Ask An Expert: Taxes for freelancers and artists

Taxes for freelancers and artists can be tough! It can seem hard to make sense of them, especially when it’s not our sole source of income. Then there’s the issue of selling online, what can artists claim, and specifics for Nova Scotain regulations. Luckily, we have Gerri MacVicar of Liberty Tax who is happy to answer the many questions we had. So bookmark this article; it’s going to save you some sleepless nights.

Disclaimer: we would like to note that at the time of this interview, the 2016 CRA regulations had not yet been published. Therefore please understand that the information presented below is subject to change. Gerri is all to happy to answer any follow-ups you have – she is some sort of tax superwoman.

Thank you for taking the time to answer all our questions, Gerri. Tell us a bit about yourself and Liberty Tax.

I have been a tax adviser for 8 years (banking Letter of Accomplishment) and have a personal insurance background for 14 years. I own and operate Liberty Tax on Quinpool Road, while my husband Ken owns and operates the Portland Street location. They are franchises from a Canadian company that also branched out into the US market, where the name is more prevalent. To date, there are 4,000 locations in North America.  15 years ago Ken was in Calgary looking for work, found this franchise and discovered that he loved it. He came back home to Nova Scotia, and his father invested in it, creating 11 territories. Since 2011, we’ve just been managing the two.

What makes Liberty Tax different from other tax preparation companies?

We’re a small, family-run business whereas the major competitor is corporate. What that means is that if there’s a shortage, it comes out of our bank account. We try to keep up on the new regulations coming from CRA and we ask a lot of questions, because we have a vest interest in our clients. A corporately run office’s preparers may not.

Also, my junior prepares do not do our client business returns: I do. I’m constantly asking ‘OK, we’ve covered advertising and business cards, but what about your website?’ I’m constantly talking as I’m doing the returns. I’m just trying to trigger a memory: ‘Oh yeah, I spent $25 on that item.’ I don’t care if the receipt is an online or a paper.  As long as it’s in the currently year, it is legit.

What do you enjoy about working with creative freelancers?

The variety they bring. For example, when it comes to music, I could be working with somebody who’s on a cruise ship it, then someone who plays in a local bar, plus they are writing or teaching music.  I enjoy that broad scope.  The same goes for illustrators or photographers who are making and selling work but also teaching. There’s so much variety.

Do you have any creative leanings?

I have both a berry and an herb garden *laughs*. I like to make jams and preserves from them to share with family and friends.

(left) Gerri MacVicar, tax super-woman. (right) The Quinpool location. No, that's not her in the suit.
(left) Gerri MacVicar, tax super-woman. (right) The Quinpool location. No, that’s not her in the suit.

 

Getting Started: When Do Taxes Happen?

 

Many people have a full or part time job already, but they’re starting to sell services or items. When are people allowed to start writing off items for their freelancing?

We have to fall within CRA’s rules and regulations. The 2016 guidelines are not out yet, so I can only say about once you make more more than $2,000 in your venture, then you’re going to walk into a business return. So, once you’ve reach that amount of income, start saving all your receipts.

When do you have to start charging HST?

Once you reach above $30,000 in revenue, you then have to start charging HST. Generally, I tell people that if you are at $29,000 don’t sign up for HST. If the next year you only make $20,000; too bad, you have to pay the return.

Now, it does depend on if you are targeting for clients. Some may only want to work with a service provided that has an HST number. This would be a personal call on your part.

Say you get a new freelance contract in November and you suddenly make over $30,000 by the end of the year. What happens then?

When you file that year’s taxes, CRA will notice that you don’t have a HST number but there is that large amount, and they will send you the required paperwork to begin charging HST. It makes it a little easier because you don’t have to go through that system yourself and register. I had a client this year where that exact contract situation happened to her:  CRA simply sent a  letter that said she made X amount of dollars in August, so we want her to start reporting HST from August onward. There’s no penalty, and it is a very fair process.

For those making over $2,000 in freelance or selling their work: do they just simply start claiming expenses or is that when you register your business?

All they have to do is report their business income on the T2125 Statement of Business or Professional Activities form. They do not need to register their business, although it is a good idea as it’s only around $62 a year to be formally registered. If they decide to close the business later, when  tax for that year are being done, we just simply log it has closed. CRA will pick that up.

It’s an individual’s choice, really. If you’re making $5,000 a year do you really want to pay the $65 to be to registered when you know that that’s not where your main income is? Is this a new avenue or just a hobby you’re making a couple bucks from here and there? This also means that if someone operates under their own name, they do not have to register as a business with Joint Stocks.

Someone sells art at conventions and craft shows.  What can they write off from those events?

People usually miss their table fee. Don’t forget costs of transporting yourself and your wares, your parking, your meals – which you can claim 50% of, by the way. Basically, anything while you’re on-site.

What are some common things that people try to claim that are actually not tax deductible?

Groceries, clothing, and pet health.

When it comes to claiming meals, what are the regulations?

You can claim eating when travelling to/from/during an event (3 meals daily), and when entertaining a client.

How much does it cost on average to get tax help on a quarterly basis?

Quarterly HST is $85.00 each, business return starts at $210.00(yearly). If you are incorporated it begins at $500.00. You will need to provide the income statement and balance sheet.

 

Invoicing And When To Charge Tax

 

What should a freelancer keep in mind when they’re sending invoices?

Make sure you have an address so that it’s not just going to ‘Joe Blow’ and his email. You have to have that address to prove that the recipient is indeed from the US, Canada or where ever. If the CRA does a review, it will dive into each individual invoices.

I’ve even seen them go as deep as to ask ‘Did this individual pay via e-transfer? Visa? Cheque? Cash?’ So make sure you’re noting the method of payment. Right now you’ll see a lot of the e-transfer payment method reported as cash, but I do believe that will change very soon.

Do you charge taxes to American clients?

You do not.

How much tax do I charge to clients in other provinces?

Currently, it’s based on the province the invoice is coming from. If you’re operating out of Nova Scotia, you charge its provincial tax which is currently 15%.

Some has an online store, and they want to sell to any country. What tax implications should they be aware of if the money is being received through something like Paypal?

Just because it’s held in Paypal does not mean the CRA can’t trace it. You’re still being paid out in Canadian funds. If you did business with someone in Mexico, as an example, you have to report that as international income in your business return. You claim the amount in the Canadian funds you receive, and the CRA goes by a yearly government regulated exchange rate to calculate your international earnings.

Your online store should be equipped to add taxes where applicable; you have to charge tax to Canadian consumers. Remember to base the tax on the province of receipt.

Someone is a service provider that charges HST. Once in a while they sell physical items at conventions or small craft shows. Do they have to charge HST on those items too?

Yes. Even if you just have a little handwritten receipt booklet, make sure that you calculate your HST correctly when giving people a receipt. Be specific and break out the item price and the HST, because if you are reviewed, the CRA will look at those records.

Now, let’s say you’re a clothing designer but a couple of times a year you sell some patterns. This is where you need to ask yourself: Am I in fact two businesses, or is it just that I have one business and I happen to do this one part on fabric a few times? If it’s the later, then you still have to claim that income and charge the HST. In the case of different types of business, I would suggest to file a business return for each. When the business are related such as clothing designer and patterns one return should be sufficient.

 

Tips And Good Practices

 

What are some common mistakes that visual freelances make in their taxes?

It’s claims that they are omitting. It could be maintenance on a camera or purchasing new software or equipment. You can claim those things and a lot of times people are forgetting. ‘It was just one frame I bought’ they might say. It’s still a receipt and that adds up.

‘Advertising’ and ‘marketing’ in particular has grown to a catch-alls that sometimes cross over, and people don’t think about. It’s no longer just a business card, but websites, hosting, Google Ads, etc. The terminology is important, but often there is crossover. Your tax preparer can help you place receipts in the right area.

And most importantly, don’t forget that the business return deadline is June 15th.

Do you have any tips on receipts record keeping?

  • Save your receipts for seven years. But, if the CRA reviews you and they find a common thread, they can go back 10 years. So, I tell all my clients to keep records for 10 years. The CRA will dig. And if you can’t provide certain information, they will calculate, or ‘deem’, based on prior years. Let’s say it was during 2008; they will look at a couple of years before and after in that category to see what you were doing and will try to draw from that.
  • Ink fades on certain paper types. Items like gas receipts – the ones being printed on very slippery paper – should be photocopied. That paper fades fast, so in two years those numbers will be gone and you’ll just have an envelope full of blank slips. Again, CRA will just pull numbers from other years to try to calculate it.
  • Bank Statements Are Not Receipts. CRA does not accept your Visa or bank statement as receipts either. Just because you have a credit card bill showing you were charged $600 for a meal, you can’t claim that. You have to have the actual receipt.

For those that work out of their home, what can they write off?

The physical space you work out is calculated, and from there you can claim a variety of items.

That same T2125 Statement of Business or Professional Activities form is my template I go by. First, you calculate the % of your home you use, so that you can apply that % to various items. Generally, that is one room out of however many rooms in your home. A hall does not count as a room, nor does the bathroom. So let’s say you live in a 3 bedroom (one being used as an office) home with a living room, dining room and kitchen = 6 room to get a 1/6th calculation. Things you claim under business-use-of-home include:

  • Heat, electricity and hot water (one many people forget)
  • Insurance (both home and rental),
  • maintenance (new roof, fresh coat of paint in the office, a lamp)
  • property tax, mortgage and rent
  • internet and phone (cell or landline)

Are there benefits to accounting program such as Intuit  or Freshbooks? When should a freelancer consider including these accounting software in their business?

That’s a personal choice. Myself, even for this business I still don’t use those programs. I use Excel spreadsheets. I make out the categories that I know I’m going to use, and from there I can add or subtract them as needed.  Each category (advertising, meals, etc) would have two columns: one for the total cost and one for the tax.

If it makes sense to you, save yourself the $400 a year and use a simple spreadsheet.  I still have some people who come in and use the old style ledgers. Whatever works for you – as long as it takes away as little time as possible from you working on your business. CRA cannot refuse any particular method of bookkeeping. They accept them all because your numbers are your numbers.

Are there any excellent resources that you recommend to help Nova Scotian freelancers and artists with their taxes?

The CRA site has become more streamlined, and it is the most accurate resource. Eight years ago I would not recommend it as it was very difficult to find answers. My tip is to always end your question with ‘+ NS’ to make sure you’re getting province-specific answers. As the last result, just to call them.

Are there any special programs, seminars or workshops you think people would benefit from?

Currently we here at Liberty don’t offer any, but that’s something I should look into *laughs*. I do recommend looking into your local business association. There’s a Quinpool Road Association and the Downtown Dartmouth Business Commission, as examples.  There are excellent business support systems in this province, and talking to the one that represents the location you work out of it a great start.


Gerri will be attending our May 2016 meetup if you want to pick her brain! You can also connect with her through the Liberty Tax Quinpool Facebook page. Feature artwork by Rebecca Junkin.

Alison

Proud horror film geek and lover of every flavour of chips, Alison is a designer and illustrator working in Halifax. As head of the E3C steering committee, Alison is all about gathering creatives together and pushing people to do the most with their creative talent.

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