Most self-employed artists start out small. They work in their studios, find galleries and venues to sell their work, and try to get as well known as possible. They are a one-person business—chief cook and bottle washer. As they get recognition they get busier and family members start to help out, particularly the artists' spouse or equivalent. This kind of help can take many forms—bookkeeper, assistant, business manager, confidant, marketing consultant, business planner, janitor, office assistant, travel agent and on and on. In the early stages it is likely that this person will be working outside the home/studio in a full or part time job in addition to what services they may provide for the artist. However this person renders one or more valuable services to the artist that, if it was affordable, the artist would pay an independent contractor or employee to provide.

The tax regulations recognize this type of relationship and allow that a self-employed individual can pay a wage or salary to a related person who provides these services. The wage or salary must be reasonable in relation to the services provided and the artist should keep a detailed job description of those services as well as a record of the approximate time spent in delivering them. CRA prefers to see evidence of the payment of such remuneration, i.e. cancelled cheques.

The self-employed artist can then claim that expense as an expense against income earned. The earnings would be subject to Canada Pension deductions and the artist-employer would have to match those deductions in remittances to the CRA. In addition, if the spouse is performing a service that the artists would otherwise have to pay an independent person for, the remuneration would also qualify for Employment Insurance deductions and qualify the recipient for EI benefits. However, in my experience, any claims that may arise, e.g., maternity leave, are usually denied by CRA so it doesn't make much sense to pay the EI deductions and matching employer contributions (refer to CRA publication "Employment Insurance (EI) When Hiring Family Members".)

The end result is that the artist can claim, as an expense, the wage or salary and employer share of CPP payments against his or her income. This is a form of income splitting that is beneficial if the receiving spouse is in a lower income tax bracket than the paying spouse. This income may also add to the CPP contributions of the receiving spouse and, ultimately, to their CPP benefits.

Many of the same criteria and considerations apply to children who provide services to the self-employed artist providing the services are reasonable in relation to their remuneration. In addition, children under the age of 16 are exempt from CPP and EI deductions and can bank their incomes to provide for future education costs. If a spouse, partner or child is providing one or more services to your art business, ask your tax advisor if including their wage or salary to your taxes would be to your advantage.

Robert H. McMurray, FCA, AFCA—Chartered Accountant and retired partner, McMurray, Roberts, Heming and Wyborn—working with artists and income taxes. Contact Bob McMurray at 604-535-5069.