You see a lot of articles this time of year that guide touring musicians through the maze of our tax laws. While a good number of SOCAN writers are touring musicians, there’s a significant number who are not. Whether you tour or not, your writing income tends to be treated the same way for tax purposes.
As a Canadian resident songwriter, royalties earned from the exploitation of your copyrighted music are considered to be self-employed business income, as long as you’re operating a business with a reasonable expectation of profit. Accordingly, self-employed songwriters are entitled to deduct all reasonable expenses incurred in connection with earning that income.
Generally recognized business expenses include:
- Insurance premiums on musical instruments and equipment;
- Instrument and equipment maintenance and repairs;
- Capital cost allowance (depreciation) on instruments, sheet music, scores, scripts, transcriptions, arrangements, recording equipment, and office equipment;
- Interest expense on loans taken out to purchase business equipment;
- The cost of leasing or renting equipment;
- Legal and accounting fees;
- Union dues and professional membership dues;
- Agent and management commissions;
- Remuneration paid to a substitute or assistant;
- Publicity and marketing expenses;
- Travel expenses related to work, both in and out of town;
- The cost of recording demos or masters;
- Telephone expenses, including an applicable portion of the cost of a telephone in a residence where the number is listed as a business phone;
- General office expenses;
- The costs to maintain that part of the songwriter’s residence used for professional purposes;
- Studio rentals;
- Professional development;
- Sub-publishing royalties paid; and
- The cost of industry-related periodicals.
Some of the above expenses have certain rules and limitations, and should be reviewed with your accountant.
Grants which are received will be considered as taxable income. Prizes, depending on the circumstances, may be treated differently.
SOCAN, being a performing rights organization, is not required to pay GST/HST on distributions to its members, and as a member, you’re not required to collect GST/HST on your distributions. A self-employed individual is required to register for GST/HST if they earn more than $30,000 of gross income in a year; however, your earnings from SOCAN aren’t included in this threshold calculation. If SOCAN is your sole source of income, you would not be required to register for GST/HST, but you may want to consider registering, as this would allow you to claim a refund of any amounts paid.
Your Canadian 2013 income tax return is due on or before April 30, 2014. There’s an exception to the April 30 filing requirement if you, your spouse, or common-law partner, earn business income during the year. If this exception is the case, your income tax return has to be filed by June 15, 2014; however, any payment of taxes owed is still due on or before April 30, 2014, so make it easy on yourself and get your taxes done early!
Lorne Sprackman CPA, CA (email@example.com) is a Partner with Sprackman Terrence LLP Chartered Accountants, Licensed Public Accountants, specializing in entertainment taxes.