Firstly, it is important to determine whether or not,in the eyes of the Canada Revenue Agency, you are an employee or self-employed. Under certain circumstances it is possible to be both at any given time. However, claiming to be self-employed when you are actually an employee can have very drastic consequences in following years so this is an important issue. Just saying that you are self-employed does not make it so.

The general rule is that if the party to whom you are providing your artists services provides you with the space in which to do the work, the tools with which to do the work, controls the time in which the work is done and supervises how and the way in which the work is done, then your are almost certainly an employee. If, on the other hand, you provide the tools and space and control the time and manner in which the work is done, you may be self-employed. A good test in the latter case is to ask yourself, "Would I be able to hire and pay an assistant on the project if I wished to?" and "Could I perform the work in space of my choosing and in any hours of any day that I wished to?" If the answers to these questions are "Yes", then you are almost certainly self-employed. The determination of your status is not your choice, it is a matter of facts. If you are in doubt seek professional counsel.

Many employees that have filed returns incorrectly as self-employed have, to their dismay, been re-assessed several years later, disallowing the expenses claimed, and their employers have been reassessed for Canada Pension, Employment Insurance and Income tax deductions that they should have taken. The employer is then left with the problem of collecting the employee share of those deductions from the employee. Altogether a real mess.

The Pros and Cons of being Employed vs. Self-Employed:

As an employed artist you receive taxable earnings and, with one exception, do not deduct any expenses in calculating your income taxes on the earnings. The exception is for expenses that your employer requires you to incur and does not adequately reimburse you for, e.g., use of your automobile in performing your duties of employment. In this case the employer should provide you with a form T2200 (Declaration of Conditions of Employment) setting out the particular expenses and any partial reimbursement therefore and you would claim the total expenses minus the reimbursed amount, if any. You may also qualify to claim a GST rebate on the net expenses in question. In addition, you are afforded all the benefits and protections of an employee—the employer pays half of your CPP contributions, more than half of your E. I. contributions, deducts income tax at source, covers you for workers compensation and other benefit plans, pays you holiday pay and you have other protections under the Employment Standards Act, e.g., right to notice or payment in lieu of notice of termination.

As a self-employed artist, you can deduct a long list of expenses incurred for the purpose of earning income. This list is far more extensive than the few that you can deduct as an employee and, generally, includes all expenses incurred for the purpose of earning your income plus vehicle operating expenses, capital cost allowance (depreciation) on the capital assets that you use in your business and business (studio) in the home expenses. You will also have to pay both the "employer" and "employee" share of CPP and will not be eligible to contribute to EI or WC. Your income tax, providing it is over $2,000 will also have to be paid in quarterly installments and you may be required to register for Goods and Services Tax and Provincial Sales Tax.

For further information on the sales taxes see "PST and GST Choices For Artists" in the May 2003 Opus Newsletter or online at www.opusframing.com/newsletter2/archives.html

Whether you are an employee, self-employed, or both you should check with your tax advisor to make sure that you are not overpaying your income taxes.