Question: In 1999, after I retired, I started writing a book. It was finally self-published in 2008 through a Print-On-Demand company and I’m now suddenly concerned with the tax ramifications. I have not found any tax information for authors, but your site has given me a little hope in finding how to proceed.
Your book is a business and if you plan on writing more books, the cost incurred is part of the same business. Any expenses for the business may be deducted from your income in the year incurred (and any revenue is added to income).
For your current book, you should include the money collected from sales in your income and deduct costs for advertising and the print on demand costs.
You may be able to deduct reasonable expenses for operating an office at home: telephone, internet, mortgage interest, utilities etc. Reasonable normally means the use of the space in relation to the home and the amount of time the space is used for business. For example, if I have 5 rooms in my home and I use 1 room for a dedicated office that is used only for business, I may claim 1/5 of the above expenses. I would not suggest you claim capital cost allowance against your residence as it can result in capital gains in future.
For software, I would suggest QuickBooks and use a manufacturing template to start. You should also enter the full expenses into QuickBooks (i.e. total home expenses not the 1/5th in the example). It makes it easier to capture expenses in full and then break out the deductible home expenses later both for a financial statement and for taxes.
You should also have an accountant prepare your taxes for the first year at least. You’ll get some tips and pointers that will probably add more value than its cost.
Finally be aware that if you do not have revenues for a period the CRA may challenge whether you are running a business. Some cases I have read concerning authors & musicians looked at whether what they were doing was a business with the intent of generating income or a hobby. What the CRA will look at is whether you treated your pursuit as an author as a business. This will boil down to you keeping books & records, marketing and product development.
Keep records and document as much as you can.
Thank you very much the rundown on writing as a self employer. I am quite intrigued with your mention of writing as a hobby. This is exactly how I approached the project in 1999, and one reason why I never even thought of declaring expenses on my tax returns for the past 9 years. The other reason is that I was completely immersed in research and learning about writing as I went. The book went on sale early in 2008, a year in which my only expense was the purchase of a test copy which I had to deem acceptable before the company would offer it on their site. Anyone buying the book generated a print-on-demand order at their own cost. I simply received quarterly royalty payments.
So, if a person makes a few thousand dollars with a hobby, can they legally avoid it being taxed somehow?
Actually if you are earning income, you have a business and it is taxable! If you have a business and it does not make money and you only claim losses then you will eventually face a challenge from the CRA. You can’t avoid paying taxes.
The 9 years prior would probably have been a hobby. A hobby can turn into a business and a business can turn into a hobby. But this only an important distinction when your expenses exceed your income.