When we think of influencers or bloggers and the law, the first topic that comes to mind is often the industry’s clash with Competition Bureau Canada, or it’s American equivalent — the Federal Trade Commission. Late last year, Competition Bureau Canada released its new guidance on how influencers must display whether a business sponsored a particular post. However, social media influencers and bloggers may just as commonly be engaging in tax avoidance as they are possibly infringing Canadian competition laws. Professor Li’s recent post concerning the Tax Court of Canada’s recent determination of whether and to what extent the Cirque de Soleil’s founder enjoyed a taxable benefit from a space adventure is a reminder about how personal benefits well can be income.
Influencers and bloggers are commonly not full-time businesses, although they can be. Influencers and bloggers can generate revenue through selling ad space on their blogs or social media profiles, creating sponsored content or affiliate marketing arrangements, or through other remunerative and potentially lucrative deals. However, this isn’t where the tax issues reside. The influencers I know understand that they need to declare any money that comes in to the Canada Revenue Agency.
The tax avoidance, possibly unwitting, usually occurs when influencers receive free products. Businesses, in addition to or in lieu of payment, commonly send “free” makeup and clothes, provide “free” meals, and provide other “free” products or services to influencers to promote their products. This can be seen as, indeed has the characteristics of, a barter transaction, where the ostensibly “free” product or service is actually or effectively provided in exchange for the influencer or blogger’s promotion – advertising and endorsement. This barter transaction may result in tax liabilities if it’s part of an influencer’s or blogger’s “business operation”.
Many bloggers and influencers don’t know (or may choose to ignore) that they may have to disclose these “free” products to the CRA. If an influencer is treated to a meal at a restaurant, where the meal would usually cost $50, in exchange for the restaurant receiving exposure on the influencer’s platform, the CRA may consider that $50 or some part of it, or some other measure of its value, to be income that is taxable. If this is so, there’s an obligation to pay income tax on it, as well as possible HST/GST consequences. It would not be surprising if businesses providing the free meal or product claimed the meal or product as a marketing expense on their business tax returns, as well, also with attendant with HST/GST consequences.
In my awareness (and in a “parallel life”, I am a food blogger) bloggers and influencers are receiving no shortage of “free stuff”. One part-time Instagram food blogger I spoke to has just under 10,000 followers. He told me that in one year he received over $20,000 in “free” meals. He kept track of each free meal in a spreadsheet with an estimated fair market value of each meal. This didn’t even include the endorsements he was paid to do, which approximated $5,000. Influencers in his position also commonly claim expenses against their paid sponsorships and register a business name. This would make the blogger or influencer to be much more likely to be considered and treated for tax purposes a business operation.
However, other bloggers and influencers may have had no intention to “profit” and are only running their blogs or Instagram profiles as a hobby. They may receive significantly less free items with absolutely no paid product promotions. It’s quite complex whether the CRA would still consider these individuals a business operation and therefore liable to tax. Presumably, a consideration would be the symmetry of all the elements of their operations, including whether they sought to reduce income from other sources with expenses incurred in the blogging enterprise, how that enterprise is “held out” to the public and the like. In some ways, this is a variation of more mundane “work at home” and “business as a sideline hobby” situation in which “home office”, income recognition and related considerations have been considered by the tax authorities and the courts.