Income Taxes and Your Grant
The reception of a grant from the Canada Council for the Arts has different tax implications for everyone. At Council, we cannot provide advice on the income tax implications of your grant. Council recommends that you consult with a fiscal advisor to determine how the grant you receive will impact your personal and/or business income taxes. It is important to note that the payment terms of a grant may have an impact on the calculation of the taxes payable.
Payee name versus Responsible party
When you receive a grant, you have to fill out the Grant Acknowledgment Form (GAF) that allows the grant recipient (an individual or an organization) to select a payee for the grant as well as select to which bank account the grant payment must be issued. Although you may request to have the grant deposited in a bank account other than that of the grant recipient, the T4A at the end of the year will be made out in the name of the grant recipient for payments issued during the calendar year. The grant recipient – not the payee name on the cheque – is the party responsible for any tax filings based on funds received.
Expected expenses versus Grant payment
You may request that Council issue multiple payments for your grant instead of receiving one big lump sum. It is important to understand why. A T4A is prepared yearly for payments issued during the prior calendar year. Eligible grant expenses may be applied against the grant revenue received (see links below for more information). To reduce the fiscal impact of the grant received, it would be good practice to try to match revenues to the budgeted expenses so that the revenues in one year correspond to the expenses in that same year. Therefore, once the expected timing of expenses is determined, request the grant payments be paid in more than one installment, on different calendar years.
T4A – Box 105
Scholarships, bursaries, fellowships, artists’ project grants, and prizes
As requested by Canada Revenue Agency (CRA), we enter all grants in box 105 of the T4A slips. Box 105 is described as follows on the T4A: “Scholarships, bursaries, fellowships, artists’ project grants, and prizes”.It should be recorded on line 130 of the Tax returns (less allowable expenses if it is for a project grant).
IT-257R: Canada Council Grants: http://www.cra-arc.gc.ca/E/pub/tp/it257r/it257r-e.htmlThis archived bulletin deals with the tax treatment of grants and other payments from the Canada Council. It indicates how and when such amounts are included in income as business or employment income or as taxable grants, fellowships or prizes. It also explains the deductibility of expenses related to grants for the production of artistic works and discusses non-taxable prescribed prizes.
S1-F2-C3: Scholarships, Research Grants and Other Education Assistance: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f2/s1-f2-c3-eng.html
This Chapter discusses the taxation of scholarships, fellowships, bursaries, prizes, research grants, certain government financial assistance for education and training, forgivable loans and repayable awards. It examines the differences between the types of payments and benefits described above and explains how such amounts should be treated for income tax purposes. It provides the reader with an extensive review of the applicable legislation and is intended for readers who have a general understanding of the Act.
Example for artists’ project grants : http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/130/schlrshp-eng.html
The link above refers the reader to S1-F2-C3 (see point 2 above) and also gives 2 examples. The second example relates to artists’ project grants. It states:
I have a couple of T4A slips totaling $5,000 for some artists' project grants I received. Do I have to claim the whole amount as income this year?
No. If the total of all the amounts you received in 2017 (box 105 of your T4A slips) is $5,000, you can claim a $500 exemption or you can claim expenses incurred to produce a literary, dramatic, musical, or artistic work against this income. Report on line 130 the amount that is more than $500 or your expenses, whichever you prefer.
This means the client would put on line 130, $5,000 of grant received LESS eligible expenses. If client had $4,995 of expenses, the amount on line 130 would be $5.