FRIENDS supports Heritage Committee’s local media prescription
Jun 15, 2017
For immediate release
Toronto - The 20 recommendations proposed this morning by the House of Commons Heritage Committee to rescue struggling Canadian news are a recipe for success according to FRIENDS of Canadian Broadcasting.
In particular, FRIENDS thinks consistent with the Committee’s recommendation #4 that the government should amend the Income Tax Act to allow deduction of digital advertising on Canadian-owned platforms, the government should go one step further and disallow deduction of advertising expenses on foreign digital platforms.
Without this legislative change, the promise of using an incentive to increase ad revenues for Canadian digital media outlets cannot be implemented, according to the Canada Revenue Agency, which has just ruled that its hands are tied in the absence of legislative reform.
In a letter to FRIENDS of Canadian Broadcasting dated May 25, 2017, the Agency declared that without amendments to the Income Tax Act it cannot deny advertising on foreign digital platforms as legitimate business expenses.
The CRA wrote:
“…the CRA is not able to apply the rules in section 19.1 to advertising on foreign internet websites without an amendment to the law.”
The Agency’s ruling comes after FRIENDS of Canadian Broadcasting asked the CRA to consider using existing laws to encourage Canadians to advertise on Canadian digital platforms. The Income Tax Act provides these incentives to Canadians who advertise in Canadian newspapers and on Canadian TV networks.
“The Agency’s announcement confirms that the ball is in the court of the government to make this promising policy fix a reality. It offers a fix that will preserve the independence of the media while increasing federal revenues,” said FRIENDS’ spokesperson Ian Morrison.
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.
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 and Facebook,” Morrison said.
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.
According to a Nanos Research poll conducted for FRIENDS of Canadian Broadcasting in May 2017, Canadians strongly value local news and want the federal government to act to ensure its survival.
Seven-in-ten (70%) agree their MP should work to keep local broadcasting strong, while more than half (54%) think the federal government should be active in supporting local news. Only one-third (32%) think the fate of local news in Canada should be left to the market to decide.
FRIENDS of Canadian Broadcasting is an independent watchdog for Canadian programming and is not affiliated with any broadcaster or political party.
- January 20, 2017 - Letter from FRIENDS to the requesting an updated technical interpretation of the Income Tax Act
- January 20, 2017 - Submission to the CRA for an updated technical interpretation on the deductibility of foreign Internet advertising
- May 25, 2017 - Letter from the CRA responding to FRIENDS' submission