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Demystifying the GST

Author: Brad Howland
First Posted: August, 2003

All Canadian musicians should consider registering to collect the GST, regardless of how much money they make.

The Canada Customs and Revenue Agency offers three ways for residents of Canada to get back the GST they paid on taxable goods and services.

  1. Apply for the personal GST Credit. You do this simply by checking "Yes" on the first page of your income tax return. If your income is low enough, you will receive a quarterly GST Credit from the tax department. This credit is intended to relieve low-income taxpayers from the burden of GST taxation.
  2. Get a GST Rebate. Employed musicians, or those in a partnership, can claim an Employee and Partner GST/HST Rebate on Line 457 of the tax return. This rebate is available to employees who have tax-deductible employment expenses, if their employer fills out a T2200 Declaration of Conditions of Employment for them each year.
  3. Register to collect and remit GST. Self-employed musicians are essentially businesses and can collect GST on their income, subtract the GST on their purchases, and send the remainder to the tax department.

This article deals with the third option. If you register with the Canada Customs and Revenue Agency (CCRA), you will be required to collect 7% GST tax on your music performance income (your "gigs"). I recommend that you tell the tax department that you want to use the Quick Method, and that you want to be an annual GST filer. At the end of the year, when you have your income tax prepared by your accountant, he/she can do a GST return for you at the same time.

Please note that you must register to collect GST in the quarter your gross annual income exceeds $30,000. Not registering can have serious consequences, such as a major audit of your income tax. You are allowed to register even if your gross income is less than $30,000, and it is beneficial for just about any musician to do so.

Music lessons are GST exempt. If you are self-employed and your only source of income comes from teaching music, you are not allowed to register to collect GST.

What about the Contractor?

One concern that some musicians have is that they will be increasing their cost to the people who hire them by 7%, which might be too much for the contractor to pay. Remember that most contractors are businesses that gross over $30,000, and are therefore GST registrants themselves, which means that they can get a refund on their own GST tax returns for the GST they pay out to you. In other words, paying you the extra 7% doesn't cost them anything. However, if this is a concern for you please check with your contractors before registering!

The Three Methods

When you file your GST return, you are allowed to calculate the amount of GST to send to the tax department using one of three methods: Regular, Simplified, or Quick. The Quick Method is almost always the best choice for musicians, but let's take a look at how each works.

  1. Regular Method: you collect an extra 7% on all your income. At the end of the year, go through all your receipts and add up all the GST that you paid out on business expenses. Subtract this amount from the 7% collected, and remit the balance to the tax department. You get to keep the exact amount of GST you spent on business purchases throughout the year.
  2. Simplified Method: you can use the Simplified Method without making any special election, although there is a rule that you must use it consistently from the start of the year. Collect the extra 7% on your income. At the end of the year, add up all your business expenses, including GST. Multiply the total by 7/107, subtract the result from the 7% collected, and remit the balance to the tax department. In other words, you don't have to separate out the GST on all your receipts, making the math somewhat more "simplified."
  3. Quick Method: to use the Quick Method you must make a special election with the CCRA, which can usually be done over the phone. At the end of the year, you calculate your GST owing based on a formula stipulated by the CCRA. You can get a refund for GST paid out on capital property (e.g. musical instruments, recording equipment, etc.), and even make a claim for the GST component of the depreciation on your automobile. Almost all musicians do better using the Quick Method.
A Sample Musician

Let's look at a mythical trombone player: Slippery Joe. Joe has a regular job, but also works as a part time musician making about $10,000/year. Inspired by this article, he decides to register for the GST as an annual filer using the Quick Method.

Joe diligently collects an extra 7% on all his income, and has no trouble extracting this from his employers, who are also GST registrants. At the end of the year he has $700 sitting in a separate bank account. During the year he purchased a new trombone for $2,000, plus $140 GST. He also used his vehicle partially for business purposes (carrying equipment to the gigs), and claims a portion of the depreciation on the automobile as a deduction on his income tax return.

The GST Return is a poorly designed form that must somehow cope with three different methods, so Joe wisely gives it to his accountant, who performs the following calculation on the return:

$10,000 + $700 = $10,700
$10,700 @ 5% = $535

Subtract 1% bonus for income under $30,000:
$535 – 1% ($10,700) = $428

Subtract input tax credit on trombone purchase:
$428 – $140 = $288

Subtract GST on auto CCA:
$288 – $25 = $263

Joe sends the GST Return into the tax department with a cheque for $263. He gets to keep $700 - $263 = $437. Since this $437 represents a credit for GST he paid out on expenses already deducted from his income tax, his accountant claims it as income on his tax return in the year he received it, thereby avoiding a double tax benefit. Joe has essentially increased his income for the year by $437, with a little bit of extra paperwork.

In some provinces (such as New Brunswick & Labrador) the GST is integrated with the provincial sales tax into a unified "GST/HST" system, which makes the situation more complicated. This article deals with the non-GST/HST provinces only. You should have your GST returns filled out by a professional tax preparer in conjunction with your income tax returns, regardless of which province you live in.

Related Websites

Business Registration On-line

Do you need a goods and services tax/harmonized sales tax (GST/HST) account?

Quick Method of Accounting

The information on this website, and the use of this website, are both provided without warranty of any kind. Income tax rules change every year and some information may be out of date. All readers wishing to take advantage of the information offered here should consult a qualified income tax preparer. In no event will Brad Howland, Howland Tax Services, or this website be liable for any damages, including lost profits, arising out of the information offered on this website, or the usage of this website. All material on this website Copyright © 2001-2022 by Howland Tax Services, Inc. Please contact us for permission to use this material in any form. Website designed and maintained by Brad Howland.