies, getting works framed and depositing the income from any sales. This will keep your accounts organized when it comes time to sort your expenses.
3. Made a sale? Great! But you're going to have to charge HST on that art.
Including a 13% sales tax might make your nice rounded price a little unsightly, but it’s important. Having an HST account is required with an income exceeding $35,000 in Canada. While, you might not be making that in art sales alone, it’s a good rule of thumb to charge HST on works sold.
It also means you can be refunded all HST spent throughout the year on business related expenses.
Track! All! Your! Expenses!
4. Set aside your money.
A good habit is to set aside 15 – 20% of your income every month. Saving will leave you less stressed when you have to pay the CRA, and, if you incur a lot of expenses over the course of the year, you’ll be rewarded with the amount you’ve put away.
5. Got a grant? (Congrats, by the way)
The bad news: unfortunately, in Canada, grants are considered taxable income. If you received an artists' project grant, you may be entitled to an exemption to reduce your taxable income. For more information, go to www.cra.gc.ca and search artists' project grants.
Deductibles can be an important factor in minimizing the amount of tax you owe. You can claim the expenses required to create an artwork even if you didn’t sell it within the year.
7. About Art Donations
If you donated a work of art this year that you created, you may be able to claim a non-refundable tax credit based on the estimated value of your donation. This applies if you’ve donated to a designated Canadian institution or public authority within the gifts of certified cultural property.
8. Get some help
If math is not your forte (as it isn’t for many artists), hiring a CPA can help you optimize your return. Though they are generally quite expensive, depending on how much you’ve made and how many expenditures you’ve incurred over the year, it may be worth it to consult with a professional.
A lot of people are confused as to what constitutes a business expense. Your best bet is to go with your gut. If you bought something for your business, or to help you make money in any way, then you can claim it.
Things like advertising, your website/domain, promotional photographs are all expenses that can be claimed.
Art supplies like paint and canvases are all expenses you can write-off.
Your studio is another expenditure that can be claimed. If it’s in your home, or if you share it with artists, simply calculate the percentage of the space that you use.
You can also claim expenses for your studio such as hand soap, toilet paper
If you’re still paying off your student loan, all interest is considered an expense.
Workshops, lessons and conferences are all deductible expenses.
If you travelled for artistic purposes (ie. doing an international show or tradeshow, taking a specialized workshop), the expenses you incurred are deductible.
If you’re still unsure, check out the CRA’s information page.