How can I lower my taxes if I am an actor or a person employed in the entertainment industry?
This post outlines income tax returns for actors in Canada who are also residents of Canada. Rules are different for a non-resident actor in Canada and can be found here.
Actors with Employment Income
If you are an actor employed in the entertainment industry, you will generally get a T4 from your employer.
When it comes to deduction of expenses, there is a very limited deduction available to you. You can deduct lesser of (a) (i)$1,000 or (ii) 20% of your employment income from artistic activities minus (b) the amounts you deducted on account of musical instrument expenses, and interest and capital cost allowance for your vehicle. The expenses which you cannot claim due to the 20% limitation can be carried forward for future years. Find detailed guidance here.
Self-employed Actors and Income Tax returns
Many people employed in the entertainment industry are usually self-employed rather than an employee. If you fall into that category, you can lower your taxes by claiming certain expenses which wouldn’t have usually been possible if you were on the payroll.
Basically, the rule to determine if you can deduct any expense is to see if that expense was necessary for you to earn your income. You should also be able to differentiate between personal expenses and self-employment expenses. If you are not able to demonstrate that the expense was needed to earn self-employment income, there is a very high likelihood that such an expense will be disallowed during a review or an audit.
Classes and Workshops: This will be one of the biggest expenses for an upcoming actor and certainly you are eligible to claim it. Just make sure that the institute doesn’t give T2202A for the fees. If that is the case then this would be claimed as a credit.
Research: A good final product doesn’t come without a rigorous amount of research on the topic. If you have incurred something to better your craft, say buying books, digitization of old archival films, art exhibitions, etc. then you can certainly apply it to lower your taxes. Just make sure that you can prove to the CRA how this knowledge was applied in your work in case if they later ask for proof. The best practice to do this would be to write down notes about what you learned and how did you apply.
Advertising: It is important to get yourself out there. For this, you may have spent large amounts of money like headshots, portfolios, online advertising, etc. These are 100% deductible.
Commissions: The commissions or a part of your earnings that you pay to your managers/agents is your direct cost. These as well are deductible.
Equipment: This applies especially to video editors/ animators. Expensive computers and other specialized gadgets are used to produce your work. To claim this you can either deduct the whole amount at once or you can do a bit every year through the Capital Cost Allowance method – depending on the nature of the expense. To see which one is the best, do a basic test and see if the life of the equipment is more than a year. Capital cost allowance is a matter better to be dealt with by a professional income tax preparer in Canada.
Transport: Costs incurred on public transportation, fuel and gas, and even accommodation and meals incurred while you’re on a gig outside your city are deductible. There are rules related to transportation expenses. Further, each transport expense you are claiming needs to be assessed carefully. For example, going to your own work (office) is a personal expense but if you have to go to two places and there is no other quick way except to use UBER or taxi, you can claim these transportation charges.
While these expenses were the most common that artists claim, this list is not exhaustive. Other expenses include but are not limited to supplies, rent, home office expenses, repairs and maintenance, utilities, telephone. It’s always better to discuss your working situation with your personal income tax service provider in Canada.
Maroof HS CPA Professional Corporation is a CPA firm in Ontario providing comprehensive individual income tax services and Corporate tax services in Canada. Get in touch with us and file your taxes from the comfort of your home. Contact us.