book royalties: "investment" or "work"?

[scrubbyfish]

How does your region treat writing income/royalties at tax time? There seems to be a kerfuffle about this up here in Canada. It's a massive difference to % owed.

When is it payment for writing work?
When does it change to an investment/passive income?

[SeattleCPA]

In US, once you've written much, you're a business and you pay not only income taxes but self-employment taxes on the profit.

Back when I wrote a lot (including some of the very first "For Dummies" books) I hung around with a number of writers. People often didn't do their accounting right on this... thereby avoding the self-employment taxes.

[scrubbyfish]

Thanks, SeattleCPA :)   

That we'd pay tax on the income is clear. However, in Canada, "work" is taxed much lower than "investment" is, and there is confusion about which of these royalties from writing is.

[scrubbyfish]

Examples of said kerfuffle:

http://ottawacitizen.com/entertainment/books/opinion-cra-needs-to-get-it-write-when-assessing-authors-advances

https://donwrites.wordpress.com/2012/03/03/income-tax-tip-for-canadian-writers/

But, having done gazoodles of research on this count now, I have come to my conclusion and can explain to my tax accountant.