If you’re a freelance artist, filing your taxes might be a bit of a more complicated process than it is for others. There’s likely income from sales and commissions to think about, as well as grants and awards and more. You might also have to calculate tax generated from income originating from this province, as well as outside. And this year, there’s also income from COVID-19 relief programs to consider.
Join us on March 10 for an in-depth income tax workshop, geared towards freelance artists, facilitated by KPMG’s Lexton Lee and Jeannie French, who will cover how the CRA typically deals with those working in the arts, how to calculate income and tax, strategies for paying tax owed, and more. This free session will be hosted online.
We recently caught up with Lee and French to talk about how the pandemic plays into taxes this year, options for claiming expenses when working from home, and why organization is key to a stress-free tax filing experience.
Business & Arts NL: If you work in the arts, filing your taxes might not be quite as straightforward as it is for others. And this year, the pandemic, and the resulting support programs, has added another layer of complexity. Can you give a bit of an idea of what special considerations people may need to take into account this year?
Lexton Lee: For many individuals, one of the biggest items to keep in mind is that most individual benefits received are fully taxable as income. Though the new Canada Recovery Benefits (of which there are a few categories) had some taxes withheld by the government when paid, the original Canada Emergency Response Benefit (or CERB) payments were sent with no taxes withheld. All of these benefits must be included on your 2020 tax return as income, and will be subject to tax. One thing to keep in mind though, is that individuals that made less than $75,000 in the year and received one of the CRA’s five pandemic relief benefits will have until April 30, 2022 to pay this amount without being subject to interest or clawbacks on other benefits (Canada Child Benefit, for example).
Business & Arts NL: More people than ever have been working from home this past year. What is and isn’t reasonable in terms of what one can claim as a home office expense?
Jeannie French: It’s entirely dependent on your situation. Most individuals who have worked from home in the past will have the same deductions available to them as they did in prior years, and these can vary based on whether you are self-employed or an employee, and if an employee whether or not you earn commission income. For individuals that worked from home in prior years, there should be no change to the deduction for home office expenses you claimed in prior years.
For salaried individuals that suddenly found themselves working from home and are completely unfamiliar, you have a couple of options. First, you can claim a flat rate deduction of $2/day for up to 200 days in 2020 with no documentation from your employer required. Second, you can claim a percentage of your home costs (electricity, heat, water, etc.) based on the size of your home office compared to the overall size of your home for the period of time it was used as an office. This second option will require a form (T2200 or T2200S) signed by your employer indicating that you were required to maintain a home office. The CRA provides a great breakdown of how to calculate home office expense, and what items can be claimed based on your situation, here.
One additional item of note is that employer reimbursements for home office equipment of up to $500 total due to the pandemic should not result in a taxable benefit to an employee.
Business & Arts NL: From your experience, what do you see as being one of the major issues that artists, or people in general, come up against when filing their own taxes, and how can they overcome this?
LL: From my own personal experience, the biggest issue is often record keeping. The beauty of being self-employed is that you have the freedom to make your own rules and set your own schedule. But that can come with a cost. Artists and self-employed individuals often find themselves with a giant stack of receipts from the prior year that they haven’t organized or tracked, and decide to start sifting through them during the Easter holidays (which can fall very close to the personal tax deadline depending on the year). My recommendation would be to set out a day every month (or every week if your business requires it) and organize your documents, track your income and expenses, and scan in copies of those receipts into a digital format for backup. This front loading of work saves both you and your accountant/bookkeeper (if you have one) from a great deal of headache at year end.
Business & Arts NL: What recommendations or tips can you offer to artists to help make filing their own taxes a bit of a smoother process?
JF: For individuals filing their own taxes, the best recommendation I can give is to start early. You should have most of your documents (other than a couple of notable exceptions) by the end of February. Unless you’ve made RRSP contributions in early 2021, have income being reported on a T3 (trust income) or have income reported on a T5013 (partnership income), start organizing your info in early March and start preparing your return by mid-March. Most people find one or two things they have completely missed and can’t substantiate (a missing donation receipt, a missing business expense they can claim, etc.) on their first run through. If you give yourself enough lead-time, you can often re-request a copy of these documents. This becomes very difficult to do if you start three days prior to the deadline, and will cause you (and everyone you contact) unnecessary stress.
Please attend our presentation where we will have more time to go into depth on some of the items discussed above!
Workshop: Income Tax for Freelance Artists in the Age of COVID
Date/Time: Wednesday, March 10 from 1-2p
Location: Online via Zoom
Registration: Click here