The first thing you have to remember is that income tax and HST are two separate things. A grant is subject to income tax, but not to HST. So when calculating your income for the $30,000 HST threshold, or when completing an HST return, you don’t count grants as part of the relevant income. But when calculating your income for income tax purposes, you do.

The HST is a ‘goods and services’ tax, and a grant is not considered a payment for goods or services because the payer receives neither from you. Yes, you create an artwork, but the work doesn’t then belong to the grantor (that’s why they call it a grant, not a sale).

Meaning that even though they gave you money (which is taxable under the income tax system, and shows up on your PERSONAL tax return), they haven’t made a purchase from you, so it doesn’t count under the HST system and doesn’t show up on your HST return.

An artist fee is different. There, the payer is paying you to receive a service. They are the beneficiaries of your services or the recipient of the artwork. In that case they HAVE made a purchase from you, and that counts toward the $30,000 HST threshold and would show up on both your personal tax return, and your HST return.

Grants are automatically entitled to a $500 deduction. In other words, it’s assumed that up to $500 of the grant is definitely going to end up being used up in the course of the project, so you can opt to take this deduction and only pay income tax on what’s left.

However you also have the option to deduct the actual amount of money spent on the project. For most artists, this is a bigger deduction and worth doing. In that case, you can report your grant as part of your income on form T2125 in your tax return, and itemize your expenses there.