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Tax Issues for Self-Employed Members

This briefing was developed in discussions with professional tax preparers who are experienced in performing arts matters. It is a general guide intended to help you organize your affairs as you work through the year. The tax issues addressed are based on the tax legislation in effect at the time of printing.

Performers such as actors, dancers, singers when they are self-employed are the main focus of this briefing. Much of it may also apply to theatre directors, choreographers, stage managers, assistant stage managers, stunt and fight coordinators, musicians and others concerned with live and recorded performance if they are self-employed. Simply put, being self-employed means that you have set yourself up as a business and that expenses related to earning income may be deducted before determining your taxable income. Self-employed individuals may also be referred to as "independent contractors" or as being engaged under a contract for services.

All persons, both resident and non-resident earning income in Canada must file a Canadian income tax return. Foreign artists earning income in Canada may be required to file a Canadian tax return. U.S. artists working in Canada may be required to file both Canadian and American returns. Canadian artists working outside Canada may be required to file elsewhere as well as a Canadian return. Foreign artists working in Canada should seek professional help, and Canadian residents should certainly do so before accepting work outside Canada . We will deal with foreign performing artists working in Canada in a separate section [below].

This is just general advice about filing income tax returns and is not intended to address individual circumstances or other tax liabilities such as the Goods and Services Tax (GST), the Harmonized Sales Tax (HST) the Quebec Sales Tax (QST) or corporate taxes. The calculation of income, expenses and taxes owing may not be a straightforward matter. Self-employed professionals often rely on a tax professional to prepare their tax returns. You are still personally liable for what your tax return says, however and this briefing will help you understand what is being done for you. This briefing is not meant to provide the skill you need to prepare your own income tax return. It will help you organize yourself and should you decide to seek professional help, it will help your preparer to do the best job for you.

Performing artists who are members of Equity and ACTRA, as well as others in the performing arts business, are normally considered to be self-employed. Even though this is the industry standard, The Canada Customs and Revenue Agency (CRA) has the ability to assess the status of any engagement and based on the circumstances of the situation, make a determination that you were or were not self-employed. To be self-employed you do not need to register a business name or incorporate yourself or become a union member. According to CRA guidelines, a performing artist who is self-employed is considered to be operating a business, provided there is a reasonable expectation of profit. Accordingly, such an artist is entitled to deduct reasonable expenses incurred in connection with earning income from that business, except to the extent they are denied or limited by provisions of the Income Tax Act . The expenses that are deductible by a self-employed performing artist are discussed below.

Most ACTRA and Equity members work as employees part of the time, either doing their regular professional job or supplementing their professional income. Artists who are employees have the benefit of coverage by their employers for Employment Insurance and the Canada Pension Plan (CPP) by statute law. Employers are legally bound to send forms (T4s), containing the details of amounts deducted from your wages, to you and the CRA once a year. Self-employed artists are not covered under the Employment Insurance Act [Note: Non-payment of EI premiums could cause denial of EI benefits]. However, you are covered by, and must pay all the contributions required under, the Canada Pension Plan based on their net self-employed earnings. Artists who perform services as employees in the Province of Quebec contribute to the Quebec Pension Plan on remuneration received from any such source. Self-employed artists who reside in that province on the last day of any year also contribute to the Quebec Pension Plan. Taxpayers who perform services as artists in the Province of Quebec should consult Revenu Québec concerning their status under Quebec law.

In a series of successive arrangements or contracts, an artist may be an employee for a certain period and, upon termination of the contract as an employee, subsequently become self-employed. In other circumstances, an individual can be an employee under one arrangement or contract and, over the same period of time, can be self-employed under a second arrangement. An individual, however, cannot be both an employee and self-employed under the same arrangement or contract.

Many factors must be taken into consideration in establishing whether an individual is an employee or is self-employed. The question to be decided is whether the contract between the parties is a contract of service that exists between an employer and an employee, or is a contract for services, that is, the engagement of a self-employed individual. A contract of service generally exists if the person for whom the services are performed has the right to control the amount, the nature, and the management of the work to be done and the manner of doing it. A contract for services also, exists when a person is engaged to achieve a defined objective and is given all the freedom required to attain the desired result. If you have any doubt as to your status employed or self-employed, advise can be obtained from a CRA tax services office. [NOTE: because of the complexities of this type of determination, a tax professional may be the best one to guide you and in turn save you a lot of money.]

If you or your spouse, are self-employed, your tax returns are due on June 15, otherwise April 30 is the due date. Despite the later filing date for self-employed individuals, interest is calculated on taxes owing for the previous year that are not paid by April 30. Late or missing returns can be expensive. Many tax credits can't be claimed more than three years after the end of the tax year, and CRA charges penalties and interest as a percentage of tax due. It is important to realize that late filing means penalties and interest. As well, the return will be scrutinized individually by hand instead of computer screening.

The following is a list of important tax dates for the upcoming year:

February 28 Final date for employers to mail T4 and T4A slips
March 1 Final date for RRSP contributions for previous year
March 15 Quarterly tax instalment due for current year
April 30 Final date for tax payment on previous year's tax
June 15 Final date for submitting tax return if self-employed
June 15 Quarterly tax instalment due for current year
September 15 Quarterly tax instalment due for current year
December 15 Quarterly tax instalment due for current year
December 31 Final date for transactions in current tax year

People with self-employed income need to keep their own records, not only for the current year but for six years. [e.g.,The CRA could decide to audit you in 2013 for the 2009 taxation year.]

It is important to keep your records in a manner that will allow for future verification. Throwing all of your pay stubs and receipts into a shoe box is not the best method. Organizing yourself from the beginning will pay off in the future. Engagers may or may not issue a T4A to document self-employed income. Whether or not you receive a T4A, it is important to reconcile your income. Income includes your gross fees and fringe benefits such as the engager portion of the RRSP contributions and insurance premiums. In the absence of a T4A, agent's records, contracts and pay stubs prove your income. Undeclared income can be tracked by the CRA in many different ways and penalties can be quite severe. It is best to create a schedule of who paid you, how much and whether or not a T4A was issued for that income.

Your “business” must have "a reasonable expectation of profit". The CRA has been briefed on artists' income patterns, but a very low income, and particularly a loss, over a number of years may be investigated. If you continually sustain a business loss, you may eventually be refused any expenses that exceed your professional income. This is especially likely if you have income from another job. Good record-keeping and a full professional journal or work diary, may enable you to show a sufficiently high level of business activity to continue to be allowed a business loss. Deductions for expenses may be disallowed if there isn't sufficient documentation.

An expense doesn't have to produce income, but that must be its intention. The CRA is not obliged to accept expenses that aren't properly receipted. Each receipt should show, as a minimum, the name and address of the seller, the date and amount. If possible, have the vendor include your name, address and what was bought. Write the business purpose on your receipt as well as any of the above information that is missing. A credit card slip or statement, a vendor's statement or a cancelled cheque are not official receipts. Although they must be retained as supporting documentation for business-like record keeping, they should be avoided as primary evidence of an expense. If a receipt is impossible, for business travel on public transit for example, note the expense in your work diary.

Your gross income and your tax payable are reduced by deductible work-related expenses. When it comes to claiming specific operational expenses, the CRA has also shown tolerance for the specific circumstances of the artistic community. "Reasonable" business expenses may be deducted from income if the expense is incurred in connection with the earning of income and as long as it is not specifically excluded by legislation or capital in nature. A capital expenditure is any costly item you have purchased that could be used over a period of years (see Capital Cost Allowance under expenses).

If an expense is partly business and partly personal, you can't deduct the personal part. With these sorts of expenses, it is wise to retain all receipts including the exclusively personal ones to demonstrate the reasonableness of your business allocation.

Visit the CRA website (http://www.cra-arc.gc.ca) for more information.

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