Financial Health For Artists with Sondra Gold

[00:00:00] Rosalyn: Please welcome Sandra. Sandra, thank you so much for being here.

[00:00:03] Sondra: Thank you so much for having.

[00:00:05] Rosalyn: To start off our conversation today I wanna like kind of look at the finance from the emerging artist perspective.

For somebody who maybe doesn't think they are a money person or doesn't think that they're a finance or math person necessarily why should a creative or an artist care about their finances?

[00:00:28] Sondra: I think that it's often forgotten because I think there's a lack of education around this topic, and so it's easy to ignore it and do what you love and what you're interested in. But there is always this weight on your shoulders or this you know, it's unclear what your filing requirements will be, what you'll have to do should you be incorporated and all these different questions.

So, it's easy to ignore, but it's really important to pay attention to that because you can make mistakes without even realizing. So you have to take care of the show behind the business behind the show. So, , that's when you're going to know your requirements to file. To file. You're gonna understand the cash flows better, make sure that you are expensive and writing off everything you possibly can.

So there's more money to invest in your business. You know, There's artists that go around Canada and into the us. How to go into the US is really important from a legal and an accounting perspective to make sure that, you know, if the US is gonna withhold taxes, how are you gonna afford to do this tour, et cetera.

So there's, it's really important to make sure you're paying attention to the money side of things so that you can do what you love and be a successful professional artist and be able to support yourself from a cash perspective while being able to do what you.

[00:01:46] Rosalyn: Let's say, you're getting started. know, you have your head, all in the music but you're starting to make, money. What are. Ways that you can just start tracking and being aware of the business side of things. Like are there, templates or or places where artists can go just to kind of start being aware and tracking their expenses and how they're making money.

[00:02:09] Sondra: Yeah, I think the first thing to do is to define your structure. So once you know that you are self-employed or you are part of a partnership, or it is time to incorporate, then you can organize your finances accordingly. So either way, you know, it's smart to have a separate business bank account, and that alone lets you track your business activity rather than it being mixed up amongst your personal life and your personal expenses.

It can be as simple as receipt saving. It can be as simple as an Excel spreadsheet to list out your different expenses and all your forms of income or a bookkeeping program, which is also dependent on which structure you are. There's some bookkeeping programs that are easier to use if you're self-employed, and some that don't work at all if you're not incorporated.

So defining your structure and then separating out business from personal is really key. And then tracking accordingly.

[00:03:06] Rosalyn: let's say I'm starting a band maybe it's cool to kind of think of the life cycle of a band in this scenario. This is a, like a case study . So I'm, joining the band. it's a trio and me and two other people, we're all equity members.

We all, do all of our stuff together. We write together, we record together. starting out in that scenario, what is the business relationship that we should be looking at? I know, I don't think we're at the incorporation point yet. We're just starting out. Are we our own business entity?

Are we individuals? Who are we?

[00:03:37] Sondra: Great question because that needs to be discussed. So you see a lot of bands form as partnerships, or you see bands form as it's one person's band and the other individuals are, expense items. They're musicians hired for this band. And that looks really different when it comes to reporting.

So initially, if that, Situation was occurring, I would assume it's a partnership amongst these three people. And so then that partnership itself has filing requirements, which is really just the H s T return when it comes to your personal tax returns. You're each picking up your portion of the partnership's income and expenses.

So when I have a partnership approach me to be the accountant and do the accounting work for them, I always talk about making sure that business is registered separately from their individual businesses. And then also how do they do their bookkeeping? Because all three have to be on the same page about picking up the same income and expenses.

Another thing that's really important in that scenario is to have an agreement between the three people of putting money back into this business, you know, to. there's no income. Everybody puts in X amount. So the agreement would say, everybody puts in, $5,000 and that's gonna cover off X amount of time.

And to be on the same page about that things and having partnerships, agreements in place from a legal standpoint.

[00:04:58] Rosalyn: That's one of my best pieces of advice, bar none, is having a partnership agreement and band agreement in place. While things are good and while things are exciting and you all love each other and want what's best for each other what are some things that would go into that partnership agreement.

[00:05:13] Sondra: it's really more of a legal question, but basically you wanna cover off, you know, what if one of the partners wants to leave the partner? What does that mean for the partnership or contributing capital? Making sure everyone's on the same page about that. Or what kind of expenses is the partnership going to cover?

Is everybody going to get a certain amount to cover off their vehicle and home expenses? That sort of thing. And then also together you should be deciding who the accountant is for the partnership, who is going to have what role in running the business side.

[00:05:46] Rosalyn: And then in the flip side scenario that you mentioned where there's a, let's say solo artist who's hiring band members. Does that look different when you're creating an agreement or do people need agreements if they're entering into that sort of relationship?

[00:06:00] Sondra: It definitely looks different from a tax perspective because that means one person's tax return is gonna report all of the income and expenses. And the musician that's being hired to play a role in that partnership is going to only show the amount that they invoiced for, that was given to them as their income.

And then they would be responsible for whatever expenses and they can be picked up on their tax return. So it definitely looks different, which is why it's so important to figure that out at the start, so that it's not confusing as to who's reporting what. Cuz you don't want to be. Double tax and you don't wanna under report.

[00:06:34] Rosalyn: So let's say you know, in, in this scenario where you're a freelance musician who's maybe not picking up the bulk of the expenses You know, you're not involved in the, that main activity. But you're still making an income from that.

What are things that you can deduct and that you should be tracking and keeping track of as a freelance musician?

[00:06:53] Sondra: So in the partnership scenario, whether you take money out as a partner from that partnership bank account or not, the net income is split amongst the tax returns of anyone involved in that partnership, any of the partners. if you are a partner. But we've agreed that all the partners are gonna be responsible for their own home office expenses, their own travel.

I mean, that would be unrealistic, I guess, their own regular travel, not on tour travel. You can still deduct those things against your portion of the partnership income, you still get the deductibility, but it's important to know that even if you didn't take the money out, you're still gonna be taxed on it.

As an individual artist, whether you are hired by a band or you have your own career on your own, or both, you are responsible for reporting all of your own income and expenses. And you can write off a lot of different things against that. . The definition that I like to give my clients is when you're spending money to earn or try to earn income within the income tax act, we want to grab that expense.

So as a musician, you're going to have any dues. You're gonna have meals and entertainment whining and dining people, let's work together. You may have commission expense, you may have supplies, maybe you took a course. So you have professional development, you're gonna have travel, and that includes you have a train, you have Uber, you have flights, you have Airbnb, all sorts of things.

You're gonna have vehicle expenses. If you have a car you're driving to and from meetings or to pick up some supplies or to a show. Maybe you had to rent a van with all your equipment. You've got equipment rental, you've got your van rental. All sorts of things that could be deductible. It's really just this definition of when you're spending money to earn or try to earn. Some of the mistakes I see are single meals. So if you are traveling for work if you are touring, there's some rules about that if you're away from the home for more than 12 hours. But if you are just going to a meeting from your home to a meeting and you buy a coffee on the way, that's not really a deductible expense.

Everyone should have cell phone, internet, home, office, portion of your home or a studio at home, you know, all those things. Prorated for the appropriate amount would be something I would expect to see as expenses against a musician's income.

[00:09:08] Rosalyn: Can you explain the difference In the meals and what, what is eligible and what isn't, and what the difference is there.

[00:09:14] Sondra: So when you're traveling away from home for more than 12 hours the expectation from CRA is not that you are going to pack all of your meals for that trip. And when you're home and you're buying groceries and you can cook at home, it's cheaper than going out to restaurants. So it's really the incremental cost, the difference that is deductible.

So all meals and entertainment are deductible at 50%. So if you take someone out for a meal, let's work together or whatever the case may be that gets deducted at 50% because CRA is assuming that all of your meals are you plus one other person. That other person is deductible at a hundred percent and you're not actually deductible at all because you have to eat anyways.

So it's that 50%, even if you took three people out different than catering, you know, if you're recording and you bring in meals for everyone who's at the studio that's catering, that's deductible at a hundred percent. So when you're traveling, unless it is categorized as catering there is an expectation there that there is a deduction because it's more expensive.

But. only for circumstances. When you're away from home for more than 12 hours or you're traveling, would you be able to get a bigger deduction than this? 50% automatic?

[00:10:24] Rosalyn: at what point then for somebody who maybe isn't has experienced on the business side of things, at what point should you get help? Like, at what point should somebody be looking to an accountant or somebody to help them with, this type of filing?

Or is it something that anybody can do by themselves?

[00:10:39] Sondra: There's lots of programs out there. You can file your own tax return. I find that any small business, whether you're self-employed, a partnership or a corporation, a professional accountant who understands the industry is important because they're going to pick up on things that you may not know about.

So having an accountant be involved can bring light to some of those things. And the common mistakes that I see would be not being registered for HST even though you have not hit the 30,000 I get lots of, potential client calls where they say, but I didn't hit the 30 yet. That's not necessarily gonna determine whether you should register or not.

It's a conversation and if we, talk through and fully understand the circle of HST and how it works, we might come up with a different conclusion. I find a lot of musicians and they come to me and thinking, okay, maybe I need an accountant now. I've been doing this on my own have been either not reporting all their expenses or not really reporting the activity at all.

Thinking, well, when I make money, that's when I'll hire an. But that's also not the best strategy because if you are making money, you better believe CRA is gonna want their piece of it. So if you are losing money or in the negative because you're still building up and you're at that beginning stage, you still get to report that and that can go against other income or future income.

So it's still valuable to your tax return. those common mistakes are what I see. So either missing expenses not registered for hst even though it could be valuable and not reporting their expenses at all are common when people are unsure if they should be looking into having an accountant involved in their taxes.

[00:12:13] Rosalyn: how would you define financial health and for people who are kind of at this stage in our case study, where they're, you know, making a go of it and maybe investing more, they're getting back or kind of on that margin line. Where they're scraping by as we would say.

How do you get yourself to a place that's financially healthy and how would you define financial health at that stage of your career?

[00:12:36] Sondra: Yeah, I mean, the goal is always to be able to support yourself doing music full-time, right? When can we quit the day job? But it really depends on your cash flow needs. What are your outputs? Can you handle your personal expenses? By doing this full-time. And it can take a long time and there's lots of, grants to look into.

There's other funding and supports to look into to help because it's such an important industry. But it's true that it can take a long time and then before you know it, you think, oh, I, this is it. Meanwhile, you've been building this for years. It's not an overnight thing and it typically is not an overnight thing.

So you don't quit your day job until financially you can manage your finances doing this full-time.

[00:13:20] Rosalyn: do you recommend that like any budgeting tools or things like that to, to help folks keep a handle on that? Or is there a way that you personally suggest that people kind of track those things so they know when they're in a good spot?

[00:13:34] Sondra: it's important to just be involved in your finances, even monthly. Listing out your income and expenses, constantly looking at your cash flow gives you, a fresh look at what this career is going to do for you or what it's doing for you. And if you either need to increase your inflows or decrease your outflows to maintain that zero budget, then that's what you need to do and need to look at each line item and see where you can make some changes.

Just being aware and having conversations, listening to podcasts like this is really important. This is where you're gonna get the education and you're gonna open your eyes to different strategies or different programs, that could.

[00:14:14] Rosalyn: you brought up cash flow, which I'm so glad for. So it's a really important thing in our industry because we have seasons, right? Especially in Canada, we literally have seasons which, you know, affect what kind of work you can do. how do you suggest that people deal with. Cash flow issues and when we come to the, dryer, months, colder months, whatever you wanna call it, are there ways to kind of mitigate that or, or, how should people be interacting with that cash flow?

[00:14:40] Sondra: Being aware of it is the first thing, so that you can save up and plan throughout the year. I think I've seen scenarios where artists will do really well and then spend their money. and you're not saving for a rainy day, you're not saving for a slower period. unfortunately, COVID was a very big slow period for most artists, which was very detrimental.

There was support out there, but obviously not enough. just you know, using things like your tax-free savings account, having even a basic monthly contribution to an investment account so that in the slower months you can either pull on that or in a covid scenario you have something to support yourself.

Not increasing your outflows just because your inflows increased. It's very important to stay in line with what you budgeted or what you expected, and then whatever the excess is, you've decided what you want to do. , I always tell my husband, I wish we could have, 20 bank accounts so that I could have, savings for specific things and divide them up.

Just so that you know, okay, this is our retirement fund. That one we don't touch at all. This one is because we want to, go on a trip. and then as an artist in the business world, maybe you have your savings to support yourself. This one is, you know, you have a fund for making a new album, or you have a fund for going on tour and then a fund for retirement fund for a rainy day.

So that just because your inflows have increased, we're not spending it. So that kind of evens out throughout the year when there's slower.

[00:16:14] Rosalyn: You mentioned retirement a couple times, which I feel like is not a word that gets associated with being a musician too often. like when should musicians start planning for that and saving for their retire?

[00:16:27] Sondra: an investment plan or investment advisor is really good at helping anyone come up with a plan on, saving for retirement because you have to take a look at what your inflows and outflows are now when you wanna retire, and what your cash needs are going to be then. And so if you put something in place, the sooner the better because you're gonna be able to hit.

But that's a really hard concept for, an artist who is putting everything they possibly have into a new album, new music, new connections. You have to go to that show. We have to mingle over there. And so it's a tough conversation and some decisions have to be made, I don't know that there's a balance.

I don't know that there's a real answer that says don't spend that extra dollar, because you also have to invest in yourself. You have to go out and make those connections and spend some money to make money. And ideally we're getting grants, we're getting support so that you can do it without dipping into something like your savings for retirement.

[00:17:25] Rosalyn: So the next step then in this hypothetical career you mentioned H S T a couple times, and when you mentioned a 30,000 mark, can you explain the 30,000 mark and why somebody might want to sign up for H S T or be collecting the H S T before that, and then what happens when they do hit that?

[00:17:44] Sondra: So the $30,000 threshold is important because if you are self-employed, let's say you're a musician and you're also a photographer, and all you're self-employed activity, once you hit $30,000 on a four quarter rolling basis, so in any 12 months. So if it was January to December, 2022 and you hadn't hit 30,000 yet you keep shifting the 12 months.

So it doesn't restart January 1st of the next year, which is really important. And I think a misconception, once you hit 30,000, you have to register for hst You don't have a choice anymore. And if you start reporting self-employed income of 40,000 in the year and you don't have a business number entered on your tax return on that business statement, there's a chance c r A is gonna reach out and say, Hey, you should have been registered, you now owe us X amount in H S T.

And so it's important not to ignore that threshold. And that also is a threshold that is all of your combined self-employed activity. before that, it's optional. But once you understand the system of HST and how it works, you can see that sometimes it's really worth it.

So once you're registered for HST and I'm using, 13%, cuz that's our rate here in Ontario you have to add 13% on your income. This does not include royalties from Soca, it doesn't include income from outside of Canada. And depending on the province, maybe the rate would change. So if maybe you were a musician on someone's album and they were in bc, you're gonna charge 5%.

So it depends. But if all the work is in Ontario, you're always adding the 13% on top of your fee. If all you're earning is royalties, you're never collecting, but you're registered. And then most of your expenses and lots of the ones that we discussed will have H S T. And so you do a calculation that shows HST collected, less HST spent, and that's what you give to the government.

Or if it's negative, that's what the government gives back to you. So in a scenario where you have a songwriter who's strictly earning royalties from SOCAN Zero collected, and all the HST spent on all those different expenses, and so they're always in a refund position. So instead of the expense on your tax return being the expense, including the hst, the expense is the net of hst.

HST is claimed on this HST return. So it's a separate filing and then you get all of that HST back. So even if you owe your net. more cash than you were if you were not registered. Assuming you can always collect when you're supposed to collect. So if you think of a new artist buying some equipment, recording a song, which was gonna cost, maybe doing some traveling maybe taking courses.

There's lots of H S T that's going out. And for a new artist, maybe not lots coming in yet, that's a refund. And so even though you haven't hit the 30,000, that can be very valuable. You put that cash back into your business,

[00:20:36] Rosalyn: I think in Ontario, at least teaching music, like doing private teaching is also, I don't think you can collect.

[00:20:42] Sondra: Music lessons is exempt as well. So if you're a music teacher, which lots of musicians do on the side and you are providing a level or they can go to the next level, they can graduate, they can earn a certificate. I would look into the details before. for sure it's exempt, but most of those scenarios are exempt as well.

But that in those scenarios, you can't take any of the HST spent on expenses on your HST return. That would be against that income. So if you had to buy some supplies for teaching the HST is part of the expense in that world.

[00:21:13] Rosalyn: is so complicated.

[00:21:15] Sondra: The

[00:21:17] Rosalyn: I'm already overwhelmed Sandra.

[00:21:19] Sondra: what happens is once you file your H S T return it's like there's no more HST in your business world, your income didn't change cuz you just collected on top of your fee and your expenses are now without the HST because you got all the HST back. So it's as if HST didn't exist, which is really like a 13% discount on all of your expense.

So sometimes clients will say, well, I don't know if I really want to deal with that yet. If you're bookkeeping, there is an extra step because you have to extract the hst. It's true, but you're partway there, you're keeping your receipts. So that's the same. You're deducting the same expenses, that's the same.

And then if you look at all the money you're spending, some people will say, I don't wanna register yet. It's too much. And then they start buying, supplies or equipment or anything and they start to see all that hsc they could be getting back and they come back and say, yeah, actually I think I should be registered.

Can we backdate this? Cuz they can see all this HST going out the door that they could get. So sometimes it's not the right time. If they're not making 30,000, they don't have a lot of expenses and a lot of their income is to let's say individuals or others that are not registered for business.

Us because if you take, typical scenarios, if you have a new artist and they're also doing weddings, very common private events, not corporate. If you're registered for hsc, you have to add that 13% no matter who is paying you. And so if it's a wedding, for example, which is not a business event, the person paying for the wedding now has to pay you 13% more than they would have if you weren't registered.

[00:22:58] Rosalyn: what if you are registered for H s T, is that, I guess then just always require that you charge it in this, in the wedding scenario? Like

what if they're like, oh, you know what, we're just not gonna pay you that. H S T what do you

[00:23:09] Sondra: Then you have to charge or you have to eat the H S T. You have to assume that your fee includes the H S T. . So again, there's no HSC on top of anything outside of Canada and royalties, but in those scenarios there is. And so if you're more expensive compared to the other wedding band option that they had and that was the only difference, then maybe you lose the job.

And so you have to make a decision on whether it's worth it or not.

[00:23:35] Rosalyn: and with H s D and, and signing up for that there isn't an added cost, right? Like you can, you just receive your number. It's not like incorporating where you have to kind of pay to incorporate. Is that correct?

[00:23:46] Sondra: That's right. Yep, that's right. There's no extra cost. You get your business number, it's your business number for life. The same way you have a SIN number, so you can close your HST number and reopen it again 10 years later. It's the same number. And then for all of your self-employed activity, it's the same one.

HST number. It can have a different ending, but typically it's the same. So if you were a musician and you're also a photographer and you also have an Airbnb, that's also considered business. It's the same HST number for everything. And once you're registered, you can't decide, well, I'm, I didn't actually hit the 30, maybe I'll wait another month.

I just registered to register. No, once you're registered, you're registered. And it's important to note that this is trust money. So when you're collecting that hst, it's on behalf of the government. So they are expecting a filing on time payments made. So, any client I have that registers for hst I, I remind them of this because I have seen scenarios where the client will take the HST and spend it not realizing that should be put.

you may not owe a hundred percent of it, but you need to put that at side. So you know, back to the cash flow thing, making sure that you have a handle on what HST you're gonna owe at any point. And an estimate on your taxes is really important. If you're gonna be profitable, whether it's your share of partnership income or your self-employed activity, you're responsible for your own taxes and your own cpp.

So when your tax return is done, you have to have budgeted and prepared for the fact that you're gonna owe something.

[00:25:16] Rosalyn: How often do you have to file at hst? Is it nearly quarterly?

[00:25:21] Sondra: You can choose annual, quarterly, even monthly, depending on your gross sales. Most of my clients, unless they've hit that annual amount we do one HST return with their tax return. You make sure the total sales lines up and you do it once a year for. , a business, whether it's a new, musician or a construction company when they have a lot going out fast and they want all that H s T back, that might be a reason to register quarterly so that you're doing the H S T returns more often and getting those refunds back into your business.

But you have to stay on top of it. So if you're gonna do that for that purpose, that means your bookkeeping has to be done to make sure that you can hit that filing requirement. Cuz if you're quarterly, your HST return is due by the end of the following month.

[00:26:06] Rosalyn: Cool. So at this point in our career, and again we, we did have another chat about this a while ago, so we can link to that where we get a bit more in depth. But When should we then start thinking about incorporation?

[00:26:16] Sondra: , it's a common question that I get because you hear that word in the industry. , you hear someone's incorporated. And then you start to think, should I be incorporated? And the conversation is really different. For everyone's scenario, the number one reason to incorporate in Canada is for limited liability.

So forgetting the fact about this industry, when you have a corporation, it's a separate legal entity. It can be sued, it can sue others. It files its own tax return. It is separate from you as an individual. That typically not the reason for my musician clients to incorporate, but that's, it's important to know that because you have another taxpayer now that you are responsible for separate filing again the tax rate in a corporation, a ccpc Canadian controlled private corporation is much lower than us as individuals.

So the first 500,000 of profit income, less the expenses is taxed at about 12 point a 5% Ontario Rates Corporation, whereas personally, once you pass 220,000, you're at the 53 and a 5% tax bracket. So anything above that, so big difference. So if you're making more money than you need to live on, so after your personal expenses, you still have all this money left over.

We can mitigate taxes in a few different ways, and one of them would be to have this corporation. Another very popular reason amongst the musicians is for grants. There's grants out there that are only available to corporations. There's also some that are only available to individuals, but the bigger ones tend to be for corporations.

And sometimes those corporations have to be established for at least two years. And so that could be the reason alone to incorporate even if you're not profitable yet. But if that's gonna get you access to the grant, that might be the reason.

[00:27:58] Rosalyn: May, if you are incorporated, you're still filing it as an individual, right? So can you still be considered an individual if you were applying for something that required that, or

[00:28:08] Sondra: Yep. So just because you're operating through as a corporation doesn't mean personally you wouldn't have access. But it depends on what the requirements are for the grant. If the grant says, we need to see your self-employed business statement over the last two years, and they're looking for something specific, meanwhile you've been operating through this corporation for the last two years and all your activity is there, then your personal return's not gonna show them what they need.

So you have to have an idea of what they're looking for.

[00:28:35] Rosalyn: let's say you're a band that's incorporated you're taking in your all the money through the band, your paint expenses through the band how does the corporation then pay the band members? If you are all member of that corporation, how do you pay yourselves out Basically,

[00:28:50] Sondra: Yeah. Really good question because it's another mistake that people make. As a sole proprietor, you're used to invoicing. When you have a corporation, you can't in invoice your own company depending on the percentage that you own. But let's say you're a big shareholder um, there's three different ways to take money out of the, outta the company.

So if initially Ban gets started, corporation is born, everybody puts $10,000 into the company. Now there's some cash there. Time to pay back the loan. Everybody can take out, call it the $10,000. This is not income to the individual band members. This is a repayment of loan that doesn't get picked up on your personal tax return.

The same way if the company borrowed money from a bank, it's a repayment. That's not a consistent way to take money out of a company, but if. You have other income on your personal tax returns or some tax planning here. So maybe that's a good option. The other two ways to take money out would be payroll and dividends.

So you being on payroll for your own company is the same as you as if you were on payroll for someone else's company. The company is responsible for withholding CPP and taxes. Depending on your ownership, if you have a big ownership, you likely should not be withholding EI cuz you can't fire yourself and go oni.

So let's say CPP and taxes, the company remits the CPP and taxes pays you your net paycheck and at the end of the year issues you a T4 that you then pick up on your personal tax return. In this scenario, you on payroll are an expense in the company. The company will have income less, all the different expenses, less wages and benefits.

There you are on payroll and then the company pays tax on the net income and you have paid tax. Through the withholdings on your income that you're picking up through your T4 and your personal return. The other way to take money out of a company is through dividends. And I see this with vans when, you talked about seasons they go through.

So let's say they go through a tour and the accounting is done and you can see the profits. Okay? Everybody gets X amount as a dividend, so all the owners, so a dividend has to go based on your share holdings. whereas payroll can be determined on whatever the agreement is. Dividends has to be equal based on the shares, and it's a tax paid profit payment that's being paid to the shareholder.

So the company will have income, less expenses, pay taxes, and whatever's left over is called retained earnings, which are literally the earnings that have been retained in the company and are then distributed to the shareholders. So then on your personal tax return, you pick that income up as a T five.

Investment income the same way if you own shares an Apple, you get a dividend from the taxpayer profits because that income has been taxed already at the corporate rate. You get a dividend tax credit personally, and then you pay the difference between the tax that has already been paid at the corporate level and whatever your tax rate is.

it's somewhere around 40,000. If you took 40,000 out of the company and there was nothing else touching your personal tax return, you would owe $300. When we go up from that, it really depends. So if you had a T4 situation, you have this band who does shows and you get your dividends out, you're gonna owe taxes at whatever your tax rate, and that can look different for every member of the corporation,

[00:32:05] Rosalyn: do you file taxes at the same time as a corporation or is it

similar to the.

H G S T?

[00:32:10] Sondra: the corporation which will also have an HST number. Ideally can have a year end. That is any month of the year. So us as individuals, we have January to December, and then our taxes are due if we owe by April 30th. If we're self-employed, we need to file by June 15th, but you still owe by April 30th.

So pretend that's your deadline. But for a company, you could have a may year end, you could have a June year end, it doesn't matter. And your taxes, hst, return, HST owing, and taxes owing are due three months after your year end. So I have corporations as clients throughout the year. Every month is a deadline for somebody.

And picking your deadline as a discussion once you're incorporated to make sure that it's in line with your. , whether it's a business cycle or maybe there's no good time, so we just pick the best time. Some people like to have a December year end because it's in line with the calendar with our personal returns.

Probably the most popular, which makes this time of year very busy. But it makes sense. Some people like to have an August year end, so after the summer, you know where a lot of shows are happening, a lot of festivals are happening. But then come September, kids are going back to school. We get back to the swing of things.

That's when you sit down and make sure bookkeeping is up to date and have your meeting with your accountant.

[00:33:25] Rosalyn: So when you get to this level of complexity Is this a chat with an accountant? Like, should you be hiring this out? Is this something that people can do on their own at this point when you're getting into the incorporation level?

[00:33:38] Sondra: I would definitely recommend at when you have a corporation to involve an accountant, you gotta build your team the same way you're gonna have an entertainment lawyer, you're gonna need an accountant, ideally who knows the space. Because even before that, the should I incorporate discussion should happen with an accountant and a lawyer.

Um, um, Potentially on, on why sometimes I have artists come and say I'm, I'm time. We're gonna incorporate, and then I'm, questioning why are we incorporating? Because operating a corporation is different than us as individuals and having a sole proprietorship. Even just the accounting fees around it are very different.

The bookkeeping around it is very different. The involvement, you're creating another filing requirement, and if you incorporate, which costs money, and then realize, actually I don't wanna be a corporation yet. I don't need to be a corporation yet, then you have to either close the company, which costs money, or you still need to file nil zero returns just to keep the company alive.

So it can be a very expensive decision. So I would definitely consult an accountant and potentially a lawyer depending on the why to make sure that, that reason is right, even outside of this industry, if somebody wants to incorporate for the limited liability purpose, okay, I don't sell insurance and I'm not a lawyer, but can insurance cover those risks well enough that you don't have to actually be a corporation?

those conversations are important, but definitely once you are incorporated, You need an accountant in your life. It's a different level.

[00:35:07] Rosalyn: And so for somebody that point where they're building their team, they're incorporating their business what does financial health look like at that point? So we're, we don't feel like the starving artist anymore. Maybe you're, making, a living, and, should people be investing in savings?

Should they be investing in RSPs or other stuff? Like are there ways for people to invest in themselves and take care of themselves financially that can benefit like their overall wealth and growth there?

[00:35:38] Sondra: Absolutely. Once you are a corporation it's a different answer than if you've created this wealth as an individual. a corporation can have investments. In its name. You can have an investment portfolio that's nice and safe. You can have another corporation that has an investment property if your passive income becomes too high.

We do wanna separate that out into a different corporation for tax purposes, because we don't want to taint that small business deduction and the low tax rate for an active business. If you are an individual, maxing out your RSPs, making sure that's happening. Using the tax-free savings account is a great place to put investments because anything you earn inside a tax-free savings account is tax free.

So those are the different ways. When I review financial statements for a client and we go over, you know, the in income statement and the balance sheet, if I see that there's lots of cash sitting there we talk about this because you don't, you want that money to work for you. You want it to be safe, but you want it to work for you.

And so I usually see it go two ways. , I see the client investing back into themselves, really excited about a next project. Maybe putting something aside but jumping full steam ahead on something that they're passionate about. And then I see a lot of artists go, I don't know what to do with this, and I don't want it to ever go away and I'm not gonna touch it.

Which is okay, except that it's not doing anything for you. And with inflation, it's actually going down in value. So getting an investment advisor, getting a financial planner involved to make sure that your money's working for you would be really smart. When you're incorporated, if you wanted to contribute to RSPs, because you hear this and your financial planner is saying, yes, do this. If you have to take the money out of your corporation, it's going to go into your income. , right? unless the company owed you money, it's either gonna be a dividend or you're gonna take it out through payroll.

So it goes into your income. When you then put it up into your rsp, it goes out of your income. So what we've done there is we've moved money from your corporation into your R S P. So you haven't got this big tax deduction that is sold with the idea of an rsp. So some, I'll get that question, especially this time of year, cuz the RSP deadline's coming up.

Should I take money outta my corporation to put into my rsp? And typically my answer is no. Unless that RSP has plans as something fancy gonna happen there that I don't know about. Because you can have an investment account in the corporation. It's not sheltered like the income is in an RSP or a tax-free savings account, but you just pay tax on any income gains, dividends, interest.

But the whole idea of taking it out and then putting it to the rsp, you're just taking out the money from one place and putting it into another place. It's not, you're not getting that big deduction.

[00:38:15] Rosalyn: What are some mistakes then that you see people make or are there things that, folks do that can like trigger an auditor that are maybe some like red flags.

[00:38:26] Sondra: . Yeah. So I think that one of them is almost an opposite. I think not reporting all your expenses because you have a loss is a mistake. As long as we're keeping our receipts and we're ready. If CRA had a question, you know, you have to be confident in that. But if you have all your support, you can support that.

You have a business here. So not reporting a loss, I think is a mistake because it can be used against other income. But if you have a loss for more than two years, it can cause an audit . So, so as long as you have, your documents prepared, ducks in a row, I'm not scared of an audit. We may have to explain to cra what the business is here, and you may have to show them that you are qualified to have a business and the expectation is that you're going to be profitable.

you know, Register your business even more just to support that. And then you respond to them and they go away. So I think it's a mistake, but it can also be an audit trigger. But making sure you have everything ready means we're not scared of that. Not filing tax returns for multiple years.

Can audit when you finally do file can create an audit. HST, because I it's trust money, they're very picky about it. Definitely be filing those on time. Or they sometimes arbitrarily assess you. They just pick a number based on a previous year based on what you told them you were expecting to make.

And then they try to collect on the HS team. Meanwhile, they know nothing about your business. So not making that mistake, spending the HST is a mistake. So you're collecting that hst if you're registered on top of your fee, this is not your money. Open up another bank account, put it aside, don't spend it.

Cuz I see that mistake. I do see the mistake when you're incorporated to not consider the taxes on a dividend. So I see this one. So if you're taking money out as a dividend, because it is less work throughout the year than payroll is work. You have to withhold and remit regularly, monthly to cra a dividend.

We just call it a dividend. But when you're taking money out of your company as a dividend, that includes any taxes you're gonna owe on that money. So I do see the mistake where people take out as dividends. Let's say they took out 80,000 and now they owe 15,000 in taxes. How are they gonna pay that?

If the answer is take out more money from your corporation, then you have to take out more than the 15,000 because again, that's gonna be your dividend the next year. So I see that as a mistake. I think that just. Educating yourself on your finances, being involved in your books, understanding how the cash is flowing is really important to avoid some of these mistakes.

[00:40:49] Rosalyn: And when you said be ready, when or if an audit happens how can folks prepare themselves for that and what should people be like keeping track of.

[00:40:58] Sondra: you have to keep your receipts. So I think if there's a misconception that a bank statement or a credit card statement is sufficient support for cra, it's not, you need the actual itemized receipt. I think that we're getting better at making that digital, but there's a lot of receipts out there that are not.

So, fill up with gas that's not gonna be digital. You gotta keep that receipt. You can then take a picture of it or scan it and store it digitally, and that's great. You can get rid of the original receipt. But we gotta keep those original receipts. So the ones that list out what you purchased.

So in that gas example, it should say the leaders and what the cost was per liter. It should have the gas station's HST number on there if you're claiming the hst. So that's really important for things like meals and entertainment. They want to know who you met with the topic you discussed in that person's contact information.

So it's more than just the receipt. So when you have a meal and entertainment, note that down. For vehicle expenses, they want a vehicle log. They want the date. Starting kilometers. Ending kilometers where you went, purpose of your trip. And that's gonna determine the business versus personal use of a vehicle.

And then prorate something like a tank of gas. How do we know Right? Based on the kilometers. So they want to see that. if you are doing lots of travel for work. Recently, CRA has been auditing 2019 travel. They went back to before covid and now they're asking for that support. And some things that they're asking for are itineraries or proof that you actually went to a convention, even though you're saying you did that.

And so that type of documentation just keep on hand make sure that you have the actual receipts and not the debit slip so that if CRA was gonna question something, you're ready. The more organized your bookkeeping is, the more confident you're gonna feel in making these claims on your tax returns and the less scary CRA will seem.

[00:42:47] Rosalyn: That's so helpful. . can you name some tools and resources that people can use to help them out, whether it's people or, or bookkeeping, software, whatever.

[00:42:56] Sondra: So there's a mileage tracker called Mile iq, that's really helpful. like a, an app that tracks your mileage is great because it prompts you, was that drive personal or business swipe right, swipe left.

And it kind of creates this log for you. If you're driving a lot for work, I recommend this. Sometimes Bill say, this is just not reasonable. I'm not gonna do it fine. But then we might have to go back and recreate a log for you based on your appointments and your schedule. You have a calendar, we know where you were, you know, we can go back and create that.

It can be as simple as a note in your phone on this date I went there. Um, Or keeping it right in your calendar. Or actually an app that helps track that. There's some programs out there that have apps like a mileage tracker built in that are really helpful. And I think I'd set up at the top.

There's a lot of. Softwares in bookkeeping programs that are geared towards whether you're self-employed or you're incorporated. So pay attention to that. But some programs that I like, QuickBooks online for corporations is my favorite. It's online. That means I can have access to my clients bookkeeping and they can still have access.

You invoice right from it. You can attach, you know, your receipt right to the expense. So if you did go through an audit, it's right there. You can create all sorts of reports. You can do a budget versus actual. You can do project accounting. So if you wanted to see how this tour did, or how this album, you know, came out in terms of your expenses, you can do that in a bookkeeping program like QuickBooks Online.

It also links a lot of these programs, a link right to your bank account. So important to have a separate business bank account, separate business credit card, maybe even two business bank accounts. So you can put that HST aside and you link it right up into the program and it pulls the transactions and then you just put the, where they're supposed to be.

, I'm making it sound very simple, but there's other things that have to happen in bookkeeping, especially for a corporation. You know, You have to reconcile the bank every month to make sure you're not missing anything. Things like that. Make sure that HST is being pulled out properly. Or if you were traveling across Canada and there's different rates in different provinces that the proper HST is gonna show up and that you're not gonna over remit or under remit.

Hst. Other bookkeeping programs, Expensify Wave, Zoho books, those are some good ones. There's another app called everlance, and that's a great one for mileage tracking and receipt tracking. So if you said, I'm good with Excel, I can put my income and expenses in this is enough. This is like one step up where I can really track that.

But just keep in mind that if you are incorporated, you have to care about the balance sheet as well. Not just the income and expenses. You have to care about the assets and the liabilities. So, in my example of you putting money into a corporation for startup costs, that's not income to the company.

And when you're repaid, that's not an expense that's goes into cash and is a liability the company owes you. So those things need to be tracked that don't really exist in a self-employed world.

[00:45:49] Rosalyn: are there some other online resources for, like, finance in general that people can go to? Or can they contact you or are there there folks that you know that, that work with musicians? you know, If people have questions,

[00:46:02] Sondra: I am available, I take on clients to be their accountant and also for consulting to go over all sorts of topics, that are specific to them. So not only would we discuss things like when is it time to incorporate what's a deductible expense? You know how to organize your bookkeeping and how to put that into action.

Let's actually discuss which software you like and what that means. How do you go on payroll? Is there a program? Who's doing it? How much do we have to withhold? What if I only wanted X amount out of the company? What does that mean? Talk about those details. Talk about cross border. So if you know there's musicians planning on going to the us, what should they be watching out for?

Do they need a US accountant? Do they need a lawyer to get involved? Is there a visa that they need to get? I'm not a lawyer, but we bring it up. So really how to operate their business. What does their banking look like? What is, how is it organized right now? What's working, what's not working?

And then also some other, personal topics like tax free savings accounts, RSPs, different types of insurance. Do you have a will that's up to date? Do you need a will? Do you have your, my account with CRA and your my business account set up? That's really important, especially since CRA change the way that we get authorized as.

As authorized reps, really important to have your my business account set up. And then from there you have to build your team. If you need a lawyer, you need a lawyer. If you need a financial advisor, you need a financial advisor. If you need an investment advisor, you need an investment advisor.

Attending conferences, there's lots online. You know, If you live well, there's lots out there. But being part of the industry and learning from others, what's working for other people, what's not working for other people, and then bringing it back to your team which should include an accountant to talk about what your next move would be or what would make more sense for you.

[00:47:44] Rosalyn: And when you just mentioned like being involved in the music industry I'm interested in your story as well and how how you got involved and what interested you specifically in working with artists and musicians.

[00:47:58] Sondra: I grew up. Surrounded by music. My dad was an entertainment accountant himself and a bass player. So until he retired, and my mom still is a singer songwriter today sent me, a snippet of something new. She was really exciting and I myself danced for 10 years. I did musicals throughout university and high school, which I loved.

And it's always been a passion of mine. So to get into accounting and have, the cultural industry as my clients is the ideal way for me to go. It's just really exciting to be part of somebody's team and that's always how I view myself. I'm part of your team so that you can do what you do and we can make sure that we take care of the business end of things so that you can, do this professionally and.

have an income from this and contribute to the art and the world because that's what it's really all about. I'm definitely passionate about the industry. it was an easy niche for me,

[00:48:57] Rosalyn: I have this flashback of going to the first accountant I'd ever worked with just like, plastic, like grocery bags and just like full of receipts for years and like sheepishly handing it over and being like, I'm so sorry. I'm so sorry. And it was like, oh no, I see this all of the time.

yeah. I think that there sometimes is a bit of like a shame or barrier for artists and musicians who maybe don't feel like they've haven't been on top of it necessarily or, Feel a little bit like they're in that other side of the brain frazzled zone not quite in control of it,

How ashamed should we be of of ourselves? And, And can someone approach a professional approach, someone like yourself from that place of like, I don't really know where I'm at and what to do.

[00:49:44] Sondra: It's more common than you would think. I think it's like, it's similar to the facade of social media. There's a lot of people out there that are behind. To have somebody reach out and say, I am X number of years behind is not uncommon. I get it a lot, and so I'm part of the team. I'm there to support you to make it as easy and efficient as possible.

So this overwhelming, daunting task is likely what's stopping anyone from reaching out and going, I need to catch up. I actually am ashamed, but I haven't filed in, even 10 years. But I try to make it as simple as possible. So we want to catch up. And then we also want to talk about going forward, what tools are we gonna put in place?

So one, you're not in this position again, and two, you feel good about it and have an understanding of what's going on in your business. And that's why I start all of my clients off with this new client meeting to go through these topics. nothing to be ashamed of it is very common. And you have to have an accountant in your corner that can help support you through that.

And know, I always tell my clients that are behind, don't spin your wheels. I'm giving you homework, but don't sit there and not know where to start and not reach back out to me. We need to file in an efficient way that makes the most sense. . So, after we go over how to save your receipts and what would cra want?

People will say, I don't have any of my receipts. I didn't know it. I'm not gonna claim any expenses, not a strategy. I would recommend, let's talk about it. First of all, you probably can access more receipts than you thought. Your phone bills, for example, I'm sure you can get them, check your emails for flights.

They're there, you can get them. And if we have to do some estimates, we have to do some estimates if it's on your credit card bill, but you don't have the actual receipt. Okay? So worst case, you know, we go through worst case scenarios and how much risk are we wanting to take here? Nobody wants to go through an audit.

And if you go through an audit, we gotta respond. We can't just ignore it. So what are we looking at? And then, and we'll walk through it. One thing at a.

[00:51:46] Rosalyn: Amazing. Sandra, thank you so much for coming on and, chatting with us. This has been extremely helpful and uh, you're such a knowledgeable person and we're lucky to have you in our corner.

[00:51:56] Sondra: Thank you so much for having me.