Crackdown on 'platform economy' means greater pressure for bloggers, streamers, and online personalities
The past few years have seen the rise of a new type of celebrity: the social media influencer. Whether they’re flashing fashion on Instagram, sharing game screens on Twitch, or dancing on TikTok, these personalities are able to leverage their reach and popularity to get free cash, merchandise, dinners, and other perks from businesses desperate for a favourable review or mention.
But for those residing in Canada, all of those considerations, whether in cash or in kind, may end up costing them more than they thought.
As explained in an article from Barrett Tax Law published by The Lawyer’s Daily, the Canada Revenue Agency (CRA) is stepping up its efforts to ensure all Canadians are complying with tax legislation with crackdown on the “platform economy,” which includes sharing businesses such as AirBnB and Uber, gig economy platforms like Fiverr, peer-to-peer marketplaces like eBay, and social media platforms.
“[S]ocial media influencers should quickly come to terms with the fact that they are required to declare and pay taxes on all their income — whether this income is cash or non-monetary,” the firm said. “[P]eople involved in the platform economy will be liable to file income tax returns and pay tax on their entire income, including the value of trips, skin cream and free tickets.”
Influencers may encounter grey areas as they file their income tax returns. As an example, the article explained that they may declare the value of a jacket based on the manufacturer’s suggested retail price (MSRP) or the lowest available price for the same jacket online, in which case they must have documentation the low online price for potential audit purposes. They must also be wary of the fact that auditors can trace all their social media posts about the gifts they receive.
With respect to video game streamers and influencers who do product placements in return for cash or gifts, the firm said that consequences with respect to HST or GST must be considered. “At the core of what they do for others, streamers and social media influencers provide a service. And when they provide more than $30,000 of services, just like any other service provider … they are required to charge HST,” it said.
If the streamer or influencer receives products in exchange for their services, the CRA also expects them to collect HST from their clients. Even if they didn’t actually do so, the article explained, they will face a tax bill for the HST they should have collected, in addition to the income tax payable on the products they received.
In case the CRA conducts an audit and discovers non-compliance, influencers should also expect to face penalties. One often applied by auditors is the “gross negligence” penalty, which for income tax is 50% of the tax outstanding, and 25% in the case of HST. In other words, the article said, an influencer who declared their cash income but failed to do the same for gifts they received, might have to pay the CRA more money than the actual value of the gifts when the income tax, HST, interest, and penalties they incurred are added up.
Those belatedly realizing that they have been non-compliant, the firm said, might be eligible for relief under the CRA’s Voluntary Disclosure Program if they fulfill certain conditions. Aside from being complete and unprompted by CRA action, the disclosure must include information which is at least one year past due. The taxpayer must pay the taxes outstanding, and they should expect a penalty to be applied.
“It is recommended that anybody who has not declared all their income (cash or non-monetary items) should consult a tax lawyer to discuss filing a voluntary disclosure,” the firm said.