3 August 2001 External T.I. 2001-0086265 - EXPENSES-PROF. SINGER

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

What portion of rent expense for a studio and piano are deductible by an individual that is a professional singer and music teacher, where there is a personal element to the expense.

Position:

To establish the amount of an otherwise deductible expense, whether referring to the calculation of employment income or business income, an allocation must first be made on a reasonable basis between the personal and income-earning elements.

Reasons:

Paragraphs 18(1)(a) and 8(1)(q).

XXXXXXXXXX 	2001-008626
		Randy Hewlett, B.Comm.
August 3, 2001

Dear XXXXXXXXXX:

Re: Deductible Studio Expenses for a Professional Singer and Piano Teacher

We are writing in response to your letter dated March 14, 2001, wherein you requested our opinion on the amount of expenses deductible in a situation where you, a professional singer and piano teacher, rent a studio and piano that are both used 50% of the time for "recreational" purposes.

The situation presented appears to be an actual fact situation involving completed or ongoing transactions. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.

When determining allowable business expenses under paragraph 18(1)(a) of the Income Tax Act (the Act) for a performing artist who is self-employed, or employment expenses under paragraph 8(1)(q) for a performing artist who is an employee, the amount deductible must be incurred for the purpose of earning that source of income. As such, the personal element of any expense is not deductible. To establish the deductible amount of an expense that has personal and income-earning elements, an allocation must be made on some reasonable basis, which may vary in each circumstance.

For example, in determining the deductible rent expense for accommodations, the square footage of the portion of the total area used for the income-earning activity divided by the square footage of the total area, may be a reasonable apportionment to arrive at the deductible amount. However, a further allocation of that amount may be required, based on the percentage of time used for income earning purposes, if there are both personal and income-earning elements to the use of that particular portion of the accommodations.

For your information we have attached a copy of Interpretation Bulletin IT-525R Performing Artists. As well, you may want to consult our website at www.ccra-adrc.gc.ca for any other publication that you may require.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Enclosure

- 2 -