Chapter History S4-F14-C1, Artists and Writers

Introduction

The purpose of a Chapter History page is to highlight any amendments to the information contained in a chapter of an income tax folio, including amendments to the information originally contained in an interpretation bulletin that has been cancelled and replaced with a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.

Update October 9, 2020

General

Income Tax Folio S4-F14-C1, Artists and Writers, replaces and cancels Interpretation Bulletin IT–257R, Canada Council Grants, Interpretation Bulletin IT-504R2, Visual Artists and Writers, and Interpretation Bulletin IT‑525R, Performing Artists.

In addition to consolidating the content of the former interpretation bulletins, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletins are described below.

Legislative and other changes

Paragraph 17 of IT-504R2 has been deleted as it is no longer relevant.

¶1.2 (formerly included in ¶1 of IT-257R) has been expanded to include a reference to financial assistance from government and the private sector. Reference to fellowships in this paragraph (and, to the extent possible, in the rest of the Chapter) has been deleted to make the Chapter more relevant to artists. Emphasis has been added to the effect that the discussion on the tax treatment of art production grants is applicable only if it has already been determined that these amounts are neither business nor employment income.

¶1.3 (formerly included in ¶2 of IT-257R) has been updated to include the expression art production grant and to delete the terms scholarship, fellowship, and bursary.

¶1.4 has been added to provide a general overview of the manner in which an amount may be taxed.

¶1.5 has been added to provide a general introduction on the rules applicable in determining whether a worker is an employee or is self-employed.

¶1.10 to 1.12 have been added to provide information on the factors to be considered when deciding if a worker is an employee or self-employed individual when the contract is formed either in a province or territory outside of Quebec, or formed in the province of Quebec. These new paragraphs replace ¶4 to ¶8 of IT-525.

¶1.14 (formerly ¶9 of IT-525R) has been updated to refer readers to RC4110 Employee or Self-Employed for information about determining whether an artist is employed or self‑employed and to provide information on requesting a ruling from the CRA on the status of a worker.

¶1.15 to 1.17 (formerly ¶1 of IT-525R) have been updated to reflect information in the Canada Pension Plan and Employment Insurance Explained article entitled Responsibilities, benefits and entitlements for employees and self-employed workers.

¶1.18 (formerly included in ¶4 of IT‑504R2) has been updated to provide general information about what is income from a business and also includes information from and a cross-reference to Guide T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income.

¶1.19 and ¶1.22 have been added to discuss two Supreme Court of Canada cases (Stewart and Walls). The discussion also describes how a particular operation must be carried out in a sufficiently commercial or business-like manner to be considered a business. The reasonable expectation of profit is no longer accepted as the test to determine whether a taxpayer’s activities constitute a source of business income. That test was formerly found in ¶4 of IT-504R2.

¶1.20 and ¶1.21 have been added to provide some additional context and guidance on the distinction between a personal endeavour and a business activity.

¶1.24 (formerly included in ¶5 of IT‑504R2) has been updated to present factors to be considered in determining whether an activity is a sufficiently commercial or business-like activity. These changes reflect the move away from reasonable expectation of profit as the test to determine whether a business exists. As well, item (l) in ¶5 of IT-504R2 which referred to the nature of literary works undertaken by a writer has been deleted from the list because it was determined to no longer reflect the industry.

¶1.25 and 1.26 (formerly included in ¶6 and ¶7 of IT-504R2) have been updated to refer to sufficiently commercial or business-like manner.

Example 1 has been added to provide an illustration of a possible scenario where an artist’s circumstances reflects a sufficiently commercial or business-like manner.

¶1.29 has been added to discuss the public lending rights program.

¶1.30 and 1.31 have been added to discuss royalty payments.

¶1.32 to 1.36 (formerly included in ¶8 of IT-504R2) have been updated to include a discussion of income from an artistic endeavour and who can elect under subsection 10(6).

¶1.37 has been added to explain the general rules affecting the deduction of expenses from business income.

¶1.38 (formerly included in ¶10 of IT-525R) has been updated to provide additional examples of expenses in items (s), (t), and (u). It has also been updated to replace the word “professional” before “income” in the opening sentence with the word “business.” The word “professional” was also removed from ¶1.38(p) and the phrase “rent a studio” was added to that item.

Example 2 (formerly after ¶12 of IT525R) has been updated to make it more descriptive.

¶1.41 to 1.43 (formerly in ¶10 of 504R2) have been updated to reflect information in ¶2.3 and 2.4 of Income Tax Folio S4-F2-C2, Business Use of Home Expenses.

¶1.44 (formerly included in ¶4 of IT‑257R) has been updated to include reference to paragraphs 6(1)(a) and (b) and to simplify the example to make the information easier to understand.

¶1.45 has been added to introduce certain provisions that may be available to artists and writers to permit deductions from employment income and to provide reference to Guide T4044.

¶1.46 has been added to provide a general discussion of the deduction under paragraph 8(1)(h) for travel expenses.

¶1.47 has been added to provide a general discussion of the deduction under paragraph 8(1)(j) for motor vehicle expenses.

¶1.48 has been added to provide general information about the limit on the capital cost of passenger vehicles and zero‑emission passenger vehicles and to refer readers to Guide T4044 for more information.

¶1.50 has been added to provide a description of deductions available under paragraph 8(1)(p).

¶1.53 to 1.55 (formerly included in ¶14 of IT-525R) have been expanded to briefly explain the impact of the change in use rules.

Example 4 has been added to illustrate the change in use rules under paragraph 13(7)(b).

¶1.56 has been added to direct readers to Income Tax Folio S3-F4-C1 for more information on the concept of CCA.

¶1.57 and 1.58 have been added to provide additional guidance about expenses eligible for deduction under paragraph 8(1)(q).

¶1.60 (formerly included in ¶20 of IT-504R2 and ¶16 of IT‑525R) has been revised to use a formula to make the information easier to understand.

Example 5 (formerly included in ¶22 of IT‑504R2 and ¶18 of IT‑525R) has been modified to simplify the facts in order to more clearly demonstrate how the deduction provisions work.

¶1.63 to 1.65 (formerly included in ¶7 of IT‑257R) have been expanded to note that an amount received by an artist or writer may be considered other income (such as an art production grant, prize, or research grant) only once it has been determined that it is neither business nor employment income of the recipient. Examples of other income have been added. Information concerning prescribed prizes in ¶1.65 replaces ¶9 of IT-257R. The former reference to IT-75 has been replaced with a reference to Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance.

¶1.66 (formerly included in ¶5 of IT-257R) has been expanded to note that the term art production grant is not defined in the Act.

¶1.67 has been added to identify amounts to which paragraph 56(1)(n) does not apply.

¶1.68 to 1.71 (formerly included in ¶5 and 8 of IT-257R) have been updated to discuss the exemptions in subsection 56(3) that apply to amounts included in income pursuant to paragraph 56(1)(n). These include the basic scholarship exemption and the art production grant exemption. The paragraphs have also been expanded to specifically note that research grants are not eligible for the exemption under subsection 56(3). Subsection 56(3) was added by S.C. 2001, c. 17, s. 39(2). These amendments apply to the 2000 and subsequent tax years. Amendments to subsection 56(3), as implemented by S.C. 2007, c. 2, s. 6(3), are applicable to the 2006 and subsequent tax years. Paragraph 56(3)(a) was amended by S.C. 2007, c. 35, s.17(1), applicable to the 2007 and subsequent tax years. Further amendments to subparagraph 56(3)(a)(i) were made by S.C. 2016, c. 7, s. 6(1), applicable to the 2017 and subsequent tax years. The art production grant exemption (formerly in paragraph 56(3)(c) was added by S.C. 2001, c. 17, s. 39(2); it was previously part of subparagraph 56(1)(n)(iii), which was repealed by S.C. 2001, c. 17, s. 39(1).

¶1.72 (formerly included in ¶6 of IT-257R) has been revised to discuss when eligible expenses must be incurred. It also discusses the circumstances under which expenses may be allowable if they  are incurred in the year before or after the art production grant is received.

Example 6 (formerly included in ¶6 of IT-257R) has been updated to make it more descriptive.

¶1.73 (formerly included in ¶5 of IT-257R) has been updated to discuss reasonable expenses in the context of the art production grant exemption. However, the last sentence in item (c) of ¶5 of IT-257R which formerly read “The taxpayer may not claim the travelling expenses of his or her spouse and children or other third parties.” has been deleted as this exclusion falls within “personal or living expenses of the taxpayer” already described in this paragraph.

Example 7 has been added to illustrate the types of expenses that may or may not be included in the calculation of the art production grant exemption under subsection 56(3).

¶1.74 (formerly included in ¶10 of IT-257R) has been expanded to provide more information on reporting requirements for the payer of a research grant, scholarship, fellowship, bursary, prize, or art production grant.

¶1.75 has been added to provide information on how art production grants that are neither business nor employment income of a recipient should generally be reported in the recipient’s income tax return.

¶1.76 has been added to provide information on how an amount reported on a T4A that is business or employment income of a recipient should generally be reported in the recipient’s income tax return.

¶1.77 has been added to provide information regarding the income tax withholding requirements applicable to payments that are taxable under paragraphs 56(1)(n) or (o) as well as references to CRA Guides that may be referred to for further information.

¶1.78 has been added to provide an introduction to the section of the Chapter dealing with gifts and charitable donations.

¶1.79 and 1.80 have been added to inform readers about the split-receipting rules which were added to the Act by S.C. 2013, c. 34, s. 358, effective in respect of gifts made after December 20, 2002. They also provide general information on the meaning of a gift and a reference to Income Tax Folio S7-F1-C1, Split-receipting and Deemed Fair Market Value which provides additional details on terms used in this Chapter such as eligible amount and advantage.

¶1.81 has been added to inform readers that there are additional tax rules that may apply to gifts made as consequence of an individual’s death, or gifts made in the context of gifting arrangements and other tax shelters that could be relevant to them.

¶1.83 (formerly included in ¶12 of IT-504R2) has been revised to provide readers with more information on the organizations that can be qualified donees for purposes of the Act. Since IT-504R2 was published, the definition of qualified donee in subsection 149.1(1) has been amended by S.C. 2011, c.24, s. 52(1), effective for January 1, 2012; S.C. 2012, c. 19, s. 7(2), generally effective as of January 1, 2013; S.C. 2015, c. 36, s. 18(1), effective as of June 23, 2015; S.C. 2018, c. 12, s. 25(1), generally deemed to be effective as of February 27, 2018; and S.C. 2019, c. 29, s. 31(1), effective January 1, 2020. Readers are referred to a webpage that provides a listing of the organizations that are currently considered qualified donees. For gifts made in previous years, readers should refer to the legislative amendments to determine whether a particular organization may have been a qualified donee at the time the gift was made. Prior to January 1, 2012, gifts to Her Majesty in right of Canada or a province were defined to be an individual’s total Crown gifts in subsection 118.1(1). The 2011 amendment added Her Majesty in right of Canada or a province to the definition of qualified donee which is why the reference to total Crown gifts has been removed.

¶1.84 (formerly included in ¶13 of IT-504R2) has been revised to reflect legislative amendments made by S.C. 2019, c. 29, s. 48 and 49, effective March 19, 2019, to remove  references to paragraph 29(3)(c) from sections 32 and 33 of the Cultural Property Export and Import Act (CPEIA), and amendments made by S.C. 2019, c. 29, s. 4 and 16 which removed references to paragraph 29(3)(c) of the CPEIA from subparagraph 39(1)(a)(i.1) and from the definition of total cultural gifts in subsection 118.1(1). The amendments remove the requirement that an object be of national importance in order to qualify as cultural property for tax purposes.

¶1.86 (formerly included in ¶14 of IT-504R2) has been revised to reflect the legislative amendments made by S.C. 2014, c. 39, s. 34(1), (2) and (7), applicable to the 2016 and subsequent tax years.  These amendments repealed the definition of total Crown gifts from subsection 118.1(1), and removed the reference to total Crown gifts from the definition of total charitable gifts and the definition of total gifts in subsection 118.1(1). As mentioned at the history note for ¶1.83, the legislative amendment made by S.C. 2011, c.24, s. 52(1), effective for January 1, 2012 added Her Majesty in right of Canada or a province to the definition of qualified donee in subsection 149.1(1).

¶1.87 (formerly included in ¶12 of IT-504R2) has been revised to reflect the legislative amendments made by S.C. 2013, c.34, s. 393, applicable to gifts made after December 20, 2002, which amended the receipting requirements in subsections 3501(1) and 3501(1.1) of the Regulations. Specifically, the amendments added the eligible amount of a gift to the information required to be included on official receipts.

¶1.88 (formerly included in ¶14 of IT-504R2) has been revised to reflect the legislative amendments made by S.C. 2013, c.34, s. 358, applicable to gifts made after December 20, 2002, which added the split-receipting provisions in subsections 248(30) to (41). Specifically, the concept of the eligible amount of a gift was added at subsection 248(31).

¶1.89 to 1.94 (formerly included in ¶15 and ¶16 of IT-504R2) have been updated to reflect several legislative amendments.  An amendment made by S.C. 2013, c.34, s. 248, applicable to gifts made after December 20, 2002 revised subsection 118.1(7.1) to  add a reference to the amount of the advantage which is relevant for purposes of calculating the eligible amount of a gift in subsection 248(31). A legislative amendment made by S.C. 2013, c. 34, s. 358, applicable to gifts made after December 20, 2002, added the split-receipting provisions in subsections 248(30) to (41). Subsections 118.1(7) and (7.1) were also amended by S.C. 2014, c. 39, s. 34(12), applicable to the 2016 and subsequent tax years. This amendment restructured the two provisions so that subsection 118.1(7) sets out the criteria that must be satisfied to make a designation under subsection 118.1(7.1) and also made changes related to a change in the tax treatment of gifts made by a deceased taxpayer or the estate or succession of a deceased taxpayer. 

Example 8 (formerly included in ¶15 and following ¶16 of IT‑504R2) has been revised to reflect the amendments made by S.C. 2013, c.34, s. 248 and s. 358 (applicable to gifts made after December 20, 2002) which made changes to subsections 118.1(7) and (7.1) and added the split-receipting provisions in subsections 248(30) to (41). The examples have also been expanded to illustrate how the rules for gifts from a visual artist’s inventory apply in several different situations.

¶1.95 (formerly included in ¶12 and 13 of IT-504R2) has been revised to reflect the legislative amendments made by S.C. 2013, c.34, s. 358 (applicable to gifts made after December 20, 2002) which added the split-receipting provisions in subsections 248(30) to (41).

¶1.96 to 1.98 (formerly included in ¶12 of IT-504R2) have been revised to reflect the legislative amendments made by S.C. 2013, c.34, s. 248 and s.358, generally applicable to gifts made after December 20, 2002, which added the split-receipting provisions in subsections 248(30) to (41) and amended subsection 118.1(6) as a consequence of these additions. References to subsection 70(5) and gifts by will, have been removed to reflect legislative amendments made by S.C. 2014, c. 39, s. 34 (generally applicable to the 2016 and subsequent tax years) which revised the specific rules that apply to gifts made by deceased individuals or their estates or successions. As noted at ¶1.81 of the Chapter, a discussion of these new rules is beyond the scope of this Chapter.

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