...the Two-Tiered Tax System...unofficially known as How to Create a Lot of Headaches
One of these days I’m going to write a vitriolic rant attacking the current curriculum of theatre schools, but allow me a momentary preview: theatre schools are failing their students by not offering a course on financial literacy.
As someone known for his ability to comprehend a T4, my winters are often filled with the call of the wild taxpayer. Most haven’t filed since there was peace in Iraq. This is good for my pocketbook but bad for my fellow artists: a lifelong relationship with the tax collector is an occupational hazard for artists and it would be a great benefit if schools bestowed upon their students a rudimentary understanding of how it all works.
I am fully aware that most people have no interest in dealing with their taxes. The fact that I don’t mind curling up with the tax code is my own personal demon - coupled with my love of musical theatre, it’s a wonder I ever got a date. Still, one would think that if the government is going to take our money, people would want to understand why. After all, the less we understand about our government, the less we are able to speak out when we are being betrayed.
Although the Constitution Act of 1867 gave Ottawa the power to tax Canadians, they did not actually begin doing so until after World War I. We can thank our drunken first Prime Minister for this: John A. Macdonald, famed for his love of the sauce, promoted an economic platform that relied on tariffs and customs to promote our manufacturers (he called it the National Policy). Fun fact! The lack of personal income tax also doubled as a marketing ploy to attract immigrants.
Then came William Lyon Mackenzie King, otherwise known as the man on the fifty dollar bill (which, being an artist, I have read about but never seen). WWI left Canada with a crippling debt, allowing King the chance to dismantle Macdonald’s legacy and put up one of his own. Generally speaking, his platform was an ancestor of the current system. In 1985, the Income Tax Act put in place most of the rules that still exist today.
Quebec and les mains sales
In the rest of the country, taxpayers file only one return, which they send to Ottawa who then distributes to the provincial governments their fair share. Here in Quebec, we’d rather get our hands dirty. For obvious reasons, the Quebec government prefers to keep their tax system distinct from the rest of the country’s. This has created what is officially known as the Two-Tiered Tax System and unofficially known as How to Create a Lot of Headaches.
The two-tiered tax system means Quebec residents file two separate returns: one federal (glamorously referred to as “the T1”) and one provincial (the equally glamorous “TP1”). Quebec has its own tax laws, only some of which are identical to Canada’s. Consider those fees you pay to ACTRA every year. The Federal government lets you deduct all of them from your net income; Quebec only lets you deduct 20%. On the other hand, Quebec will give you a credit if you’ve recently acquired a facility that treats pig manure. Talk about getting your hands dirty!
The Lesser of Three Evils
The Income Tax Act does not directly mention artists until Part I, Division B, Subdivision
A, Paragraph 8, Subparagraph Q. If you fell asleep while reading that sentence, you’ve hit
on the central problem with Canada’s tax code: it’s poorly written.
To be fair, most legal documents are badly designed, at least in the sense that they are difficult to understand by the average person. The cynic may say this is purposely done so Joe and Jane Q. Taxpayer will always be at the tax collector’s mercy. Logic says the answer is far simpler: laws are not written for the common person. They are written for lawyers, who, like Charlie Sheen, have a brain no normal person can comprehend. (He actually said this – watch the clip!).
The tax laws themselves are not confusing, but their format is. Fortunately, both the CRA and Revenu Quebec have issued guides that break down your tax return line by line and explain the law in everyday French / English. Even so, they aren’t perfect. Take this example from the CRA regarding Artistic Employment Expenses: “The amount you can claim is limited to the lesser of: a) the expenses you actually paid in 2010; and b) the lesser of $1,000; and 20% of your employment income from artistic activities.” Most people would interpret this as being a choice between the expenses you actually paid and $1000 plus 20% of your artistic income. Not so. In fact, artists have to choose between the lesser of three evils: the expenses actually paid, $1000 or 20% of their artistic income.
In my experience, most artists would rather choose death over taxes, yet artists are a sector of the populace who could benefit the most from becoming financially astute. Most artists have an income cobbled together from various sources and it would be useful if theatre schools prepared them to stretch this income as far as it could go. Artists are almost always able to offset their income by claiming employment expenses, which can include everything from their car to their rent. Instructing artists on their basic rights as a taxpayer would be a tremendous step in helping them survive their post-academic life.
This is especially important in a city like Montreal where many of our artists self-produce, thus allowing them to collect income both as individuals and as a theatre company. If an artist has produced a show and their production company is not registered as a Not-for-Profit Organization, then they must claim the company’s revenue, including box office and grants, as personal income. (Fortunately, any liability can be offset by also claiming the company’s expenses.)
By not filing, artists risk owing more then they have to, since the government charges interest on any debt starting from the year it was incurred – in other words, if you haven’t filed since 2005, you could potentially owe 68 months worth of penalties and fees. That’s also 68 months when you could have collected your QST / GST refunds, baby bonuses and credits for child care expenses or property tax.
Yes, the panicked artist can always call on me. But to paraphrase the old expression, it would be far better if theatre schools taught students to fish rather then just how to call the fisherman - or the Fishbane, as the case may be.
Follow this link, exclusive to readers of the Charlebois Post, and you can read my handy tips for the desperate taxpayer. Feel free to post your tax questions below - I’ll respond to them as soon as I can.
And remember - if all your income for 2010 comes from being self-employed, you don’t have to file until June 15!