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MUSICIANS AND G.S.T. – A MISUNDERSTOOD TAX
By Joseph Earl Callura, Chartered Accountant
By day I am a Chartered Accountant operating a public accounting practice out of Hamilton, Ontario. By night, however, I am a vocalist/stage entertainer performing for the most part as a Tom Jones tribute artist. This combination, while it may seem strange, has allowed me a close inside look at musician’s general misunderstanding of G.S.T. legislation.
G.S.T. stands for Goods and Services Tax, although many others have interchanged different names for the first two of the three letters of this unpopular, administratively time consuming tax. While we may hate the GST legislation, it is still the law and if we do not adhere to it we will inevitably be called to task.
The purpose of this article is to enlighten you as to how this tax works, which individuals “must” register and charge GST and some peculiar circumstances which are misunderstood and have caused some severe financial damage to individual musicians by getting assessed at a later date for a tax that they never collected in the first place.
HOW DOES THE GST SYSTEM WORK?
When a business bills its “Canadian” customers it adds a 7% GST tax. Billings to foreign sources are not subject to GST. The customer then pays this tax to the business. The business on the other hand is also paying out GST on its expenses such as gasoline, equipment purchases, accounting bills, postage, parking etc. In most cases the business must prepare a GST return quarterly and sometimes annually for smaller businesses. In the preparation of this return the business states the total amount of GST that it has billed its customers during the period covered by the return. It also states the amount of GST that the business has paid out in its disbursements for that same period. It then sends the government a cheque for the net amount being GST billed less GST paid out. While I have referred to a business this may also apply to you as a self-employed musician as you are in fact in business for yourself.
DO I HAVE TO REGISTER FOR GST?
If you are currently or have in the past “grossed” more than $30,000 from your self-employed musician operations the answer is yes………you have/had an obligation to register for GST in the first year that you exceeded $30,000 of billing and must/should have charged your customers this extra 7% tax.
SOME SEEMINGLY PECULIAR CIRCUMSTANCES
Let’s say you started up your own 5 piece band. The band grosses $42,000 during its first year of which your share, as the leader, is $14,000. In that it is “your band” you are the one who negotiates and signs all of the contracts, collects all of the monies and disburse pays downstream to the other musicians. You have only gotten to keep $14,000 so you are under $30,000 and as such do not have to register for GST……………WRONG! Your “business” is “grossing” over $30,000 and you must register. During that first year you were liable to charge GST on every dollar of revenue in excess of $30,000. You would have also been liable to pay this GST, net of your GST payouts, to the government. In your second year and each following year you must now charge the 7% GST on every dollar of performance fees. If this so called band was not the ownership of any one particular person it would be construed to be a partnership which would still have been liable to register for GST.
If you do not register you are putting yourself in serious financial jeopardy. The government may not come back on you for 6 or 7 years and then charge you for the accumulation of taxes that you ‘should have charged” for all of those years plus penalty plus interest. I have seen real cases where band leaders have gotten assessed for over $100,000 such that they had to claim personal bankruptcy. Remember that you may end up being assessed on the band’s entire gross income and not just your portion.
OK, let’s look at one more situation!
Say, you perform as a tribute artist. Most of your work is south of the border in Vegas, Myrtle Beach etc. During the year you gross $40,000 US (say $50,000 Cdn) and an additional $20,000 here for work done in Canada. You only earned $20,000 in Canada so you do not have to register……………WRONG! You have grossed over $30,000 from your world wide incomes so you in fact must register for and start charging GST, on your Canadian income only, as soon as you exceed $30,000 from your “world wide income”, unless of course you have zero income here in Canada, in which case you would not have been liable to charge anyone GST anyway. Again, I have been consulted on an after the fact basis to assist individuals in fighting/reducing assessments from this exact scenario.
SUMMARY
Regardless of whether you are a part time member of a band, a part time solo musician or a fulltime performer, if you are not completely sure of your GST status, consult a professional as soon as possible before a potential surprise tax liability starts to accumulate on you.
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Joseph Earl Callura C.A. is a sole practitioner public accountant operating out of Hamilton, Ontario, Canada. As a personal and corporate tax accountant one of his specialties is in tax accounting for musicians and others in related performing fields. Additionally, he is a professional vocalist and has been a member of the AFofM Local 293 for some 25 years. As an accountant he may be reached at jcallura@cogeco.net while as a performer you may view his wares at www.joeycal.com.
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