By Kelly Ross
(15-minute read)
TL;DR: Professional performers have unique personal taxation situations that can have significant implications on their finances. This article will provide insight about hiring an accountant vs. filming your tax return online, organizing your tax information, filing as an individual vs. a corporation, what information the CRA can (or can’t) ask you to provide, and tax considerations when working in the U.S.
What are some tips for professional performers about how to organize their tax information before they send it to their accountant?
The clearer you can be when providing your information to your accountant, the better they can help. What you need to provide depends on how you are contracted for your roles. Are you considered an employee provided a T4, are you self-employed or are you incorporated?
I’m an employee
If you are an employee who receives a T4 from your employer each year for tax purposes, you have the least you can deduct and are restricted in terms of expenses. Union dues, medical expenses, premiums to health plans and donations are available at different thresholds for tax credits to apply against your income. If you are issued a T2200* from your employer, you have the ability to deduct more expenses, so see if you can obtain one. The T2200 will list what you can expense, such as materials and supplies, home office, travel expenses, vehicle and transportation costs, for example, if your employer does not reimburse you for them.
*A T2200 form, or a “Declaration of Conditions of Employment”, is a tax document provided by employers confirming the nature and amount of expenses an employee had to pay for work purposes. You may need a T2200 if your employment contract required you to pay expenses out-of-pocket for your job.
I’m self-employed or incorporated
As a self-employed individual or corporation, you may deduct even more expenses and you should be tracking these expenditures (self-employed or incorporated individuals do not require a T2200).
Eligible expenditures may include:
- bank interest and services charges for business accounts;
- stationary, materials and supplies;
- accounting and legal fees;
- rent and utilities (for example, if you’re a voice actor who records at home)
- repairs and maintenance on equipment;
- phone, Internet, streaming services and subscriptions;
- a bigger deduction for health premiums
- home office expenses;
- vehicle expenses;
- eligible business wardrobe and makeup (and more).
When claiming an expense, you must be able to justify how any goods or services purchase generate revenue.
Organizing your tax information
If you are working with an accountant, be sure to complete their tax packages to ensure your accountant has all the information they need to help you file the most accurate income tax return and ensure you are not missing out on any declarations, elections or possible deductions. Rules are constantly changing with Canada Revenue Agency (CRA) and this is how your accountant can determine if certain tax breaks apply to you.
What are the considerations professional performers should take into account about filing their income tax return as an individual vs. a corporation?
Every individual needs to file a tax return each year whether you are incorporated or not. The extent of what gets reported in each tax return is what changes depending on if you are filing as an individual or corporation.
Filing as an individual
Your personal income tax return reports what you earned personally and your personal tax-deductible expenses. There are some deductions that are tax credits that can only be taken under specific conditions and used against income earned. For business expenses, while they can be deducted if incurred to generate future income, it is important to not show a loss for a third year in a five-year period. If so, the CRA can disallow these expenses and claim you have a hobby as opposed to a viable business model. When this happens, they reassess your returns and you need to pay back any refunds plus interest/penalties related to the exclusion of these expenses. It is just not worth it, so in those years it is best just not to deduct any expenses that would put you in a loss position.
Filing as a corporation
If you are incorporated, you must file a separate return and your deadlines are different. The corporation is treated as its own person and, when you initially incorporate, can choose a year-end (any month of the year). We usually recommend a non-December year-end as it allows for more tax planning between two different calendar years. The deadlines for filing are directly related to your year-end. Annual filers are generally due three months after your year-end for any payments due and your HST filing. The corporate income tax return is due six months after your year-end. There are additional T-slips you do need to report for any money you take out personally from your corporation for salary or dividends that must be filed by end of February regardless of your year-end. Any payroll remittance must be paid by the 15th of the following month in which you paid yourself. Incorporating does have additional filing and costs associated, however, you could save yourself a lot of money by doing so as there are additional items available to you as a corporation and the tax rates can be significantly lower if you are using it right.
Filing as a corporation and deferring income
Having a corporation allows you to have options to defer income reported personally and report income into various periods that may be more applicable. For example, as a self-employed person you must report all money/income you earn in the year you receive it. When you are incorporated, while you need to report this income on the corporate side, the money you pull out your corporation for personal use is only what you will pay tax on at the higher rates. This allows you to have more money to invest and also to smooth out your income brackets in higher and lower income years. You can use this to your advantage, especially as you stop earning high amounts in your later years when you are looking to retire. Your corporation can actually work as a retirement vehicle to allow you to stay under Old Age Security (OAS) clawback thresholds as you can plan around this! You also have the option to pay yourself through dividends and/or salary at varying levels that are more optimal to your situation. This is especially important if you are applying for funding as you can make sure you look great in the eyes of the bank in any given year. There are also some great estate planning strategies to allow your beneficiaries to strip money out of the corporation tax-free!
What considerations should a professional performer take into account when hiring an accountant?
Understanding your industry
The biggest consideration should be if they understand your industry. If they are not familiar with it, they may not understand the specific items that are not usually deductible for other industries or how to audit-proof you if the CRA were to ask questions. Some examples around this are makeup and hair expenses for periods when on camera. Off-camera crew and support workers can deduct inclement weather items, however, not makeup and hair.
Understanding eligible expenses
For research expenses, such as tickets to watch or visit places to review what you need to know for roles and subscriptions (IMDb or streaming services), save your receipts! You also need to ensure you are not deducting the full cost as there is a personal component for other members of your household and yourself. What you may deduct is a percentage to account for the professional use of these expenses to justify to the CRA why you included that portion as an expense.
Understanding a performer’s income
Income in your industry can be tricky to determine as your net income (i.e. what payment you actually receive) is not your true income. Your gross income is all the income you receive in a tax year even if you do not receive it in cash in your bank account. This is especially true if you are working with an agent and/or union. Your time sheets and agent summaries will illustrate this very well for you by showing you the gross income number and net income/cash you receive. This markup includes RRSP contributions, agent fees/commissions and benefits that get offset on another section of your tax return. This is why it is very important to ensure these deductions are included in the gross income number being reported so it is important your accountant is provided with these deductions.
What are some tips for professional performers when filing their income tax returns online (vs. hiring an accountant)?
Some key points are in the answer to question three above, however, really just make sure you know what you are doing. Mistakes can be costly in penalties and interest and can also lose your creditability in the eyes of the CRA for future filings. This can cause more audits and scrutiny regarding your tax returns. Also, ensure you only use credible resources out there for information on what to include in a tax return. Our tax and accounting services firm, Ross Professional Corporation, prides itself on education and resources, so please feel free to visit our YouTube channel to review tips on items to ensure you are capturing all aspects. We also share credible resources on our social media channels to keep you updated when we feel it is a topic others want to know about. We are happy to share this information with you even if you are not a client. For additional resources, please visit: https://linktr.ee/RossPC
What kind of personal information can and can’t the Canada Revenue Agency (CRA) ask a performer to provide?
The CRA can ask you for anything to prove the inflows and outflows of your business. This is the very reason we suggest you have a separate business bank account and credit card. You don’t need the CRA in inspecting your personal finances so this way you can segregate what you are and are not having to provide. The CRA often asks for bank and credit card statements for your business to prove income. We often see a question when the deposits in the account are higher than the income you are reporting. In these cases, you will have to prove it is not income, if it truly is not. Examples may include you personally deposited money into your business account to fund some upcoming expenses or you received some money from a family member.
The CRA may also request banking information if you owe them money and these payments have been outstanding for an extended period of time. While we hope you never find yourself in this situation, it’s important to understand why they may ask for this. It could be so the CRA can send a notice to your bank to put a hold on your account or garnish a portion of deposits to repay the outstanding balance.
Some ACTRA performers work both in Canada and south of the border. Are there any tax tips for performers who earn income in U.S. dollars?
Tax residency
The type of currency is really not what matters when it comes to work south of the border or anywhere else in the world. What matters is where the income gets taxed and reported, and where your tax residency is. Tax residency is very different than citizenship, and there are many rules that come into play when determining this. For example, you may be a dual citizen, however, where would one consider your true home? This is determined by your ties to a country and the amount of days you spent in each country.
Working in the U.S.
As a resident of Canada, regardless of where you work in the world you must report your worldwide income. If you earn less than US$15,000 before expenses, under the US/Canada Treaty state, you do not owe any tax to the U.S. Your income will be reported and taxed in Canada only. You likely will still need to file a U.S. tax return to claim a refund if withheld. If you earn more than US$15,000 before expenses, you will be required to pay taxes in the U.S. and file a 1040NR (or 1040 for U.S. Citizens). You must also report this on your Canadian income tax return but Canada will give you a foreign tax credit for any tax you paid in the U.S., so you will not be double taxed.
Generally, if you work in the U.S., you are required to file a U.S. tax return. You need a U.S. tax ID number – either a social security number or an Individual taxpayer identification number (ITIN) – to file a U.S. tax return. If you have one already, you will need to provide this to whoever is hiring you. If you don’t have one, you can apply for an ITIN when you file your first U.S. tax return. Form W-7 (ITIN application) gets submitted with your U.S. tax return and they get processed together.
In the U.S., if you are a non-resident, the payer will generally withhold 30 per cent in tax. You can recoup some or all of this tax by filing a U.S. tax return. You will receive a U.S. tax slip – usually a 1042-S – that shows your gross income and the tax withheld. You need to submit this slip to the IRS when you file your U.S. tax return to prove the amount of tax withheld.
In some cases, by providing your U.S. tax ID number and completing Form 8233, you can avoid having tax withheld, but we don’t often see this in practice.
Finally, Central Withholding Agreements (CWAs) can reduce the 30 per cent withholding tax on gross income to a graduated withholding tax based on expected net income. This can be more complex and take time to create and, therefore, isn’t often used.
Note, information provided is assuming you are Canadian performers physically in the U.S. (working on U.S. soil). Any variation could change the information above, and it is always recommended you speak to your accountant regarding your specific situation.
Kelly Ross is the Managing Director and CEO of Ross Professional Corporation. She is a member of the Chartered Professional Accountants of Canada (CPA Canada), leading with strength, knowledge and passion and over 20 years of experience in accounting and taxation. Through her career she worked in a multi-national Certified Public Accounting firm, then moved on to be a subject-matter expert for development of an accounting program at a college.
Kelly’s interest and passion for accounting came from her mother whose career was in the accounting realm. Kelly has a love for the arts and entertainment industry, which stemmed from having a father who had talent and a love for music. Kelly herself played the piano and trumpet and was a dancer through her early years. Now in her downtime, Kelly can be found around the hockey rinks supporting her daughter’s hockey team and following her nephews in their live band performances. She is truly a people person and has a special skill making everyone she meets feel special.
Did you know?
ACTRA has a long history of lobbying for tax fairness for artists. Each year, ACTRA participates in the House of Commons Standing Committee on Finance’s Pre-Budget Consultations. ACTRA’s recommendations include advocating for amendments to the Income Tax Act to allow the first $15,000 of professional artistic income be tax free as well as the introduction of a four-year income-averaging system for an artist’s professional income to ensure tax fairness.
Canada was one of the leaders in the development of the 1980 UNESCO Recommendation concerning the Status of the Artist (SAA), which describes a category of legislation and other public policies directed at improving the economic and social status of professional artists. ACTRA contributed significantly to the development of the UNESCO Recommendation and was deeply involved in the work in Canada that led to the adoption of Canada’s Status of the Artist Act (SOA) in 1992. Since then, there have been some positive policy changes, but much more needs to be done to ensure our artists can prosper.
This article is intended for informational purposes only. Performers should speak directly with an accounting/taxation professional regarding their individual situation. ACTRA Toronto is not responsible for the business practices of accounting/taxation professionals operating in the province of Ontario and will not provide advice to performers about accounting/taxation professionals or their accounting/taxation situation.
