Five Things Canadian Writers Should Know about Income Tax
At this time of year, writers across Canada are scrambling to organize their receipts and invoices before filing their income taxes. Maybe some of you are kicking yourselves for not being better organized, or you’re wondering if you have a handle on your finances.
Gwynn Scheltema is an award-winning fiction writer and poet based in Trent River, Ontario, who received her accounting designation in 1974 and has worked as an accountant, auditor, and tax preparer. She is owner of The Write Connection and a partner in Writescape, which hosts regular retreats and workshops for writers on a range of subjects, including taxes. Thanks to Phil Dwyer for introducing us.
We asked Gwynn some of the most common questions we get from writers about their taxes. Here’s what she said.
1. When does a writer need to register for a GST/HST number?
Writers, resident in Canada, are subject to the same requirements as any other self-employed persons or companies when it comes to mandatory GST/HST registration.
So when do you need to register? The simple answer for mandatory registration is: as soon as you hit the $30,000 gross revenue mark.
But it’s not quite that simple. Timing is everything. When you reach that $30,000 threshold is important. You are required to become a GST/HST registrant once you “exceed the small supplier limit of $30,000 in a single calendar quarter or in four consecutive calendar quarters.”
Say, for instance, you’ve only earned $10,000 by the end of November 2013. Then you land a large contract and they pay you on three separate $15,000 invoices: in December 2013, and January and February 2014. You earn $2,000 in March.
At the end of December 2013, your annual revenue [four consecutive calendar quarters] is $25,000 [$15K plus $10K]. You don’t need to register at this point, because you are under the $30,000 threshold.
By the end of March [1st calendar quarter], however, you exceed the $30,000 limit [January $15K + February $15K + March $2K.] Now you must register, even if you remain at the lower earning levels in April and beyond.
You also have the option of voluntary registration at any time. If you are prepared to do the added bookkeeping required, you can voluntarily register and take advantage of recouping any GST/HST you pay out on your expenses. Sometimes too, if you want to give the allusion that you are a bigger operator than you are, you can register and charge HST. The client will likely assume then that you earn over $30,000 a year.
2. If a writer has a day job and earns some freelance writing income, can she claim writing expenses?
Yes, a freelance writer earning revenue is considered a small business operator or sole proprietor, and therefore can deduct expenses like any other small business owner. Many people work as an employee at one job and run a business on the side. A freelance writer is no different. And the tax department requires you to declare any and all income you earn worldwide from whatever source.
That said, you will notice that I use the phrase “a freelance writer earning revenue.” If you are writing and submitting but not yet earning income, there are still circumstances when you can be considered to be “running a writing business,” but the tax department has guidelines that differentiate a “hobbyist” from a “small business person” that you should check first.
3. What kind of expenses can writers claim?
Assuming that you are not considered a “hobbyist”, but are a “small business person,” then you can expense anything that you pay out “to earn revenue.”
Some examples would be: all the usual office type expenses like stationery and computer software and postage; also travel and phone costs for assignments; research expenses; professional fees for accounting; editing, transcribing, researching etc.; advertising; a portion of your computer and photography equipment, professional membership dues, professional development courses, conferences and writing retreats; and resources such as subscriptions to trade magazines.
Some meals and some entertainment expenses can be written off too. If you operate out of your home, you can also consider a “use of home” office expense, and if you use your own car you can consider a motor vehicle expense too. All these expenses, however, have rules and limitations attached, so check the Canada Revenue Agency website for details.
The golden rule is that the expense should be incurred to earn revenue and should be “reasonable in the circumstances.” Trying to write off a $4,000 trip to Paris to write a $800 article is not reasonable. But don’t short-change yourself either. Don’t forget the little things like parking and banking fees and taxis. And keep all your receipts!
4. What are the tax implications of a Canadian writer working with a U.S. publisher?
Money earned in the U.S. will be taxed and withheld at source AND must be declared on your Canadian tax return. But, Canada and the U.S. have a “double taxation agreement” in place, so there is a mechanism for you to apply to have your U.S. taxes refunded.
5. What are the biggest mistakes you see writers making with their taxes?
Not starting to consider themselves a writing business soon enough. Most writers feel they should either be working full-time at writing to qualify, or that they should be making a profit first.
Also, not keeping receipts. You can’t claim things you have no receipts for even if you genuinely spent the money on them. A good rule of thumb is to keep all receipts even if you are not sure if the expense qualifies and then decide later.
For more information, check the Canada Revenue Agency regulations for small businesses and self-employed people and mandatory GST/HST registration.