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Taxes for the Musical Entrepreneur
A few months ago, I was driving home and listening to CBC. The guest speaker was an accountant specializing in the music industry and was relaying the story of a musician who had received a significant royalties cheque and had spent it all without putting any money aside for tax purposes. In this case, the musician worked a regular job to support his music career, and was used to having his taxes deducted by his employer. When he received his royalties cheque, he didn’t think twice and spent it believing the money was all his.
The moral of the story is that income earned by most musicians is considered self-employment income, and therefore, it’s a good idea to put a percentage aside since it is taxable.
A musician working by him or herself would be considered a sole proprietor, and if part of a band, then he or she would be a member of a partnership. In these two situations, the income is reported in a Personal Tax Return (T1). A musician or group may incorporate down the road and would then file a Corporate Tax Return (T2).
Any income earned from music such as performances, teaching, royalties, CD and merchandise sales, etc. need to be reported.
Any expenses incurred to earn this income can be deducted against it, as long as it is reasonable. Here are a few examples:
• Fees paid for lessons and courses to improve musical skills
• Business licences
• Union and professional membership dues
• Legal and accounting fees
• Agent’s commission
• Wages paid to assistants
• Insurance premiums on instruments and equipment
• Costs to repair and maintain an instrument
• Equipment rental
• Make-up and hair-styling for performances
• Clothing for performances
• Advertising expenses
• Home office expenses
• Travel expenses
Any instrument purchased for $500 or more cannot be expensed, it will need to be capitalized and depreciated over time.
Let’s not forget about HST! As soon as a musician or group earns more than $30,000, they need to register for it and begin charging it to their clients for their fees, merchandise sales, etc.
The Saskatchewan Recording Industry Association has a good article on their website (www.saskmusic.org) titled “Income Tax and the Musician.” It is not current, but gives the reader a good idea of what to look for. An Interpretation Bulletin, number IT-525R for Performing Artists can also be found on the Canada Revenue Agency website. They both provide good detailed information and also have examples of different tax scenarios.
Every performer’s situation is different, and when in doubt, please contact a professional.