As of 2017, the Canada Revenue Agency (“CRA”) has maintained an online guidance document entitled “Compliance in the Platform Economy” that focuses on taxpayers who earn income through smartphone and internet applications. In this document, CRA identifies four categories of "platform" income:
- Sharing economy: Income from platforms like Uber (vehicles) and Airbnb (real estate) that allow users to leverage the use of their assets.
- Gig Economy: Income from platforms like Fiverr that allow users to offer short term working arrangements.
- Peer-to-Peer (P2P): Income from platforms that enable the direct sale of goods between individuals such as eBay and Etsy.
- Social media (or social influencing factors): Social media platform revenue from ads, subscriptions, product placement, and product promotion such as YouTube, Instagram, and Twitch.
This bulletin provides more details on the fourth category: Social Media Influencers. This is especially true given comments from CRA officials in late 2020 that CRA will step up its enforcement efforts against influencers making more than $ 500,000.00 per year.
Since making money as an influencer on social media platforms is a relatively new way to generate income, the specter of increased enforcement should raise important questions that any aspiring or existing influencer should consider.
This bulletin specifically addresses the following topics:
- the different forms of income that individuals can earn through one or more social media platforms;
- The rating agency's position on handling certain types of income inclusions and exclusions relevant to social media influencers;
- GST / HST Considerations for Social Media Influencers; Issues that may arise when social media influencers travel or provide services to jurisdictions outside of Canada; and
- The CRA's increased enforcement efforts against social media influencers and how the risk of such enforcement efforts can be mitigated.
How people generate income through social media
Social media influencing has developed into a very large company in recent years. In early 2021, YouTube CEO Susan Wojcicki commented in a letter to developers that the platform had paid out more than $ 30 billion to developers over the past three years, and that those amounts will only increase as more people are online -Change ads. Programs such as YouTube's “Affiliate Program”, which allows developers to share in all of the platform's advertising revenue, have been expanding their membership at a rapid pace.
Canada has been home to many successful influencers (also known as "content creators"). Media coverage of the announcement of CRA's enforcement efforts found that Evan Fong of VanossGaming, a video game streamer with over 25 million YouTube subscribers, made $ 17 million in 2018. A 2019 report from the Audience Lab of the Faculty of Communication and Design at Ryerson University (PDF) found that 40,000 Canadian YouTube channels were large and popular enough to participate in the platform's affiliate program, which generated the equivalent of 28,000 full-time positions in Canada . These numbers, and those of influencers working on other platforms, have almost certainly continued to grow since Ryerson University reported these numbers.
The variety of possible models for building these online-based revenue streams varies greatly. Successful YouTube channels that are generating significant revenues include everything from successful launches of offline brands with new online identities (e.g. various cooking magazines that have launched video channels) to smaller, independent companies producing content (e.g. (E.g. independent film studios that have turned to YouTube) increase their audience) for people who work alone (e.g. vloggers). Each of these YouTube channels could essentially be classified as their own business, which begs real questions about how this business is best organized not only for practical reasons but also in terms of ensuring a good tax bill. These can be complicated questions, especially considering how quickly smaller channels can go "viral" and suddenly generate significant revenue.
However, YouTube is not the only place where people get income from content, personal branding, and the many other activities commonly known as "influencing" the Internet. Instagram and Twitch are other great examples of platforms hosting influencers that help them build significant audiences (and there are plenty of others, both large and small).
In general, there are four main sources of income that determine an influencer's income. Each platform is most closely related to one or more of these revenue streams, but most influencers make money from a combination of sources, either using multiple tools on a single platform or building their brand across multiple platforms.
Programmatic ads
YouTube's advertising algorithm is the best example of programmatic ad technology that generates direct revenue for content creators. YouTube's programmatic ads are served by AdSense, Google's advertising technology. AdSense will choose the type of ad to display based on what it knows about the viewer of the content. This means that the content creator only needs to create one ad slot in their YouTube video and YouTube will automatically place an ad tailored to the viewer. YouTube and the content creator then share any revenue the ad generates, usually based on the viewer's response to the ad (i.e., one "click" generates revenue). The revenue generated by this stream therefore depends on the number and type of viewers that the content creator can attract with his content and all relevant keywords.
Memberships and tips
Twitch is known as a platform for video game streaming (although the choice of content has become more diverse in recent years). Twitch and similar platforms are based on a revenue sharing model that allows streamers to share revenue with the platform earned on subscriptions to their content that their viewers have purchased. Twitch enables viewers through its affiliate and partnership programs to pay certain streamers a monthly fee to access premium features related to such streamers, such as: B. ad-free streams and unique interactions. A portion of the subscription fees then go to the streamers to encourage them to continue creating content to get viewers on Twitch.
Twitch also enables a second, related form of income: "tips". Viewers can pay content creators directly through the platform. Similar to other sectors of the economy, the reasons people tip are idiosyncratic. Nonetheless, the culture of rewarding streamers in real time for certain actions, interaction with their audience or just as a thank you continues to grow on Twitch and other platforms.
Direct sponsorships
Sponsorship can be a very different category as it can include anything from embedded content (such as "This video is being shown to you by" ads) to specially produced content to highlight an advertiser's products and services. What sets sponsorship apart from programmatic ads is that the influencer and advertiser work directly together to serve the ad. There is no platform broker to do the job for them. Payment in these situations is not limited to cash either. A sponsorship can give the influencer special access to products at reduced prices or commissions on linked sales instead of simply making a cash payment.
An important point to keep in mind about sponsorship is that the Canadian Competition Bureau has made it clear that these types of relationships must be disclosed under Canadian law. According to the Deputy Commissioner, "(i) If an influencer receives payments in the form of money, commissions, free products or services, or discounts, or if they have a personal or family connection with the company, they must share that information with consumers".
Off-platform sales
Finally, there is an aggregate category of other types of income influencers generate from their online content creation. This can include anything from merchandising (since many influencers have online stores that sell branded clothing and other goods) to offline experiences (like meet-ups, concerts, or other events with tickets) to offline collaboration with brands .
Tax issues for influencers
Successful influencers are likely to have complicated personal tax situations as they generate income from several different streams, many of which raise difficult questions about possible inclusions and exclusions. They can also choose to earn their income through a corporation, which creates complications in paying corporate taxes and tax problems in getting the money for their own personal use (e.g., by paying a dividend). In general, unless they form a corporation, influencers are considered sole proprietorships who generate business income. This means that they are required to document their income and expenses and contribute to the Canadian pension plan at the appropriate level.
While this bulletin is not intended to be exhaustive, below we summarize some of the key considerations influencers should keep in mind when planning their tax strategy.
Income inclusions and exclusions
Inclusions are taxable amounts that increase a taxpayer's income for the year. According to the CRA's Compliance in the Platform Economy document, income inclusions for influencers can be both monetary and non-monetary, including, but not limited to:
- Subscriptions to channels;
- Advertising (clickbait and brand advertising);
- Sponsorships;
- Calls to action;
- Sale of goods;
- Tips;
- Gifts;
- Donate;
- To travel; and
- Reference codes.
This list raises specific questions about the non-monetary compensation an influencer might earn for their services. CRA has made it clear that "barter transactions" – when two people agree to a reciprocal exchange of goods or services and make that exchange (that is, usually without using money) – are taxable as are their cash equivalents. Influencers need to carefully consider whether they have an exchange income to report and, if so, how to evaluate that income. For example, an influencer who accepts a free trip in exchange for promoting a travel company on their Instagram page must include the corresponding present value of the trip in their taxable income. This could create problems as the influencer may have a tax liability on such a transaction but has not made any money to use to pay that tax liability from such a transaction.
Deductions, on the other hand, reduce a taxpayer's annual income. Money spent in the interests of income can usually be deducted from gross income. CRA directs influencers to their general business expense guidelines to determine what expenses are deductible. Some of the ones listed online are:
- Advertising;
- Establishment costs;
- Bank charges;
- Office expenses;
- Rental fee;
- Salaries of employees; and
- Deliveries.
Each of these categories is subject to certain rules (i.e. the technology used to create content, such as cameras, can be treated as not immediately fully deductible capital by the rating agency), and there are many others that may apply in certain circumstances. Maximizing the amount of available deductions appropriately can quickly become a complicated question.
GST / HST
Anyone who earns more than $ 30,000 annually making "taxable supplies" in the course of their business must register with CRA and begin collecting and paying GST / HST (sales tax) to the CRA. A "small vendor" earning less than $ 30,000 can voluntarily choose to register and collect sales tax. CRA maintains online guidelines that define these terms for the purposes of GST / HST. However, most goods and services are subject to VAT. CRA has also provided guidance on when a company should register.
Registering for GST / HST is an administrative burden, but has the advantage that the taxpayer can apply for "pre-tax credits" – credits that the taxpayer can use to get back the sales tax they have paid on the expenses they have paid while earning income .
This can be a complicated problem for an influencer as some goods and services are exempt from sales tax and others have a "zero rating". Both treatments of goods and services impact taxes to collect, remit, and pre-tax credits for claimed tax credits. Influencers should also be careful to keep adequate records (e.g. bank statements, receipts) documenting any form of income they have generated through their efforts (monetary or non-monetary) to ensure they are receiving the Meet the evidence requirements of the rating agency.
International tax issues
Influencers also need to be aware of the international dimension of Canadian tax law. If they travel a lot, there may be issues with whether or not they are a Canadian resident under the Income Tax Act. Similarly, income taxes paid to a foreign jurisdiction can generate tax credits that can be used to lower taxes owed in Canada. Anyone who sells goods internationally should also consider what sales tax problems may arise in either Canada or the country they are shipping goods to. In general, accounting issues can also make an influencer's finances more difficult when generating income in foreign currencies (including exchanges) that need to be converted back into Canadian dollars for taxation.
In addition, the Canadian government announced in its autumn 2020 economic declaration that it would introduce a new “digital sales tax” in summer 2021, which will cover the cross-border delivery of digital products and services. Although this new tax is aimed more at platforms than at influencers themselves. The exact effects on influencers will only become clear when the Canadian government releases the final version of this tax.
Enforce taxation on influencers
The CRA has reiterated its intention to step up its efforts to enforce taxation on influencers. Commenting on the Globe and Mail, the CRA Deputy Commissioner said the CRA plans to use "open source intelligence" – a method of gathering information based on publicly available information such as social media posts – to help Identify influencers who may not have adequately paid their taxes. Some influencers have apparently already been identified and contacted using these methods.
That being said, CRA has provided tools to help influencers who may have underreported their income in the past. For anyone (not just influencers) who have previously generated income but not properly reported it, the CRA's Voluntary Disclosures Program (“VDP”) enables taxpayers to mitigate many of the worst consequences of violations. The VDP is available for either income tax or GST / HST. In both cases, taxpayers who inadvertently underpaid their taxes will be exempt from prosecution and may be exempt from paying penalties and partially exempt from interest on the amounts depending on the circumstances.
Taxpayers must contact the VDP and be accepted by the rating agency, which takes into account the circumstances of both the taxpayer's non-compliance (e.g. the taxpayer made efforts to avoid detection, there was gross negligence) and the disclosure . There are five items required to access the VDP. It must:
- be voluntary;
- to be complete;
- involve the application or possible application of a penalty;
- Contains information that is at least one year overdue; and
- Include the payment of the estimated tax liability.
Of course, a taxpayer who believes they have underreported their income would have to consider using the VDP before the credit rating agency begins enforcement efforts against them. This may include a review or review, inquiries or requests for information, or if the credit rating agency has already received information about the taxpayer (e.g. through open source information).
Non-compliant taxpayers are subject to various penalties, including substantial late payment penalties and interest fees, which are compounded for each tax period that the taxpayer is found to be non-compliant. If the credit rating agency determines that the taxpayer has acted grossly negligently, it may impose additional penalties of up to 50% of the outstanding income tax owed and 25% of the outstanding GST / HST payments.
Conclusion
This bulletin outlines the basics of the tax implications and complications influencers face. However, this is a new and rapidly evolving field that is rapidly changing as online platforms change their relationships with content creators and streams of income re-develop (or disappear). Given that the CRA is now turning its attention to enforcement in this area, influencers should make sure that they have properly structured their affairs to maximize their tax benefits.
These are pressing concerns and influencers should consider whether they need professional advice.