CRA provides an extended survey of tax issues for artists
CRA has expanded or altered various positions in IT–257R, Canada Council Grants, IT-504R2, Visual Artists and Writers, and IT‑525R, Performing Artists, in its new Folio on Artists and Writers.
CRA states that in distinguishing between an employment contract and a contract for services in the common law provinces, it applies the following two-step approach:
Step 1 - Look at the intention of the parties when they entered into the working arrangement.
Step 2 - Determine whether the intent of the parties is reflected in the facts by looking at the following elements:
• the level of control the payer has over the worker's activities
• whether the worker or payer provides the tools and equipment
• whether the worker can subcontract the work or hire assistants
• the degree of financial risk the worker takes
• the degree of responsibility for investment and management the worker holds
• the worker's opportunity for profit
• any other relevant factors, such as written contracts.
Then determine whether the actual working conditions are more consistent with a contract of service or with a contract for services.
This approach (and a somewhat similar three-step approach applied in Quebec) appears to give somewhat less weight to the parties’ subjective intention than suggested in Insurance Institute.
In light of Stewart and Walls, the reliance in IT-504R2 on the reasonable expectation of profit test in identifying whether there is a business or a merely personal endeavour has been dropped. However (presumably in part because artistic activities also typically satisfy a personal interest), CRA insists on the application of a list of objective tests in verifying that there is a business. It concludes this discussion by stating:
In the case of an artist or writer, it is possible they may not realize a profit during their lifetime. In order for the taxpayer to be considered to have undertaken the activity in pursuit of profit, i.e. to be considered to be carrying on business, the artistic or literary endeavours must be carried on in a sufficiently commercial or business-like manner.
CRA provides an intricate example showing that an employed musician may be better off deducting his expenses of travelling to performances under s. 8(1)(h) rather than (q).
A gift of art by a visual artist will be considered to be on income account if the artist created the work with the intention of selling it, but instead donated it - whereas gifts of items such as original manuscripts, letters, memoranda, or similar papers would generally be considered to be of capital property.
The proceeds of disposition deemed to result from the gift can be reduced by a designation under s. 118.1(7.1) – or, where there is a gift of certified cultural property, are automatically reduced (assuming no “advantage”) while at the same time generating full charitable credits – all as discussed in detail.
Neal Armstrong. Summaries of Folio S4-F14-C1 Artists and Writers 9 October 2020 under General Concepts – Substance, s. 5(1), s. 3(a) – business source, s. 9 – nature of income, s. 10(6), s. 18(1)(a) – income-producing purpose, s. 8(1)(p), s. 56(3)(b), Reg. 200(2), s. 9 – capital gain v. profit – commodities, s. 118.1(1) – total cultural gifts and s. 118.1(7.1).