Grants received by artists can be either taxable or tax-exempt. The taxation of grants depends on three factors: the purpose for which the grant is awarded, who or what organisation awards the grant, and the total amount of grant or grants received by the recipient in a year.
Working, project or hybrid grants?
The basic grant types are project and working grants. There are also hybrid grants, which means the recipient is awarded a grant to cover both living expenses and other expenses by the same decision.
The purpose of a working grant is to cover the artist’s normal living expenses, including housing, clothing, food and recreational expenses. Project grants, on the other hand, are awarded to fund a specific project, such as a trip or an exhibition.
The type of the grant is important when reporting the grant to the tax authorities.
Project grants are not taxed if the grant has been used in full for its intended purpose or if the recipient can prove that the grant has been fully used by presenting receipts equivalent to the amount of the grant.
For working grants, the taxable proportion depends first and foremost on the organisation that awarded the grant and, to a lesser degree, on the total amount of grants received by the recipient in a year. Working grants include grants such as the state artist grants (awarded for a period of six months to five years), public display grants and annual grants awarded by private foundations.
If you have received a hybrid grant, you must submit a clarification to the tax authorities explaining which part of the grant falls under working grant and which part falls under project grant.
Was the grant awarded by a public entity or someone else?
The person or organisation awarding the grant is directly linked to the taxation of the grant:
Grants awarded by public entities are tax-exempt with no upper limit.
Grants awarded by others than public entities are tax-exempt only to a certain limit.
Public entities include governments, municipalities, the Nordic Council, municipal art committees, government science committees, communities of municipalities, the Arts Promotion Centre Finland, the Evangelical Lutheran Church of Finland, the Orthodox Church of Finland, Kela and the Bank of Finland.
A foreign government or foreign public entity is not considered a public entity under the Income Tax Act (Tuloverolaki, 1535/1992). Grant-awarding private organisations include the Finnish Cultural Foundation, the Kone Foundation, the Alfred Kordelin Foundation, the Swedish Cultural Foundation in Finland, the Oskar Öflund Foundation and other private foundations and organisations. Government-funded universities and other higher-education institutions are classified as private organisations.
For grants awarded by private organisations, the proportion of the total net amount of grants and awards exceeding the amount of the annual state artist grant is taxed. This limit is calculated as follows:
The annual combined amount of grants and awards (grants awarded by public entities + other grants + stipends and grants awarded by the Nordic Council + study grants + awards) – expenses incurred in acquiring and maintaining the income
= the net amount of grants, which is compared with the annual amount of the state artist grant
You must pay taxes on grants if the grants you have received from both public and private organisations exceed the amount of the annual state artist grant after the deduction of expenses. You can check the amount of the annual state artist grant from the Arts Promotion Centre website.
NB! Project grants are not included in this calculation on the condition that you can present receipts or other proof of expenses equivalent to the total amount of the grant.
Reporting grants in your tax return
You must always report grants – as well as stipends and awards for merit – in your tax return and specify the type of the grant. Grant recipients are required to report any grants during the tax year in which they are paid.
If you fail to report a grant to the tax authorities, they may impose higher taxes than you would otherwise have had to pay, due to the lack of accurate information. In a situation like this, a tax-exempt grant may be taxed or business expenses may be allocated to the grant that should be allocated to another type of income.
Grants awarded and reported by private foundations can be classified as taxable income in a pre-completed tax return even if they fall below the upper limit of the state artist grant mentioned above. These grants are only taxed if they exceed the above-mentioned upper limit.
If the total amount of grants exceeds the amount of the annual artist grant, the excess of the grants awarded by private organisations is taxable but also eligible for tax relief at this stage.
For more information in Finnish about reporting grants in your tax return, refer to the Tax Guide for Professional Artists published by the Artists’ Association of Finland.