Most Canadian musicians are considered by the Canada Revenue Agency (CRA) to be self-employed entrepreneurs since they independently contract their services and are classified as operating a music “business” as a sole proprietor for tax purposes. This provides an opportunity to claim deductions against your earned income and reduce your tax liability to the CRA.
Your income as a self-employed musician is claimed on the regular personal income tax T1 return and your expenses are detailed on an attached Statement of Business or Professional Activities (Form T2125).
Spreadsheets are useful for detailing your income and expenses as well as to support your tax filing.
Canadians are required to claim their worldwide income from all sources on their annual income tax return. If your income was in another currency, you should convert the amounts to Canadian dollars using the rate applicable on date of receipt, according to the Bank of Canada Currency Converter.
You can reduce your tax bill considerably by claiming any business expenses related to your earning money as a musician. Note that you must keep invoices, itemized receipts with the name of the vendor and the date, or even vouchers detailing the expenses. Proof of expenses must be kept for seven years. Many of the standard deduction are listed below. When in doubt, consult and professional accountant.
GST/HST
Registration is not required unless your income level is $30,000 over the previous 12 months. However, if you voluntarily register, you will collect GST/HST on all Canadian gigs but will be able to claim the GST/HST paid on any items relating to your musical activity. If most of your gigs are in the US, you will not collect GST/HST from Americans but if most of your expenses are incurred in Canada, you can still deduct the GST/HST and perhaps get a refund. Depending on the volume of GST/HST in your business, you have the option of filing annually, quarterly, or monthly. Once you sign up for the GST/HST, you MUST file regular reports to the government or face dire consequences.
Capital Cost Allowance (aka depreciation)
Capital cost allowance applies to major music or office equipment or instrument purchases, as well as music reference material (scores, arrangements) and stage wardrobe. These items are amortized over a number of years, i.e., their cost is deducted not all at once but by a certain portion each year, depending on the class of the item. The CRA has set rates that must be used for claiming CCA.
There are many accounting apps available these days and setting up a simple way to keep track of your income and expenditures will allow you to reap the many benefits available to Canadian musicians under the Canadian tax system. If in doubt, contact your local AFM office.
INCOME TAXES
Do musicians have to pay income tax?
Yes. If you are self-employed you have until June 15th to file your return, BUT you still have to pay any taxes you owe by April 30 (yes, you can pay the government what you think you owe them and file your actual tax return later). As an independent artist producer, the CRA views you as a business.
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
- 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 (depreciation)
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 T2200 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.
As a professional musician, you are able to deduct tools maintenance costs, tools rental fees, insurance costs and capital cost allowance on the musical instruments you own including any GST/HST paid on them. You can deduct a portion of the expenses that is related to your job as a musician if you use the tools for other purposes.
You can also deduct the capital cost allowance class 8 for your instrument. Here, you deduct a percentage of the instrument cost (depreciation value) for each year up to the maximum amount that you paid. For all deductible costs, you cannot claim over or above the income that you are claiming.
The T2200, Declaration of Conditions of Employment is not required for musicians to claim instrument expenses. However, it is required if they will claim other employment expenses such as meals and travel. Do not submit T2200 with your tax return and save it for your record in case CRA request it.
In order to claim the cost, enter on line 1176 Musical Instrument Expense on form T777 Statement of Employment Expenses. and claim the CCA on line 1777. Claim the employment expenses results from the T777 form on line 22900 of your income tax and benefit return. If you work as a self-employed musician, claim the income on line 13700 of your tax return.
Your Studio or Workspace
Running a music business likely requires certain monthly expenses, and you can claim these as deductions to reduce your tax liability. These include:
- booking fees for recording studios
- rent for classroom or teaching space
- utility costs for your workspace
- Launching and maintaining your music business usually involves paying some basic business expenses, and you can deduct these on your tax return. Note that expenses related to a home studio are deductible, as are:
- the costs associated with registering for a business license
- maintaining insurance
- fees associated with maintaining your website, like domain registration and monthly hosting
- membership fees to professional associations, like the American Federation of Musicians,
professional services necessary for your business, such as accountant, lawyers and the business portion of your tax preparation costs
- Note, too, that when you attend functions sponsored by industry associations like the Canadian Country Music Association, the National Association of Music Merchants, your travel, lodgings, meals, and attendance fees are deductible business expenses as long as there is a business reason for you to attend.
Instruments and Performances
As a musician, some of your biggest costs—your instruments, cases, bows, music stands, even your music library—are usually considered capital expenses. You’ll pay for them upfront, but use them over several years, as opposed to regular, ongoing costs like rent and utilities.
While you might not be able to claim the entire upfront cost as a business expense, you may be able to claim some of the cost in small increments over time (a process called depreciation).
Keep all receipts for travel to lessons, recording sessions, and performances, as you can claim the expense come tax time. Instrument upkeep and repairs, and the cost of consumable goods like rosin, are also deductible expenses.
Musical Events
Deductions often overlooked by musicians are the costs of such things as tickets, transportation, and parking, incurred when you attend other musicians’ performances. You attend these performances in order to enjoy them, but also to learn about musical trends, which makes them deductible.
Strategies for Success
For all the expenses you plan to deduct, you’ll need documentation in the form of bills or receipts. Keep all of your receipts in a series of folders. For example:
Put home utility bills in one place so you’ll be ready to calculate your home office deductions at tax time.
You may also receive a series of forms from your clients before tax time. Keep these and all other records of your income in one folder to easily calculate your total income. Review income and expenses monthly, organize your bills and receipts as needed, and ensure you’re setting aside enough money for your quarterly estimated tax payments if you are required to pay them. Monthly review and adjustments helps spot any missing documentation.
Remember – you are not just a musician: you are also running a business.