Good afternoon, Mr. Chair. Thank you for the invitation to appear before you today.
My name is Costa Dimitrakopoulos.
I am the Director General of the Income Tax Rulings Directorate in the Legislative Policy and Regulatory Affairs Branch within the Canada Revenue Agency.
I am pleased to answer any questions you may have regarding the general taxation of artists. In my remarks today, I will be providing the committee with a general overview of this topic. To set a helpful context for today's discussion, I'd like to briefly describe the role of the CRA.
As you may know, the Department of Finance is responsible for developing and evaluating federal tax policy and amending the Income Tax Act. As administrator, the CRA is responsible for the functions that implement the Income Tax Act, including providing information to the public and stakeholders; establishing processes through which individuals and businesses may meet their tax obligations and receive benefits; and carrying out compliance activities to help ensure that everyone respects the law as intended by Parliament.
With respect to the taxation of artists, the amount received by an artist may generally be taxed as income from business, income from property, income from employment or other income. The tax treatment of a particular amount depends on the nature of the amount received, the circumstances under which the amounts are received and whether the artist is an employee or is self-employed.
Many factors must be considered in determining whether an individual is an employee or is self-employed. Essentially, 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 for 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 exists when a person is engaged to achieve a defined objective and is given all the freedom required to attain the desired result.
If it is determined that the artist is an employee, amounts received by the artist generally will be taxed as income from employment. Artists who are employees have a limited amount of expenses they may deduct from employment income, such as travelling expenses, motor vehicle expenses and musical instrument costs.
Where an artist is determined to be self-employed, they are generally considered to be operating a business. When an artist receives financial assistance in the course of operating a business, the amount is included in the calculation of their business income. Generally, expenses incurred to earn business income are deductible, provided the expenses are reasonable, not personal or living expenses, not on account of capital and not made for the purpose of gaining or producing exempt income. An example of a deductible expense would be an agent’s commission.
Art production grants that are neither business nor employment income are included in an artist’s income as other income; however, the art production grant exemption may allow the artist to reduce the amount included in income by the reasonable expenses incurred to fulfill the conditions of each grant, such as the cost of materials. The exemption cannot exceed the amount of the grants. In instances where the exemption is less than the amount of the grants, an artist may be entitled to reduce the amount of the grants included in income by up to an additional $500.
Through its liaison officer service, the CRA offers free virtual support and guidance by video conference or phone to small businesses and self-employed individuals. To align with the CRA’s “people first” approach, the liaison officer service helps small business owners and self-employed individuals understand their tax obligations and helps them avoid common errors that could end up costing them time and money.
Over the past two years during the tax filing season, liaison officers have provided seminars to members of the Canadian Artists' Representation. The information provided was tailored towards artists and writers and included information regarding deductible expenses; how to correctly report income as self-employed individuals; information on the CRA’s COVID-19 benefit programs and the CRA’s online services; and key information about the tax filing season. These seminars have been well received, and we intend to continue offering similar sessions in the future.
With that, again, I am pleased to answer any questions the committee may have regarding general taxation of artists.