Are you wondering how taxes relate to your art making practice? Does your stomach churn every year around tax time? Do you wish that there was an art savvy accountant out there who could answer your taxation questions?

Meet Robert McMurray, a chartered accountant and artist who really knows his stuff, both on canvas and on a spreadsheet. Robert will be contributing to our newsletter until April, to help artists understand their tax options. Have a question? Send it in, and Robert will respond to the most pressing questions in our newsletter.

The following article is one of a series by Robert, which we hope will be of interest to you during tax season.

Since the Muldowan case in 1978, an individual such as an artist undertaking a commercial activity had to pass a test set by the Canada Customs and Revenue Agency (CCRA), formerly Revenue Canada Taxation, in order to apply their losses against other earned income. The test is referred to as the ?Reasonable Expectation Of Profit? or REOP test and has been used to deny loss deductions to any business undertaking that does not show a profit over a reasonable period of time.

In two 2003 cases the Supreme Court found that the REOP test could no longer be used. In its place are the requirements that the business activity must be in the pursuit of profit and the income source must be a business and that the REOP test should only be applied where there is a personal element in the business activity. A later case determined that job satisfaction was not a personal element. I believe that the Supreme Court got it right.

In the past year the Canada Revenue Agency has proposed legislative amendments that enshrine the REOP test in tax law for each and every business that generates a tax loss in a year. The substance of their proposal is that the taxpayer would have to demonstrate a reasonable expectation of profit on a cumulative basis calculated over a period of time. If this legislation is enacted it would place a lot of stress on artists who take time to emerge and it appears to leave the interpretation in the hands of the CRA auditors rather than
the courts.

Reference: Stewart v. Canada, 2002 SCC46 and Wallis v. Canada, 2002, SCC 47, CCH Tax Topics, Report No. 1653.

Robert has been a chartered accountant since 1964 and was elected a Fellow by the Chartered Accountants of BC. in 1992. He is a partner in the firm of McMurray, Roberts, Hemming & Wyborn, and is also an Associate Signature Status Member of the Federation of Canadian Artists. His work is in a number of private and corporate collections in Canada and abroad, and he has shown his art throughout British Columbia. Currently The Birthplace of BC Gallery in Langley and Gallery 24 in White Rock represent him. Contributed by Robert McMurray robert@opusframing.com