Statement from CARFAC about artists facing CRA audits
As the date for filing taxes approached earlier this week, artists across Canada were alarmed to hear that artist Steve Higgins is being audited by the CRA.
On one hand, it’s not surprising that artists may be scrutinized by CRA. You are more likely to be at risk for assessment if you are self-employed, if you regularly report a business loss, or if your income varies considerably from year to year.
However, the circumstances of this audit are of unique concern because it appears that CRA declares his practice is a personal endeavor, or hobby, rather than a business. This is based on their assertion that income generated from grants, honorariums, and awards rather than sales of art are not eligible to claim related expenses against. This decision is worrisome for several reasons. Firstly, CRA bulletin IT-504R2 states factors used to determine if an artist has a reasonable expectation of profit and has achieved professional status. Mr. Higgins adequately proved he meets these criteria. Moreover, the disregard of public funding as an eligible income source from which expenses can be deducted not only shows a fundamental misunderstanding of how contemporary artists work in Canada, but it is inconsistent with CRA’s own advice on Artists’ Project Grants.
CARFAC is providing Mr. Higgins with assistance during his appeal process because the potential for his case setting a precedent for all artists is untenable. We are now aware that other artists have been audited or reassessed recently for a variety of reasons, and we are working to determine if there are any other worrisome trends. We invite artists to contact us if they have experienced an audit from CRA recently, so that we can gain a greater understanding of the issue.
On a larger advocacy front, the Canadian Arts Coalition has formed an Artist Taxation Working group which is writing a letter to the Minister of National Revenue about our concerns regarding recent audits of Canadian artists, and to request a review of policies that affect artists as it relates to taxation. We will help people who want to get involved by writing to their MP and relevant ministers – details to come soon. We also hope to convene a meeting of National Arts Service Organizations and other stakeholders to talk about taxation policy issues, so that we may bring forward meaningful recommendations for change, such as income averaging, or tax breaks on grants, awards, and copyright royalties.
We are hopeful that Mr. Higgins has a positive outcome in his appeal process, and that his experience is an unfortunate anomaly rather than a change in direction at CRA. We also hope that the discussions coming out of this situation will lead to positive policy change for all artists.
National Executive Director, CARFAC and Co-chair of the Canadian Arts Coalition’s Artist Taxation Working Group.