Bill C-427: An Act to amend the Income Tax Act (income averaging for artists)

C-427 First Session, Forty-first Parliament, 60-61 Elizabeth II, 2011-2012 HOUSE OF COMMONS OF CANADA BILL C-427 An Act to amend the Income Tax Act (income averaging for artists) first reading, May 31, 2012 Mr. Benskin 411535 SUMMARY The purpose of this enactment is to amend the Income Tax Act to permit Canadian artists to benefit from income averaging for the purposes of federal taxation over a maximum period of five years. Also available on the Parliament of Canada Web Site at the following address:http://www.parl.gc.ca 1st Session, 41st Parliament, 60-61 Elizabeth II, 2011-2012 house of commons of canada BILL C-427 An Act to amend the Income Tax Act (income averaging for artists) Whereas artistic, cultural and creative expression ranks among the most important manifestations of our fundamental freedom as Canadians; Whereas the cyclical nature of artistic careers, often defined by the boom and bust cycle of uncertain earning periods and punctuated by prolonged stretches between projects, unavoidably and unjustly disadvantages artists in terms of eligibility for Employment Insurance, Canada Pension Plan and other time-sensitive federal benefits; Whereas the Government of Canada recognizes the special income circumstances of Canadians engaged professionally in artistic fields, and supports establishing — as a form of compensation for the unique limitations on artists’ eligibility for a variety of federal benefits deriving from the structure of income frequently associated with artistic industries — an income-averaging mechanism to diminish the taxation impact on artists in Canada; Whereas Canada’s vibrant and diversified cultural sector makes an invaluable contribution to the national economy, accounting annually for over $80 billion dollars in documented economic activity and close to 10% of our gross domestic product, providing direct employment to over 600,000 Canadians and supporting countless additional positions in associated industries; And whereas the passion, creativity and diversity of the Canadian people greatly enhance the potential for Canadian artists to compete and win on the world stage in an era of unprecedented global integration that prom-ises escalating economic benefits in the future given Parliament’s establishment of a tax environment that strongly supports creativity, artistic innovation and market confidence in the cultural sector; Now, therefore, Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows: SHORT TITLE Short title 1. This Act may be cited as the Reflecting the Realities of Canadian Artists Act. R.S., c. 1 (5th Supp.) INCOME TAX ACT 2. Subsection 81(1) of the Income Tax Act is amended by striking out “or” at the end of paragraph (q), by adding “or” at the end of paragraph (r) and by adding the following after paragraph (r): Artistic activities (s) where the taxpayer is an artist as defined in subsection 117.01(1), the first $10,000 of income that is derived from royalties, gratuities, or other residual payments from the taxpayer’s artistic activities, without prejudic-ing any additional benefit or tax refund to which they may be entitled. 3. The Act is amended by adding the following after section 117: Income Averaging for Artists Definition of “artist” 117.01 (1) For the purposes of this section, “artist” means an individual (a) who (i) is an author of an artistic, dramatic, literary or musical work within the meaning of section 2 of the Copyright Act, or a director responsible for the overall direction of audiovisual works, (ii) performs, sings, recites, directs or acts, in any manner, in a musical, literary or dramatic work, or in a circus, variety, mime or puppet show, or (iii) contributes to the creation of any production in the performing arts, music, dance and variety entertainment, film, radio and television, video, sound-recording, dubbing or the recording of commercials, arts and crafts, or visual arts, and falls within a professional category prescribed by regulation under the Status of the Artist Act; and (b) who (i) is paid for the display or presentation of his or her work before an audience, and is recognized to be an artist by other artists, (ii) is in the process of becoming an artist according to the practice of the artistic community, or (iii) is a member of an artists’ association. General averaging (2) Despite section 117, if in the case of an individual who was an artist resident in Canada throughout the taxation year immediately preceding a particular taxation year and throughout that particular taxation year (which particular taxation year is referred to as the “year of averaging” in this section), an excess remains when (a) the greater of 110% of the individual’s income for the immediately preceding taxation year and 120% of the quotient obtained when (i) the aggregate of all amounts each of which is the individual’s income for a taxation year in the period of such of the consecutive taxation years (not exceeding four) immediately preceding the year of averaging as were years throughout which the individual was resident in Canada is divided by (ii) the number of years in the period described in subparagraph (i) is deducted from (b) the individual’s income for the year of averaging, (which excess is referred to as the “averaging excess” in this subsection), then the tax payable by the individual under this Part upon his amount taxable for the year of averaging is the aggregate of (c) the amount that would be determined under section 117 for the individual for the year of averaging if the individual’s amount taxable for the year were the remainder, if any, obtained when the averaging excess is deducted from the individual’s amount taxable for the year computed without regard to this subsection, and (d) five times the amount, if any, by which (i) the amount that would be determined under section 117 for the individual for the year of averaging if the individual’s amount taxable for the year of averaging were the aggregate of the remainder described in paragraph (c) and an amount equal to 1/5 of the lesser of the averaging excess and the individual’s amount taxable for the year of averaging exceeds (ii) the amount determined under paragraph (c). Filing election (3) An individual who is eligible under subsection (2) may elect to participate in averaging by filing an election with the Minister, with their return of income for the year, indicating their intention to participate in averaging over a specified period of not less than two years and not greater than five years. Deemed annual income (4) An individual who is eligible under subsection (2) and who has elected to participate in averaging is deemed to have an annual income greater than the basic personal tax credit amount set out in paragraph 118(1)(c). Published under authority of the Speaker of the House of CommonsAvailable from:Publishing and Depository ServicesPublic Works and Government Services Canada