Follow your bliss is a phrase coined by the famous American professor of literature Joe Campbell. If you haven’t seen the movie “Finding Joe”, I highly recommend watching it but that is a topic for another day. Suffice to say, one of Dr. Campbell’s teachings is that we should never forget what we are good at, and to pursue that talent and hence the coined term “follow your bliss”.
Section 18(1) of the Income Tax Act is a very broad stroked section which effectively states that you are allowed to deduct from any income, expenses incurred to make income. Think about that: you can pursue your hobbies, talents, whatever they may be and deduct the costs related to that pursuit so long as you demonstrate an intent to profit. Canada wants you to pursue your talents because they know that in the long run you will likely make more money should your efforts translate into financial success and will allow you to deduct against any other income you make, the costs related to the pursuit of such endeavors. I have told this to golf pros, music writers, poets etc to track the costs in pursuit of those endeavors and how to include them in their tax returns.
As good news as that may seem, there is a motto that is worth remembering which I have included in my past article on commissioned salespeople : pigs get fat and hogs get slaughtered. While any expense to pursue your talents can be considered, it is wise to know what will cause issues with CRA and which ones won’t. A discussion with a professional at Agustus Tax Counselling will guide you to what we think is reasonable based on years and years of experience.
The CRA has a job to ascertain what is reasonable in each circumstance for pursuits established to produce income. This means that they will look at many factors including, years without income from the pursuit, the individual’s expertise in the area, degree of effort in marketing etc. To sum up, to test that you are serious about pursuing your dreams and that it’s not just a hobby.
A quick numerical example. Say my friend Tim makes $82,000 per year at his job managing a bank. Tim also plays in a band two days a week. At Agustus we would ask Tim on whether his band is eventually looking to get a gig. If he says yes and proves the bands efforts to land a gig, a strong argument can be made that there is an intent to profit. If Tim spent say, $2,000 on gas to the band practices, rental of a studio to play, replacement strings for his guitars, cleaning supplies or adjustments needed for the guitars etc, then he would get back 31% of eligible expenditures which is $620 dollars assuming his employer withheld the correct amount and that he has no other income. That to me is worth claiming to continue to pursue your passions.
Take note though, there are a lot of nuances that would take hours if not days for each individual to determine how to get organized with CRA. This is where a 15 minute call with Agustus is invaluable not only for the $620 dollars as per the example above, but the amount of time you will save to learn about your own tax biography. Please see my previous post on the time value of money.