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Simple move would support local media and raise government revenues

Jan 23, 2017

For immediate release

Ottawa – A 20th-century CRA opinion is the only barrier to infusing hundreds of millions of advertising dollars into hard-pressed Canadian media outlets and generating up to $1B annually in new federal revenues at the same time, according to a report released today by the watchdog group Friends of Canadian Broadcasting.

Friends is calling on the government of Canada to take a long overdue look at a 20-year-old tax opinion to bring it in line with the 21st-century internet by treating online advertising expenses the same as print or television advertising when it comes to tax deductibility. 

Currently, expenses for ads in foreign publications and TV stations aimed primarily at Canadian audiences cannot be deducted as business expenses for tax purposes.  This rule was established as a means to foster Canadian media decades ago. 

“To level the playing field, Ottawa should close the loophole that permits advertisers to deduct the cost of ads placed on foreign internet media platforms such as Google and YouTube,” said Friends’ spokesperson Ian Morrison.

The loophole Friends is urging the government to close is based on a 1996 opinion in which the CRA decided that “a website is not a newspaper, a periodical or a broadcasting undertaking.”  The effect of this ruling is that all internet advertising is tax deductible, regardless of the nationality of the site.

Technology overtook that CRA opinion long ago, a reality that is reflected by other authorities.  For example, the CRTC – the body charged with interpreting the meaning of broadcasting in Canadian law – determined long ago that broadcasting over the internet is indeed broadcasting, since the internet is simply another form of telecommunication.

“This would involve only looking at Section 19 of the Income Tax Act through a 21st-century lens.  The analysis we have commissioned shows that there is no need to change the law itself,” Morrison said.

Online advertising in Canada has grown from $562 million in 2005 to a projected $5.6 billion in 2016, as much as 90% of it buying ads on foreign, rather than Canadian online platforms.

Friends estimates that closing this loophole would divert substantial Canadian online ad spending on foreign platforms to Canadian platforms, or about $500 million annually.  Ending this tax loophole would increase federal revenues by as much as $1 billion a year.

“The time has come for Ottawa to update its interpretation and end the tax deductibility of ads placed on foreign-controlled digital platforms. This would respect the original intent of section 19 by helping Canadian media, which are essential to our democracy and our culture, when they need it more than ever.  It could also provide the government with revenue to nudge CBC away from its dependence on advertising,” said Friends’ spokesperson Ian Morrison.

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For information: Jim Thompson 613-567-9592