A Kafkaesque Nightmare Ensues When Arts Grants Meet Covid-19 Recovery Benefits
The pandemic and bureaucratic contradictions created financial panic for an author. Some “creative accounting” could stop it but are they crossing a line?
A Writer wants to know:
Most people don’t truly understand how artists like myself make money and how randomly we might make it. That become very clear to me over the past year, as I try to file for federal assistance in Canada.
Here’s my situation: I intentionally took all of 2019 off to finish some book projects with the intent to pick up work again in 2020. So, for the first time in decades, I earned no money.
Then came the pandemic, forcing me to withdraw from two granting agencies because travel restrictions prevented me from fulfilling these projects. I lost income (although it wasn’t guaranteed) but was unable to apply for Canada’s COVID-19 recovery benefits because I hadn’t “worked” in 2019. (In fact, I worked all year.) I’m also ineligible for employment insurance because my only 2019 income were writing grants.
I got some good news in December. I resubmitted one of my cancelled grants without travel requirements and received confirmation that it was accepted. However, the government foundation issuing the grant did not pay it out until 2021. Since it was part of a 2020 adjudication process, I’d like to claim it as 2020 income so that I can access COVID relief aid for this coming year. It just so happens that this granting body does not issue T4A statements for annual tax reporting, so…
I feel like a greedy guts trying to cover all my bases, but I’m not sure where my next money is coming from. Do freelancers always claim money for the year in which they receive it, or is that line a bit blurry?
—Cap (Creative Accountant in a Pandemic)
Dear Cap:
Whoever said “numbers speak for themselves” obviously never did their own taxes. As any bookkeeper will tell you—though maybe not on the record—there’s a good deal of maneuvering done to frame a client’s income and expenses in their favour.
This is especially true for creative professionals acting as sole proprietors. Late payments, delayed reimbursements, and speculative work are routine for self-employed writers. We don’t have the luxury of predictable biweekly cheques with all of the deductions and taxes neatly sorted out.
Granting bodies understand this well when they allow us to include non-guaranteed revenue in our project budgets. Unfortunately, the governments that fund those institutions still don’t get it.
As Marsha Lederman and Patrick Brethour reported in the Globe and Mail this weekend, Canadian Revenue Agency has demanded hundreds (or more) artists repay their COVID-19 recovery benefits. The agency argued that these artists did not meet the $5,000-per-year threshold even if they received artistic grant exceeding the amount. Here’s the kicker: even though the tax agency said artistic grants don’t qualify as “income" in order to receive recovery benefits, they do qualify as “income” for your personal taxes.
In other words, even if you squeaked the funds into your 2020 tax reporting, it might only help you with employment insurance, and possibly not even that.
I’m not sure how much that silver lining shines for you, Cap. There’s some hope, too, that the tax agency will heed the direction of artist guilds and associations by changing the rules. If they lobby successfully, the end result might only cover production grants for income eligibility, while excluding artistic grants for such expenses as travel, education, and research.
But let’s be optimists for a moment. Let’s assume that the CRA has a change of heart that suddenly defines your income as legit, artistic revenue. The question remains, should you or shouldn’t you take some “creative liberties” this tax season?
As someone who is routinely forced to backpay his taxes due to his own poor math skills, I’ll spare you my opinion. Plus, I’m not prepared to incriminate myself here (jk?). But I reached out to two people more familiar with tax management for artists. To my surprise, they gave contradicting answers.
Cap, I leave you with a choose your own adventure.
Adventure #1: Declare it as 2020 Income
The first adventure comes from a bookkeeper who’s prepared taxes for nearly 40 years, during which they’ve earned a good reputation with creative professionals (including me). They asked not to be named or advertised. Here’s what they said:
There are two methods of accounting, “cash” and “accrual.”
Most artists (freelancers) are not interested in being bookkeepers, so they tend to use the simpler “cash” method; they declare incomes when they’re received and expenses when they’re paid. The “accrual”’ method works by declaring incomes when earned and expenses when incurred (not paid).
Because you received confirmation in 2020, I believe you would have a strong case for declaring it in 2020 using the accrual method. The cheque being mailed in 2021 shouldn’t cause any issue here, and the fact that the granting body does not issue T4A slips works in their favour.
This does, however, create a new issue. The actual project isn’t happening until 2021, so if you declare income in 2020, you’ll have no expenses to claim and will have higher tax to pay on that money as a result.
Depending on the size of grant, and assuming there’s no other income in 2020, it may not be a huge issue. Most artists prefer to have their income and expenses in the same year. The pandemic and Canada Recovery Benefit does make it a different situation.
Adventure #2: Declare it in 2021
The second expert is Mohammed Asaduallah, founder and CEO of Benji, a nifty app that helps Canadian freelancers find tax write-offs “auto-magically.” (Sidebar: He presented a webinar at Pandemic University School of Writing about financial management for writers. You can watch it for free. It’s tailored for Canadians, but non-Canadians will get a lot out of it, too.)
Mohammed says:
I’m sorry you're going through this.
You should claim the grant on your taxes in the year you receive the payment (2021). Not only because you’ll be compliant with the Canada Revenue Agency, but also because the income from a grant alone isn't enough to qualify for CERB (as reported by the Globe and Mail).
In addition, the income is only part of the eligibility requirement. You also need to have stopped working because of reasons related to COVID-19.
You do have one other option: Canada Emergency Business Account (CEBA). You may be eligible for an interest-free loan of up to $60,000 as part of the Non-Deferrable Expenses Stream. I bring this up because if you pay back $40,000 of this loan by December 31, 2022, the remaining $20,000 is forgiven. This would make the forgiven portion worth 10 CERB payments. You can check your eligibility here.
Now that’s creative accounting!
Something for Your Toolkit
Benji: Tax-Savings for Self-employed Canadians
As mentioned, Mohammed Asaduallah’s company Benji created an app that helps freelancers keep more of their money by finding tax write-offs “auto-magically.” Subscribers connect their bank account, quickly categorize each expense, and gradually Benji takes over to automatically label future transactions. When it’s time, you export a clean report optimized for Canadian tax codes.
New users get a 90-day free trial before subscribing for $15–20 per month. You can save 20 percent if you check out this free webinar replay at Pandemic University or download Asaduallah’s “cheat sheet” for non-cheaters.
And One Shameless Plug…
Funding Your Nonfiction Project with Eva Holland
Staying on theme, I’d like to tell you about this three-day grant-funding course for journalists and nonfiction writers.
Taxman aside, writing a convincing grant application is its own dark art. In a cash-strapped media and publishing world, it’s also one that can make or break literary nonfiction and journalism projects. Grants can underwrite professional development or travel and reporting costs for an individual story, and they can pay the bills and feed you while you write and edit a manuscript.
In this three-week course with journalist, author, and prolific grant-writer Eva Holland, students will learn how to navigate the world of funding requests. She’ll cover how to find the money, write for award juries, dodge conflicts of interest, and create realistic budgets. Each two-hour class will include group and individual exercises, homework between sessions, and examples of private/public grant funding available across Canada and the U.S.
The class is open to 25 students at $199 CAD. For an additional $100 CAD, students will receive a private consultation with Eva, which includes a one-hour virtual meeting (limit 15 upgraded students).
At Large is edited by Danielle Paradis. Find out about her and her work at danielleparadis.com.
Danielle is also CANADALAND’s newest contributing editor (congrats, Dani!), so she’s hunting for media stories, especially about racial justice and workplace discrimination. Send her story tips and pitches at danielle@canadalandshow.com.