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Canada Urged To 'Modernize' Internet Advertising Tax Rules

by Mike Godfrey, Tax-news.com, Washington

24 January 2017


A new report by advocacy group Friends of Canadian Broadcasting calls on the Government to close a loophole it says allows the tax deductibility of advertising expenses for foreign internet-delivered media.

The report argued that "advertising purchased on foreign internet-delivered media that act as broadcast and newspaper services should not continue to be deemed a deductible expense under the Canadian Income Tax Act (ITA)."

"While foreign services may provide access to Canadian creators, allowing tax deductibility for spending on such entities results in unfair competition with Canadian equivalents and lost revenues and jobs, as well as losses of Canadian programming and news," it added.

Section 19 of the ITA establishes the tax deductibility of expenses incurred in advertising in the Canadian newspaper press, where the adverts are directed primarily at the Canadian market. It states that no deduction shall be made in respect of "an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking."

However, a 1996 CRA opinion stated that "a website is not a newspaper, a periodical, or a broadcasting undertaking." According to Friends of Canadian Broadcasting, "the effect of this ruling is that all internet advertising is tax deductible, regardless of the nationality of the site."

Friends of Canadian Broadcasting argued that technology has overtaken the CRA's opinion. The group said that online advertising spending in Canada has grown from CAD562m (USD423.3m) in 2005 to a projected CAD5.6bn in 2016.

It claimed that re-interpreting Section 19 would result in between 50 and 80 percent of current internet advertising expenditures being deemed non-deductible. This could increase federal revenues by up to CAD1bn a year, it said.

TAGS: compliance | tax | tax compliance | commerce | internet | e-commerce | Canada | tax breaks | trade association | trade | services

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