CVITP Assist: Artists

HomeUpdated to 2025 tax year

ARTISTS, MUSICIANS, WRITERS

Treatment of Grants:

If you work in an artistic field, such as fine arts, music, or writing, you may receive a grant from the Canada Council for the Arts, the Ontario Arts Council, the Toronto Arts Council, or some other entity. You will receive a T4A slip reporting the amount in box 105.^[1]

Tax preparation software will allow you to enter slips. However, you should not automatically enter the T4A slip since you first need to decide if its business income.

If its business income then you do not enter the T4A slip, and instead the grant amount will be used in a T2125 calculation of your net self-employment income, which is then reported on Line 13500 of your T1 return.

If its not business income then it is categorized as a prize, although the CRA administratively refers to it as an “artist’s production grant”.^[2] You enter into the software (1) the T4A slip info, and (2) the expenses you incurred, if any, that you incurred to fulfill the conditions of the grant.^[3] The software will subtract from the grant amount $500 plus the expenses, and the net amount will be reported on Line 13010 of your T1 tax return (although the amount cannot be negative).

If you carry on a business activity but the grant relates to a particular non-profit project that is separate and apart from your business activity, the grant is not business income and you enter the T4A slip.

How do you decide if the grant is business income?

The grant is business income if it relates to an activity undertaken in a sufficiently commercial manner with the predominant intention of making a profit.

In some cases there will be mixed motives for undertaking an activity. In deciding whether the activity is a business acivity, it may assist to consider the comments of the court in Martin v. The Queen (2003 Tax Court):

“The existence of a personal element must be put in perspective. There is frequently a personal element in the carrying on of a commercial enterprise in the sense that the person derives great personal satisfaction from the activity. This does not make the activity any the less a business. Professional artists, photographers, writers, musicians (and sometimes even lawyers) no doubt derive great satisfaction from what they do but if their activity is commercial and is intended to yield a profit it is nonetheless a business. It is only where the personal element so overshadows any element of commerciality as to substantially displace it that one may conclude that the activity is merely a hobby and is not a business at all.”

What is the practical signficance of how the grant is categorized?

There are a couple potential consequences to the grant being categorized as business income instead of a prize:

If the grant exceeds expenses and there is positive income, a Canada Workers Benefit may be created or increased. At the same time you may have CPP contributions to pay. Depending on your circumstances, the CWB may be more or less than CPP contributions.
Business expense deductions are not subject to the special restrictions that apply to expenses claimed against a prize. The grant is instead included with the other income and expenses of the business in calculating the net business income or loss. It is therefore possible to report a business loss, which may be deducted against other sources of income.

Reference:

Income Tax Folio S4-F14-C1, Artists and Writers
Income Tax Folio S1-F2-C3, Scholarships, Research Grants and Other Education Assistance
Income Tax Act, s.56(1)(n) and s.56(3)
Income Tax Audit Manual, Chapter 27, sections 27.2.1 and 27.2.2

[1] Sometimes a grant is awarded to an arts organization to fund the work of an employee of the organization. The organization uses the grant money to pay the wages or salary of the employee (artist). In that case no T4A is issued to the employee.

[2] The income is treated by the CRA as a source of income falling under s.56(1)(n) of the Income Tax Act. See also s.56(3). These sections don’t actually use the word “grant” but instead use “scholarship, fellowship, bursary or prize”. Of these, the CRA treats an arts council grant as a prize (see Severed Tax Interpetation Letter 74583F).

[3] The expenses you can deduct are those incurred for the purpose of fulfilling the conditions under the grant was received. But they cannot include personal or living expenses, except expenes for travel, meals and lodging incurred while absent from home for the period to which the grant relates. See s.56(3)(b).