How should the government tax social media influencers?

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Evan Fong is a savvy social media entrepreneur. Shortly after graduating from Richmond Hill High School, he dedicated himself to building his own niche media empire by creating video game montages and publishing them under his alias, VanossGaming.

Fong became extremely popular, and companies quickly started giving him freebies, such as consoles and free games, in the hopes that Fong would showcase their products on his platforms. He also earns ad revenue by attracting attention to his YouTube channels. His vocation as an influencer on social networks has proved lucrative: a Google spokesperson said that in 2018, Fong had earned $ 17 million.

How should the government tax social media influencers like Fong? Advertising income is the easy part – it should be taxable income like any similar payment made to a businessman.

But what about free swag? Companies call them “freebies” and say they don’t contract anything in return.

The Canada Revenue Agency (CRA) recently announced that it will monitor the social media accounts of influencers and streamers to ensure they are meeting their tax obligations. The announcement follows increased scrutiny by government authorities of the digital influencer space.

So why should the CRA care about the “freebies” received by influencers?

The main policy objective behind the taxation of these gifts is to recognize that the items often sent to influencers by companies are not real gifts, but rather a form of non-cash payment provided in exchange for exposure to the platform of an influencer. These non-cash benefits, whether it’s free game consoles or trips to Paris, all fall under the broad definition of income under the Income Tax Act.

Our tax system supports the idea that income encompasses almost all types of economic benefits, regardless of what form they take. This confirms the principle of horizontal equity, the political point of view that people with a similar economic situation should be responsible for similar tax burdens. Not taxing these giveaways would violate our tax system’s goal of horizontal fairness, as people who earn income from cash transactions pay taxes while those who receive payments through non-cash benefits, such as influencers, may remain tax-free.

Instead of gifts, these exchanges between influencers and companies exhibit the characteristics of barter transactions. The CRA classifies a barter transaction as a transaction in which two people agree to exchange goods or services, usually without money. An influencer gift would normally be considered a barter transaction, as the influencer receives goods or services in exchange for advertising the company on their social media channel. Non-monetary benefits received by the influencer in the barter exchange should normally be treated and taxed as business income.

However, this proposed tax regime is not without its problems. For example, how are these barter transactions valued? The gifts received by influencers may not always match the retail value of the product or service provided. Plus, what about the teenager posting a few pictures online and sometimes putting on makeup for free? Should this really be considered business income with all the tax obligations that come with it?

Or what about the player who receives a new game from a company? If the CRA taxes the value of the game, then the player will be considered to be generating business income. The player could then deduct the costs of all his gambling activities, ultimately resulting in lost government revenue.

Situations where influencers don’t return the exchange by choosing not to publicize the gift they received also challenge the idea that this is taxable income. It is not clear how the CRA would approach these situations, nor how it would enforce compliance without stifling the growth of this emerging industry.

What is clear, however, is that in this weird new world where people are paid to play video games at home and are gifted with designer handbags for their selfies, the CRA certainly has a strong incentive to follow what is #trend.

Tyra Yah is a law student at Queen’s University Law School. Arthur cockfield is Professor of Tax Law and Associate Dean (Academic Policy) at Queen’s University.

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