Ismail Ebrahim has been in practice as a chartered accountant since 1978. He joined Arthur Gelgoot & Associates LLP, an accounting firm specialising in media and the arts, in 2000.
What are some of the issues that creative people face in terms of their tax and financial status?
We see over and over again that some of the people in creative businesses dont realise whether its a hobby or a profession. If its a hobby there are various tax implications; if its a profession there are different tax implications. Number two, if its a fulltime tax position, they could be writing off most of their development expenses prior to recording and all that.
What are the criteria in discerning between doing music as a hobby or a profession?
Theres no real objective answer to that one, but the question is, are you doing it just for the sake of making a living, or for simply getting pleasure out of it? If you intend to do it to make a living out of it, then you have a business-related situation. But if youre doing it just for pure pleasure, the government may question whether you have the intention of making a profit out of this whole venture; whether its making a living, or just a gig.
Assuming a musician or band doesnt have a team in place, what can they do, once theyve set up as a business, to make the administration flow more easily?
Thats a difficult one, to be honest, because musicians are not well known over the years for keeping good records. Number one, they should at least sit down and draw up an agreement as to "how are we going to do this thing. Not a formal business plan, but a general agreement about who is in control of the financing, how are debts going to be recorded, how are expenses going to be paid, and how is income going to be distributed. Even if its in a very informal manner, if they do that, its half the battle. Theyve at least formalised something on paper.
Besides the tax implications, what are other good reasons to incorporate?
The advantage of a corporation to a certain extent is the limited liability factor and the continuity of the business. The corporation never dies unless you dissolve the corporation, whereas if one runs the business as an individual and that individual becomes deceased, the business stops. Problems can develop with royalties in the future whos going to earn the royalties? If its a corporation, the corporation keeps on earning the royalties, whereas if its an individual, the royalties go to his estate or someone he designates in his will.
Whats your best advice to a musician in terms of long term planning for the band and for life?
Simple, its a good one: retirement planning. They should think about retirement planning while the goings are good. My suggestion is, like with the self-made millionaire, put something away from everything that they make, whether its in RRSPs or savings just save something for retirement. Whether its a musician, a businessman or anybody, you should be saving some money on a regular basis and not spend every penny that you make. On the shorter term, put some money away for income tax. The problem arises with musicians that if they have a good gig during the year, they spend every penny they make. Then they dont have money to pay their taxes, and the government comes hounding them. We recommend people put at least 25 percent of their income away for income tax, and then at the end of the year if they have excess cash because theyve put too much away, and they have additional expenses, they have the cash available to pay for them. Or they can put the excess into an RRSP or keep it for the following year.
How much do you enjoy going through plastic bags full of receipts?
Its fun. Really fun.
What are some of the issues that creative people face in terms of their tax and financial status?
We see over and over again that some of the people in creative businesses dont realise whether its a hobby or a profession. If its a hobby there are various tax implications; if its a profession there are different tax implications. Number two, if its a fulltime tax position, they could be writing off most of their development expenses prior to recording and all that.
What are the criteria in discerning between doing music as a hobby or a profession?
Theres no real objective answer to that one, but the question is, are you doing it just for the sake of making a living, or for simply getting pleasure out of it? If you intend to do it to make a living out of it, then you have a business-related situation. But if youre doing it just for pure pleasure, the government may question whether you have the intention of making a profit out of this whole venture; whether its making a living, or just a gig.
Assuming a musician or band doesnt have a team in place, what can they do, once theyve set up as a business, to make the administration flow more easily?
Thats a difficult one, to be honest, because musicians are not well known over the years for keeping good records. Number one, they should at least sit down and draw up an agreement as to "how are we going to do this thing. Not a formal business plan, but a general agreement about who is in control of the financing, how are debts going to be recorded, how are expenses going to be paid, and how is income going to be distributed. Even if its in a very informal manner, if they do that, its half the battle. Theyve at least formalised something on paper.
Besides the tax implications, what are other good reasons to incorporate?
The advantage of a corporation to a certain extent is the limited liability factor and the continuity of the business. The corporation never dies unless you dissolve the corporation, whereas if one runs the business as an individual and that individual becomes deceased, the business stops. Problems can develop with royalties in the future whos going to earn the royalties? If its a corporation, the corporation keeps on earning the royalties, whereas if its an individual, the royalties go to his estate or someone he designates in his will.
Whats your best advice to a musician in terms of long term planning for the band and for life?
Simple, its a good one: retirement planning. They should think about retirement planning while the goings are good. My suggestion is, like with the self-made millionaire, put something away from everything that they make, whether its in RRSPs or savings just save something for retirement. Whether its a musician, a businessman or anybody, you should be saving some money on a regular basis and not spend every penny that you make. On the shorter term, put some money away for income tax. The problem arises with musicians that if they have a good gig during the year, they spend every penny they make. Then they dont have money to pay their taxes, and the government comes hounding them. We recommend people put at least 25 percent of their income away for income tax, and then at the end of the year if they have excess cash because theyve put too much away, and they have additional expenses, they have the cash available to pay for them. Or they can put the excess into an RRSP or keep it for the following year.
How much do you enjoy going through plastic bags full of receipts?
Its fun. Really fun.
