This article on getting organized in the music business is taken from our quarterly Canadian news roundup, a newsletter published by the Canadian member firms of Moore Stephens North America. These articles are part of our mission to become the partner of choice for your success by keeping you up to date.
Once you start devoting effort and funds to earning an income as a musician, congratulations, you’re now in the music business!
Many musicians put off organizing the business side of their careers until they’re forced to, only to realize the many opportunities they’ve missed to save money along the way. So no matter how overwhelmed you feel about tax planning or the grant application process, meeting with an attorney from our entertainment group as soon as possible is a great idea to understand the big picture and keep more money in your bank account.
If you’re just starting out in the world of music, here are a few topics we’d like to cover with you.
Company structure
Incorporating your company is a step that warrants a meeting with a qualified professional. Yes, it means extra costs and compliance; and at the start of a career, the costs outweigh the benefits, but once performance and earnings per appearance increase, it’s a smart move.
You’ll be able to deduct your expenses through the company, such as new instruments and equipment, so you’ll pay less tax. What’s more, as an incorporated company, you’ll be personally protected against any claims made against you by club owners, record companies or other stakeholders.
Our team can guide you through the ins and outs of incorporation, and help you get set up for the long haul.
Expense tracking
Generally speaking, when you start out in the music industry, you spend more than you earn. These are known as “business losses” and a considerable mistake many musicians make is not to take full advantage of these losses, which you can deduct from other income from your day job or carry forward to get the tax benefit when you earn money.
The best way to do this is to track and report all your expenses. We can help you determine which expenses you should track.
Income tax and GST/HST
You must register for GST/HST when you reach $30,000 in gross sales (business income before expenses). As a musician, your gross income includes royalties and advances, so you can reach the threshold without realizing it.
Once you’re registered, you must collect GST/HST on taxable revenues at the rate established in the province where you work. But what you spend in GST/HST on business expenses is subtracted from what you collect in GST/HST, so you end up owing less per period. If you pay more GST/HST than you collect, the CRA will send you a cheque to cover the difference.
We can help you collect GST/HST and make sure you get what you owe on time (late filing penalties add up quickly).
Planning and cash budgeting
Touring is expensive, with unforeseen expenses such as vehicle and equipment repairs, weather-related problems, concert cancellations and more. What’s more, if you don’t pay attention, you may miss out on registration costs. That’s why planning a tour or an album should include a budget with an amount for contingencies. It’s a valuable exercise that will help you stay on top of your finances.
We can provide you with worksheet templates to reconcile the money you earn/spend on the road, regulations, grant funding and more.
Pursuing your dream of being the next <insert your favorite artist’s name here> is an important step. By playing all the right organizational notes, you’ll be in a much better financial position every step of the way.
Written by Donna Branston of DMCL. This text was written as part of our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of Moore North America.
