Closing tax loophole needed to save local media by Ian Morrison
Dec 4, 2017
Source: Toronto Star
As alarm bells ring across the country about the troubled state of Canadian media and local news, policy-makers have overlooked a surprisingly obvious and accessible fix.
The recent shuttering of dozens of local newspapers in Ontario and British Columbia accelerates a persistent decline of local media across the country. And more devastation lies around the corner.
Recent studies predict that up to 30 private local TV stations in small and medium markets may well fade to black by 2020 in places such as Kamloops, Kamouraska and Thunder Bay without policy intervention from the federal government.
When a station closes in a large community, viewers can always turn to alternative sources of local news, but outside our biggest cities, losing the only local television station deprives citizens of their most important source of local content — all the more serious if their local newspaper goes bust.
Local TV and newspapers are the very organizations that produce quality journalism, the kind of fact-checked, independent information that is one of the foundations of any successful and enduring democracy.
What’s killing them? It boils down to a shift of advertising to digital media, such as Google, Facebook, YouTube and many other online platforms, most of which reside outside Canada.
Faster and in larger numbers than Canadian snowbirds in winter, the lifeblood for our Canadian media is flowing south of the border.
This is not the first time media in our country’s history have faced a financial crunch.
In the 1960s and 1970s, ad revenue was bleeding from Canadian print and TV outlets to border stations and publications in the United States. In response, Parliament acted boldly by preventing Canadian advertisers from writing off at tax time the cost of buying ads in foreign-owned publications and broadcasters as a business expense.
Our political leaders of the day closed this tax loophole by enacting Section 19 of the Income Tax Act.
Section 19 provides that advertising expenses in newspapers are tax deductible only if the ads are placed in an issue of a newspaper that is edited and published in Canada, and owned by a Canadian citizen or a corporation that is effectively owned by Canadians.
Broadcast advertising expenses are not tax-deductible if the advertising is placed on a station or network whose content is controlled by an operator located outside Canada and if the advertising is directed primarily to a market in Canada.
The immediate result of this change was to reduce Canadian spending on United States border TV stations by approximately $10 million dollars, about 10 per cent of that year’s total TV advertising buy. Since then — and until recently — section 19 has underpinned the viability of Canadian radio, television, newspapers and periodicals — keeping Canadian advertising revenues largely in the hands of Canadian media players, who employ Canadian journalists and inform citizens in our democracy.
But early in the 21st century, internet advertising began to take off in the Canadian market, growing exponentially from $562 million in 2005 to $5.6 billion in 2016 — and 90 per cent of it — more than $5 billion — leaves the country.
Four decades ago, the Canadian government recognized the need to provide an incentive for Canadian companies to advertise on Canadian rather than foreign media by closing the tax loophole in the Income Tax Act that permitted advertisers to deduct the cost of ads purchased in foreign media outlets.
It is time these same provisions were applied to internet media. Such a move would result in an influx of more than $400 million annually in incremental advertising revenue for Canadian media, including television and print, and benefit the federal treasury by an estimated $1.15 billion in additional corporate tax payable annually.
This solution has been hiding in full view in the Income Tax Act, while the local news crisis intensifies.
It’s time for the Trudeau government to close this loophole. The future of our local media and democracy itself may hang in the balance.