5 tax questions for writers – answered

5 tax questions for writers – answered

Gwynn Scheltema

At this time of year, writers across Canada are scrambling to organize their receipts and invoices before filing their income tax. I’ve been preparing taxes for several decades. These are five questions I often get asked by writers and artists.

1. If a writer has a day job and freelances too, 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.

2. What kinds 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 an $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!

3. What are the tax implications of a Canadian writer working with a USA  or UK publisher?

Money earned outside Canada will be have tax withheld at source AND must be declared on your Canadian tax return. But, Canada and the USA and UK have “double taxation agreements” in place, so there is a mechanism for you to apply to have your foreign taxes refunded.

4. 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.

5. 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.

Image result for hst registrationBut 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 2017. Then you land a large contract and they pay you on three separate $15,000 invoices: in December 2017, and January and February 2018. You earn $2,000 in March.

At the end of December 2017, 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 from day one. The client will likely assume then that you earn over $30,000 a year.

Useful links:

DlD YOU KNOW?

Writing retreats are allowable expenses for a writing business.

And our next retreat on offer from Writescape is Spring Thaw 2018,. April 20 to 24.This all-inclusive writing retreat is held at the fabulous Elmhirst’s Resort on Rice Lake in Keene. Stay for the weekend or treat yourself to an extra two days of writing.

Looking for writing time? Polishing a project? Looking for feedback from two professional editors? Or just want time to rejuvenate your creativity? Don’t miss Spring Thaw. 

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22 thoughts on “5 tax questions for writers – answered

  1. I self-published a novel in Canada in September 2021. Where would I even begin to use the idea of expenses and costs of publishing being tax deductible? Is there a site within the labyrinth of CRA which lets me register as a home business? I am also retired. I would have receipts for the costs through the publisher located in Victoria. Thank you for any advice.

    1. Income received and expenses paid for must be claimed in the year in which they occur. Costs incurred in 2021 therefore, can only be claimed in the 2021 tax year. That said, before declaring income and claiming expenses it is necessary to determine if your activities are those of a hobbyist (not taxable or deductible) or if you qualify as a small business using the “expectation of profit” criteria available here:

      https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-176r/application-profit-test-carrying-on-a-business-revised-sept-30-1998.html

    1. The level of earnings alone does not determine whether you are a hobbyist or small business. It hinges primarily around “expectation of profit”. Below is a quote from CRA available at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-176r/application-profit-test-carrying-on-a-business-revised-sept-30-1998.html where a list of criteria is given that is too long to include here.

      “Whether an individual has a reasonable expectation of profit is an objective determination to be made from all of the facts and based on the activities actually undertaken by the individual. A subjective profit motive is not sufficient; there must be an objective profit expectation based on an analysis of the activity using the criteria below. Further, it should be noted that it is the “expectation” of profit that is being assessed, not the actual realization of those profits, and that “reasonable” refers to the expectation of profits, and not whether the profits are reasonable.”

  2. I have been advised against claiming for my home office here in Ontario (where I write) since this would impact hugely if/when I sell my home as I will have to pay Capital Gains Tax. Is this true? I do not anticipate selling my house but still gave me pause and as a result, I remain a “hobbyist” writer.

  3. Do I need to open a separate business other than writing costs off in my personal taxes? I have already incurred costs for illustrations etc, can I still write them off, or can it fall as a sub category in an existing business I have?

    1. Hi Fen. That sounds like a question for your tax accountant. We just posted a few tips for writers but can’t get into complex busines/personal details. Best of luck with your writing project — sounds like you’re well into it with illustrations set up.

  4. Good morning Gwynn,

    I am new to this small business process,, and I am just wondering would I qualify as a
    small business? I have been working on a book for the past few years, and have almost
    completed it. If I did qualify, what period of time can I claim business expenses for? Also,
    what expenses could I claim?

    Please let me know.

    Sincerely,

    James Thomas

  5. My income as a writer comes from royalties paid to me by my UK and US publishers. This income is over 30,00 (just). Do I still have to register? I’m not selling anything I could charge GST for! I’m so confused…

    Thanks for any information.

  6. I publish on Amazon and wonder if I can deduct expenses incurred for the production of book illustrations and book covers by professional artists. Also, can writers deduct the cost of membership in writing associations such as Crime Writers of Canada? Thank you.

    1. Yes, professional fees paid for illustrations and covers are deductible. So too are dues for writing associations such as Crime Writers of Canada.

  7. How do book advances get dealt with in taxes? I’ve been working on a book for several years and my income has been below taxable levels, but I will receive both halves of a modest advance in 2021 — enough to owe some taxes. Does the full value of the advance have to be submitted in 2021?
    And related — I am currently on EI. WHen / how does a book advance for a book already written get included in weekly EI claims?

    Income must be declared in the year it is received. When the book was written does not affect taxes, only when income was received and/or expenses paid for. I am not sure about EI. You will have to ask them.

  8. Hi – My question is about claiming my research expenses and I am the researcher on all my books. Is there a way to do that? If my services as a researcher ran x dollars an hour but I do all that work myself to produce the final book, how do I claim that time spent in terms of dollars? Hope you know the answer to this as I can’t find it on the CRA pages. Thanks.

    1. Hi Peggy,
      Unfortunately, you cannot claim anything for your own time spent on research, writing, editing or anything else related to the production of your book. The only research expenses you can claim are amounts you paid to others to do research for you or fees such as archival document access costs.

      1. Thanks for this question – one I had as well. What about travel to the places where the archival material is held?

        1. The simple answer is “yes”, as research travel is part of the expense you incur in writing the book that will be your “product”. Be careful however, with the “reasonable” comment in the article above concerning research travel, especially given what is available online these days.

  9. I’m a little unclear on GST. Do I need to register if my only source of royalty is Amazon? If I’m only selling to Canadian readers through Amazon, can I ignore GST registration?

  10. Hello Gwynn,

    Thank you so much for this valuable information. I just self-published my first book. I am selling it through my website. I also work full time as an Administrative Assistant. I already earn more than $30 000. Should I register for GST now even before I earn through my book publishing project or should I only register after reaching the $30 000 in my book publishing earning?

    1. Your employment earnings as an admin assistant do not attract HST. Selling your books is a small business and the income is reported in a different area on your tax return. The $30K threshold applies to money you earn on small business sales only, so you would have to earn $30K from books before having to register.

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