Question - Mark Jacobs, a well-known Toronto artist, signed a contract with the University of Toronto to beautify the campus. Mark spent all year completing the beautification. During that time, he enhanced the campus with his own artwork, bought pieces at local auctions, and commissioned pieces by other artists.
The university restricted Mark's choice of art to Canadian artists. The university also controlled the colour schemes and the types of art selected (for example, paintings, sculptures, or murals) for the various locations on campus. However, within these requirements, Mark was permitted to exercise artistic discretion over the actual pieces chosen. This gave him a great degree of latitude over the beautification of the campus.
Mark could produce the art himself, purchase or commission another artist's work, and focus on any theme he desired. He worked at his own studio and used his own tools for his own productions. If the University did not like the art he produced or bought, he was not reimbursed costs and had to sell the art on the open market. The University gave him access to an office to allow him to meet with other artists he was considering for the project. A representative from the university was not required to be present with Mark in his meetings with other artists.
During the year, Mark channelled all his energy into the university's beautification and did not produce art for outside clients.
Required - What is the proper tax treatment for Mark's income from this contract? Explain your reasoning.