Dollars & Business Sense

What early-career financial considerations and opportunities should music creators consider, including whether it’s ever acceptable to work for “free”?

From a financial standpoint, what’s most important for music creators to know before they “go pro” is how they can earn revenue from their music—via both upfront payments and back-end compensation—and how much money they’ll likely need to spend to get started. But what’s also helpful for them to understand is what other sources of funding exist in the form of awards and grants, how sales tax comes into play, why and when to consider incorporating, and whether it’s ever acceptable to work for “free.”

Other Funding Sources: Awards & Grants

In Canada, all levels of government—as well as numerous private foundations, trade associations, and other philanthropic organizations and individuals—show their support for Canadian arts and culture by regularly offering grants and financial awards to artists including music creators.

While some of these funds are intended to be used by specific creators for specific purposes, some are simply intended to sustain artists in the regular course of their work, and there’s often more funding available to them than they realize.

The best place for creators to start exploring these possibilities is on the website of the music-industry association in their province or territory. These organizations typically list both the funding they themselves offer to creators as well as the main awards and grants offered by others in their province or territory (including government arts boards/councils and large private foundations).

Federally, the Canada Council for the Arts provides grants for certain types of creators at various stages of their careers. And the Foundation Assisting Canadian Talent on Recordings (FACTOR) and Musicaction, though they primarily exist to support the recording industry (English- and French-language, respectively), administer the Department of Canadian Heritage’s Canada Music Fund and offer some additional grants for songwriters and producers who have begun to make a name for themselves. The SOCAN Foundation also provides a number of grants to help all types of Canadian music creators kick-start their careers, and awards to recognize emerging talent.

Music creators—particularly those who live in larger cities—should also explore whether there are any municipal sources of funding available. These should be listed on each city’s website.

What many creators don’t realize, however, is that there’s also funding available specifically for entrepreneurs—regardless of what business they’re in. In addition to financial support, many of these programs also include training in business fundamentals (e.g., how to write a business plan, how to budget, even how to market oneself). Anyone can use the Government of Canada’s online Better Business Finder tool to see what federal and/or provincial programs they may qualify for. Creators should also reach out to their city’s economic development corporation if they need assistance getting on their feet.

All About Sales Tax

Anyone who makes money in Canada is legally required to pay taxes on their income to the government. Moreover, self-employed Canadians who generate at least $30,000 in gross revenue over four consecutive quarters must begin charging their clients either GST (Goods and Services Tax) or HST (Harmonized Sales Tax), depending on the province or territory where they reside, and remitting it to the government. Before they can do this, however, they need to register for a GST or HST account/number.

Technically, if a music creator makes less than $30,000 in the specified time period, they’re considered to be a “small supplier” and do not need to collect GST or HST. However, they may choose to do so anyway because it will allow them to get back—via “input tax credits”—any sales tax they themselves pay on business-related expenses. It may also be optically advantageous because having a GST or HST number signals to clients that they’re dealing with a professional.

If one meets or surpasses the $30,000 threshold but fails to register for a GST or HST, the government may not come after them right away, but, eventually, they’re liable to incur substantial fines. Similarly, keeping accurate and complete financial records is paramount so the government doesn’t suspect the creator of non-reporting.

GST or HST may not be the only sales tax creators need to collect, however. In BC, Saskatchewan, Manitoba, and Quebec, small-business owners must collect Provincial Sales Tax from clients as well—this is called PST in BC and Saskatchewan, RST (Retail Sales Tax) in Manitoba, and QST (Quebec Sales Tax) in Quebec. In the former three provinces, PST and RST need to be collected immediately and on all sales—there is no minimum threshold. While, in Quebec, the collection of QST follows the same $30,000 “small supplier” rule as GST and HST collection, although all taxes must be remitted to Revenu Québec instead of the Canada Revenue Agency. Creators in these four provinces can register for their PST, RST, or QST numbers through their provincial government’s website.

Why & When to Incorporate

When music creators start their careers, they typically choose to establish a “sole proprietorship,” which is defined as a business that’s owned and operated by one person, and also equated with that person for tax and liability purposes. In other words, the creator and their business are legally one and the same.

Alternatively, a music creator may decide to incorporate their business, making it a separate legal entity, and there are a few reasons for doing so. The most compelling of which is the fact that corporations are taxed at a decidedly lower rate than individuals, which could result in substantial savings for a creator who’s bringing in a fair amount of money. Although, it’s crucial to note that funds need to be extracted from the company in very precise ways—otherwise, the creator may be charged the personal tax rate on what they withdraw. Incorporating may also make it easier to borrow money from financial institutions, it allows the owner to hire staff, if necessary, and it’s an eligibility requirement when applying for certain grants. Another advantage (which is less relevant to emerging creators but potentially helpful down the line) is that, if a corporation is sued for any reason, it assumes any liability while the creator assumes none.

However, all of this comes at a cost—the upfront fee to the government and the expense of hiring a corporate accountant or lawyer to facilitate the process of incorporation can easily amount to a few thousand dollars. Further, a great deal of regular record-keeping and reporting comes with the territory, which means that the music creator will need to either devote a fair amount of time to administrative work, or keep their accountant or lawyer on retainer. And professional fees for corporations are always higher than those for individuals.

So, like many business decisions, the question of whether or not to incorporate becomes one of profit and loss. If owning a corporation saves the creator more money than it costs them (factoring in lost revenue associated with the time they’re spending on administrative work and not their music, of course), then it probably makes sense to incorporate

And how much revenue does a music creator need to be bringing in to reach this point? While there are differences of opinion, the general consensus is that it’s between approximately $50,000 and $100,000 a year

Pro Bono or Con?

It is a foregone conclusion that, at some point in their career—and especially in the early days—every music creator will be asked to work for free. And while there is disagreement among industry players about whether a job without financial compensation should ever be accepted, what is universally agreed on is that some form of value—whether monetary or otherwise—needs to be derived from a transaction for it to be worthwhile.

And that value can come from anywhere—whether it’s meeting and collaborating with new contacts in the industry who may have paid work for you down the road, gaining practical experience working in a new medium or form to help get your foot in a particular door, or even just adding a credit to your name to demonstrate that you’re building your creative output. And if you agree to do a favour for someone else who’s just getting started (e.g., a student or early-career filmmaker), then, one day, you may be able to ask them to return it.

In fact, when a creator is just starting out, working for no pay may well be necessary if they want to advance their career. And the decision to “say yes to everything”—until they can afford to begin saying no—if often a strategic one. Taking a hard line on money early may actually make it harder to come by later. 

This is not to say, however, that creators should allow themselves to be taken advantage of. They certainly shouldn’t sign away the copyright or any other substantial right in their work if they’re not being paid (and they should beware contract templates with boilerplate clauses that outline such terms). If they don’t believe they’re being respected, they notice that a project is riddled with red flags, or they simply don’t see any good coming from a particular collaboration, they should of course decline the job. Moreover, if they know that a client who’s asking them to work for free can actually afford to pay them but simply doesn’t wish to, then accepting that job could set a bad precedent for the other creators the client reaches out to in the future. 

If and when a creator does accept a job for no pay, they need to ensure the client understands that the project is not their first priority, and while they’ll certainly take the work seriously and do their best to meet all deliverables, they may have to shift focus to any paid work that materializes in the middle of the pro bono project. 

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