Re: Escorts and Taxes ???

[Mickey]

It is assumed by most people, myself included, that escorts do not claim their income from the business and hence do not pay taxes on this money. I am curious as to: a) whether or not this is indeed the case, b) whether or not it is feasible for escorts to report their income without putting themselves at risk of prosecution for prostitution related offenses, and c) any other tax and prostitution related tidbits or stories that anyone wishes to relate.

Also, Asia Lee mentioned something in another thread about individual escorts setting themselves up as a company to avoid taxation problems and was wondering what she meant exactly.

And no, I do not work for Revenue Canada or any other tax collection type authority. I am simply curious.

[Gentle Ben]

Although it is legal to communicate for the purposes of prostitution in a private place other than an automobile, or your residence, I beleive it is still unlawful to live off the avails of prostitution, so given that, if I'm correct, there is possibility of legal ramification

[Sheik]

A smart SP will declare some form of income and pay taxes on it.

But really, its none of our business, remember that.

[E_B_Samaritano]

Guys,

There is no reason escorts can't report THEIR OWN income and pay taxes on that income. They are adult entertainers, a profession which is legal even in the intolerant US. Since prostitution is legal in Canada, income gained from it cannot be disqualified. Other than a local licensing issue, which is a nonissue in Toronto, there can be no legal reprisals on the lady because of her profession. As a self employed person earning cash, she's probably more subject to an audit. But she's in a heap of trouble if having reported no income she is "life style" audited. Cars and homes can be confiscated in those situations. Being self employed, she is entitlled to certain deductions for her business expenses, for instance auto depreciation/expense, costumes/clothing, yes even BOLT ONs and cosmetic surgery have been allowed as a legitimate deduction for recognized professional dancers by tax courts in the US. I believe your tax codes mirror ours with regards to business expense deductions. The rub is that they will have to pay quarterly installments on estimated income since no witholding is taken from their earnings. Complaince with this can be a problem for those who are poor money managers. Ladies who work for agencies will need to be extra careful so as to not indicate that their source of income is being paid by an agency unless they recieve a statement of wages paid by that agency. I advise anyone thinking of doing this to retain competent tax attorney advice.

"Living off the avails" pertains to a third party (agent or pimp) making money from an escorts' efforts. The test of this is loosely defined, but it can accrue from running a "bawdy house" or running an agency while excercising influence over the provision of sexual services of the ladies, or in the usual case of street corner pimping. Agencies sell time and will if under LE heat, avoid discussion of sex acts with the clients. The enforcement of the laws are left to the discretion of local authorities.

I don't see any apparent tax benefit bestowed on individual incorporation unless their is income from an extracuricular business enterprise such as website sales. The amount of income, if large could make a difference in tax treatment as well. The usual thing would be to file as a self employed person and pay quarterly tax on estimated earnings. Perhaps having a "business name" is a matter of privacy when filing returns. I believe those would be filed under a Federal/Provincial Tax ID number as opposed to your individual Social Insurance Number as you call it in Canada. I do not believe that establishing a business name is the same legal posture as incorportation. I hope there are some CPAs or tax pros here that can speak to that.

EBS

[Mickey]

Thanks to all who posted, especially EB for your informative post.

Any more info would be appreciated.

And Sheik,

I am not attempting to be nosey or intrusive with my question. I am not expecting any SP to come here and detail her own tax situation for the rest of us. I am simply curious about the issue.

[johnhenrygalt]

As a tax attorney, I can confirm that KarateKid is 100% right. I would only add that if the SP is doing $30,000+ of business annually (gross), she is obligated to register for GST, and collect and remit GST from clients. The flip side is that GST paid on business expenses qualifies as a credit.

Moreover, the Income Tax Act imposes a positive obligation on all persons operating a business to keep and maintain accurate books and records.

I'm not aware of the Canada Customs and Revenue Agency targeting SPs, but I do know a tax attorney who has defended various clients in the industry from tax assessments (strippers, SPs, SC owners), so I can say that assessments do occur.

The reality though is that the vast majority of cash transactions (in all industries) go unreported and never get assessed. And I would venture a guess that most businessmen who use SPs pay with funds generated from their own cash transactions. That way they can blow $1000s on SPs without any unaccounted cash withdrawals showing on bank statements (which a nosy wife may examine).

[spear]

I certainly agree with what the professional financial advisors say about reporting income. Illeagal or not you are obliged to declare it and it is brought into your income. As to the comment about "living off the avails, as a matter of fact it is "living ON the avails." You can look it up in the C.C.C. The accompanying description of what that means is vague, and quite rightly so, but in Ontario it is generally meant that the Crown has to show a "parasitic" element to the relationship, i.e. pimping. Still, the law is in a state of flux and subsections to the Code can draw in a person who 'directs',(i.e. Yvette, you go here, Shawna, you go there), .

We pays our money,
We takes our chances.

[syn]

there seems to be a lot of support for declaring an sp's income.

if an sp is a university student who is recieving OSAP or she works at a legitimate job earning some taxable income ... in addition to working as an sp to supplement her income - what is the benefit of declaring the income earned in the 'biz'? [other than establishing a credit history]

i would imagine the chances of rev canada poring over her tax returns as very slim.

i worked as an sp through 7 years of university ... every once in a while i would worry that someone would wonder how i bought a house and paid my living expenses while existing merely off my student loan payments and summer job earnings ... but i thought that it would be unlikely that i would be audited ... and if i was - i was prepared to deny any form of additional income - though i may have stated that i had a boyfriend who gave me money on occassion.

i was always discreet when working. i did not tell family or a lot of my friends ... and could not envision writing 'sex trade professional' on my tax return! [or service provider or hostess or escort]

syn

[Sheik]

You can call yourself a self employed consultant.

The benefits of declaring an income far outweigh the advantages of not declaring any income.

First off, it builds your credit history which is very important. A good credit history gets you better service from anyone that loans money. Because I have an excellent credit rating, I am able to get loans or mortgages at one percent above prime if not lower and todays prime rate is 3.75%

Secondly, declaring an income and paying taxes helps protect your future by making you eligible for CPP and other government assistance. It also helps to pay for social and health services. SP's do get themselves checked fairly often and if they dont declare income and pay taxes that is literally stealing services from those that do. It also helps pay for the protection upkeep of the country you live in.

Declaring an income of $75,000 a year allows you to contribute money to your RRSP tax free to the maximum allowable contribution of 18% or $13,500. Which helps you with your retirement planning.

If you make more than $75k a year, you can hide that by socking away the extra $$ into safety deposit boxes and then take a year off or retire early and still declare an income.

The only advantage to not decaring an income is just that, no taxes paid except for the things you pay cash for at the stores. The disadvantages include seizure of all your assets, jail time for tax evasion. The key is to live modestly and watch what you spend. It still shocks me to this day at how much $$ the ladies in this business actually blow without thinking of their futures. Sometimes its drugs, sometimes its alcohol but most of the time its just living beyond their means. A classic example is how hungry the dancers are at the end of the months for $$. This is not meant to offend or single out anyone but just something that I have seen over the years I've been exposed to those in the business. There are some ladies out there that are very smart with their money and living well within their means. Building up a sizeable nest egg before they are 35.

[Sheik]

hmmmm, I'm sure the ladies realize that its not safe to put all their eggs in one basket.

One step at a time, offshore banking is a little bit beyond most of their means. I'm sure you are also aware that the banks are required to report transfers of funds exceeding certain amounts. I think it was 10g's last time I checked. I can remember one time I snuck out of the country with a large sum of cash to deposit at an offshore bank. I was sweating bullets when I went through customs.

Gold is a good idea as are gemstones and other precious materials. However when it comes time to sell it, paperwork ensues and it gets reported.

Art is a grey area because of forgeries and market swings.