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Being a professional writer isn't just about
plot, pacing and characterization—it's also
about operating a small business—yours!
In October 2003, the Greater Vancouver Chapter
had a guest speaker from Canada Customs and Revenue
(CCRA). We peppered him with questions, and I
thought others might like to hear the answers.
Caveat: This is my layperson's interpretation,
so please don't rely on this information without
verifying it for yourself. This is not tax advice!
Consult CCRA and/or an accountant. Also, pick
up the various CCRA interpretation bulletins that
are relevant.
You are in a business
If you're a serious writer—even if you're
not published yet, and even if you also have a
full-time job doing something completely different—you
are in a business. See CCRA's IT-459 "Adventure
or concern in the nature of trade," which
says: "It is a general principle that when
a person habitually does a thing that is capable
of producing a profit, then he is carrying on
a trade or business notwithstanding that these
activities may be quite separate and apart from
his ordinary occupation." CCRA may still
say that, in order to be in a business, you have
to have a reasonable expectation of profit, but
it is recognized that it sometimes takes years
to get published.
Because you are in a business, the following
principles regarding GST and income tax relate
to you.
Income tax
Most writers are considered to be self-employed.
(If you receive T4 income from an artistic activity
see IT 504R2.)
Self-employed individuals will find information
on how to prepare their financial statements in
the Business and Professional Guide T4002E.
If you're a published writer, obviously you can
deduct your writing expenses from your writing
income.
If you are an unpublished writer, and operate
another business as well, (e.g., writing and crafts),
you can claim expenses from one business against
income from another. So, if you make money off
your crafts but not off your writing, you can
deduct writing-related expenses from your craft-related
income.
If you are an unpublished writer and this is
your only selfemployed income (i.e., you have
only the one small business), you can only claim
expenses when you earn income from writing. It
is very important however to keep proper books
and records to ensure that you do not miss any
deductions when you do earn income that must be
reported.
If you file your income tax return, then later
realize you failed to claim a valid deduction,
you can seek a Taxpayer Requested Adjustment.
You have three years after the last date of assessment
or reassessment to request an adjustment.
Here are a few guidelines on specific expenses:
- Home office: You can claim a portion
of your rent, hydro etc. if you have a room
in your use that is used at least 90% for business
use. If you have critique group meetings in
your living room, that doesn't entitle you to
a home office deduction (though you will likely
be able to deduct food and beverage expenses).
- Phone: If you work out of your home
and have one phone line only, you can't claim
that phone as a business expense (though you
can claim long distance calls made on it). However,
if you use a second line, fax line, or cell
phone for business, you can claim them.
- Car expenses: Keep a log of all your
travel, and keep track of all your car expenses.
At the end of the year, calculate what percentage
of your travel was for business. You can deduct
that percentage of your car expenses. See IT-521R
"Motor Vehicle Expenses Claimed by Self-Employed
Individuals."
- Conventions and workshops: There's
a limit on how many conventions you can claim.
(See page 21 of the Business and Professional
Guide.) Sometimes it's hard to distinguish a
convention from a workshop, but typically a
convention is longer than one day and often
involves travel and a hotel stay.
- Research trips: If you're traveling
for research purposes, keep a log of everything
you do, so you'll have evidence the trip really
was business-related, and not a holiday. Or,
if the trip serves dual purposes, allocate the
appropriate percentage of the expenses to business
and have records to back this up.
- Meals: The general rule for your own
meals is that you can deduct 50% of the expense
- e.g., if you're meeting with a critique partner
for lunch. However, if you're treating an editor
or buying a meal for someone to thank them for
critiquing your work, you can claim the full
expense of their meal. If the event is purely
promotional, you can claim all expenses including
100% of your own. See IT-518R "Food, Beverages
and Entertainment Expenses".
- Fixed/capital assets (e.g., computer,
printer, desk): Don't report the purchase price
as a deduction. Instead, you are required to
depreciate the asset, and claim the depreciation
each year.
GST
If you are in a business and your business generates
gross revenue of over $30,000 per year, you are
required to have a GST number and to charge GST
on your work. If you have several businesses,
add up the total income from all of them and see
if it is over $30,000. If you also work as an
employee, do not include your employment income
(shown on your T4 form) in determining whether
you've grossed $30,000.
If your business income is less than $30,000,
you can get a GST number if you want to. There
is no charge.
Once you have a GST number, the following information
becomes relevant to you.
There are two parts to GST:
- The GST you charge. For goods and services
sold in Canada, you must charge 7%. If you sell
your products or services outside Canada (e.g.,
you contract with an American publisher), this
income is taxable—but it's taxable at 0%.
- The GST you pay. When you incur business expenses,
most have a GST component, and it's broken out
on your sales slip. Record all those little
bits of GST in your bookkeeping system. They're
called input tax credits (ITCs). If you buy
a fixed/capital asset like a computer, report
the entire amount of the GST as an ITC.
When you file your GST return each year, you
will be asked to report how much GST you charged/received
and how much you paid on business expenses (i.e.,
the total of all those little ITCs). The amount
you're required to remit (or the refund you're
entitled to claim) is calculated from those two
figures.
When you first get a GST number, you may be able
to claim ITCs for some business expenses that
were incurred in the past. You can't do this for
anything that's been used up ("expired costs")—e.g.,
paper that you've used, a conference you attended.
However, you can claim for the fair market value
of any fixed/capital assets you bring into the
business. So, if you bought a computer a year
ago and paid $140 GST on it, and its fair market
value is now half the purchase price, your ITC
is $70.
The main method for calculating how much GST
you must remit is based on you keeping track of
all your ITCs, as discussed above. However, there's
another method you might want to check into. It's
called the Quick Method, and you have to apply
to CCRA if you want to use it. It doesn't require
you to track all your ITCs; instead, you pay a
straight 4% GST on the first $30,000 of business
income and 5% on all business income above $30,000.
Once you have a GST number, you must file GST
returns even if you haven't received or paid any
GST. If your business income drops below $30,000,
you must have been registered for at least a year
before you contact CCRA and request deregistration.
Get professional advice
Be sure to collect the relevant information bulletins
from CCRA and ask CCRA and/or an accountant if
you've got any questions about your income tax
or GST.
Keep your records
Keep all your business records for six years.
After that, you will not be audited and you are
free to dispose of your records.
And remember, if you're serious about your writing
and your goal is to sell your work, you really
are in business. Be professional and businesslike
about what you're doing, and keep records of everything!
Susan Lyons is a member of GVC.
Articles may be reprinted in RWA® chapter
newsletters, attributed to the Spotlight.
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