Canada Revenue Agency and the Digital World

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As the Globe and Mail reported recently, the Canada Revenue Agency (CRA) has started monitoring social media influencers and video-game streamers to ensure that such activities as paid endorsements and sponsorships align with annual income tax documents. At this point, the CRA is only monitoring influencers and gamers who earn more than $500,000, but this practice is seen as the first step toward a broader CRA enforcement plan to deal with these still-emerging industries.

Background

Influencer marketing has continued to trend strongly in 2020. Some recent statistics from the Digital Marketing Institute tell a compelling story:

  • 70 percent of teen consumers trust influencers more than traditional celebrity endorsements
  • 86 percent of women use social media platforms for purchasing advice
  • 49 percent of consumers self-report depending on influencer recommendations.

And the influencer market will only become more lucrative in the coming years, with 22 percent of marketers already reporting that influencer marketing is the most cost-effective method for winning new customers, and 63 percent say they plan to increase their budget in this sector in the coming years.

How much money is being made by social media influencers? Consider that long-time social media queen Kim Kardashian-West reportedly makes from $300,000 to $500,000 for a single post. Some of the most heavily-endorsed YouTubers like Daniel Middleton and Canadian Evan Fong reach estimated annual incomes in excess of $15 million. Even a cursory look at these figures gives a better sense of why government tax agencies might be expanding their programs to monitor such activities.

While not all Canadian gamers and influencers reach Fong’s stratospheric numbers, influencers like Jillian Harris, Genie Bouchard (Instagram), and Azra Bajrami (YouTube) are reportedly well into seven-figure revenues annually.

As Ted Gallivan, the CRA’s assistant commissioner comments in the Globe report: “The income ranges are quite surprising. It’s very surprising what people post on their Facebook pages, on their Twitter pages. And so, there’s a lot of open-source intelligence that has led us to contact certain vendors.”

Gallivan stresses that the CRA is not undertaking this comprehensive monitoring as a punitive measure. Given that many influencers are relatively young, educating them about their tax obligations and compliance responsibilities is an essential first step.

New Tax Funding

In addition to monitoring influencers and gamers, the CRA is also preparing for the roll-out of new digital tax rules scheduled to roll out on July 1, 2021. This new law requires such global digital giants as Google, Netflix, and Airbnb to collect federal sales tax from Canadian consumers. This collection alone is projected to add $1.2 billion to Canadian tax revenue over the next 5 years.

This flurry of activity also includes an announcement of new funding of $606 million to be dispersed over five years in support of programs targeting international tax evasion and aggressive tax avoidance. This topic has been well covered in this blog in recent weeks.

Stay tuned to this blog for updates and other Canadian tax news as it appears.

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