In the ever-evolving world of social media, individuals have found new avenues to express their creativity, share their passions, and build thriving businesses. This paradigm shift has introduced new lucrative income streams available to a breed of professionals known as “influencers”. These may include Twitch or YouTube streamers earning advertisement revenue, performers receiving subscriptions, gifts, and donations, as well as Instagram or TikTok content creators receiving funding through commissions, sponsorships, brand partnerships, and perks. However, with this newfound success comes the responsibility of understanding the tax consequences associated with earning income through social media platforms. Influencers are obligated to diligently report their earnings to the Canada Revenue Agency (CRA) and fulfill their tax obligations.
With this new form of income comes a complex web of tax implications in this guide we aim to shed light on these tax considerations, helping influencers navigate the often confusing landscape of Canadian taxation in the digital economy.
Stay tuned as we delve into the world of likes, shares, and tax brackets. Whether you’re a seasoned influencer or just starting, this guide is designed to help you understand your tax obligations and plan accordingly.
How Do Social Media Influencers Generate Income?
By leveraging their insider knowledge or expertise social media influencers can earn income from their online activities in several ways. Influencers earn income through a variety of means namely:
- subscriptions to their content and social media channel(s)
- advertising for other businesses
- collaboration with other influencers/businesses
- partnerships with other brands/influencers/businesses
- sponsorships from other brands/businesses
- tips from followers and social media audiences
- gifts from followers and social media audiences
- donations from followers and social media audiences
- trips from brands and sponsors
- referral codes for merchandise/goods promotion
What Are the Income Tax Implications for Social Media Influencers In Canada?
If you are a Canadian resident engaging in influencer activities, you must report all such income (monetary and non-monetary) earned inside and outside of Canada.
Unless you earn income from your social media activities through a corporation, you are considered self-employed for tax purposes and need to file a Form T2125, Statement of Business or Professional Activities, to report your self-employment income on your annual personal income tax return Line 26000. As a self-employed individual, you also need to remit both the employer and employee portions of Canada Pension Plan (CPP) contributions.
Influencers who are not resident in Canada are subject to Canadian income tax on most Canadian-sourced income paid or credited to them during the year unless all or part of that income is exempt under a tax treaty.
If a gift is non-monetary, such as a first-class airline ticket to Aruba, the social influencers are required to declare the fair market value (FMV) of the ticket as other income on their Form T2125. Non-monetary gifts, also known as gifts-in-kind or in-kind contributions, are exchanges or donations of goods or services rather than cash. They can include a wide range of items such as real estate, stocks and bonds, personal items like furniture, clothing, electronic goods, intellectual property, and more.
In some cases, the social influencer may not be an individual, but a corporation. A corporation is a legal entity that is separate from its shareholders and directors. A corporation can also create and publish online content on social media platforms and earn income from various sources, such as advertising, sponsorships, partnerships, etc. However, the tax implications for a corporate influencer are different from those of an individual influencer. A corporate influencer must file a Corporate Income Tax Return (T2) and pay tax on its taxable income at the applicable corporate tax rate. The corporate tax rate depends on several factors, such as the type of corporation, the province or territory where it operates, and the amount of income it earns.
Can social media influencers claim expenses?
You may be able to deduct eligible business expenses to offset the income you earned from social media activities and reduce your taxes. To be deductible, such expenses must have been incurred to earn income from your social media activities. You may not deduct personal expenses or expenses that are not reasonable in the circumstances. As with any self-employment income, social influencers can deduct a variety of expenses from their income as long as the expenses are reasonable. Some of these expenses are:
- Depreciation of IT and Photography Equipment: If you’re a social media influencer in Canada, you can claim the Capital Cost Allowance (CCA) or depreciation on your equipment when filing your taxes. This means you can deduct a portion of the cost of your equipment each year as an expense as it depreciates.
- Automotive Expenses: If you use your vehicle for both personal and business purposes, you can claim a portion of your vehicle expenses on your taxes. The amount you can claim is proportional to how much you use the vehicle for business.
Assuming that you are self-employed, you would report any deductible expenses on Form T2125. You must be able to provide proof in support of any expenses that you claim, should the CRA request it.
If you qualify as a corporation, you have the opportunity to deduct reasonable and directly related business expenses from your earnings, thereby significantly reducing your taxable income. Eligible expenses include, but are not limited to:
- Car-related expenses (payments, gas, mileage, parking)
- Business travel expenses (accommodations, food) for events
- Digital advertising costs
- Subscriptions to trade-specific publications
As with any other business, if you are claiming expenses in your tax returns, you are required to maintain receipts for at least six years in the event of an audit by the CRA.
Are There GST/HST Implications for Social Media Influencers?
There are also GST/HST implications for social media influencers. If the income derived from their taxable source exceeds $30,000 over consecutive calendar quarters you will need to register for, collect, and pay the goods and services tax (GST)/harmonized sales tax (HST) on all taxable sales from your online activities. Taxable supplies can include supplies of property and/or services made in the course of commercial activities and are subject to the GST/HST. Even if you do not exceed this threshold, you may still choose to register voluntarily as a small supplier. If the social influencer has already registered for GST/HST, he/she may be eligible to claim Input Tax Credits (ITC) for the GST/HST paid on purchases and expenses related to their commercial activities. However, a claim for an input tax credit can only be made when GST/HST is payable on business activities. Simply put, if you have no income, you cannot claim an input tax credit (ITC).
What Steps Should Be Taken When Income Hasn’t Been Reported To CRA?
Failure to report taxable income from social media activities can result in the assessment of penalties and interest. You may be able to reduce or avoid punitive action if you voluntarily come forward to the CRA to report any income you may have inadvertently omitted from your previous tax return(s).
According to the CRA, to be valid, an application under the Voluntary Disclosure Program must be complete, be voluntary, involve the application or potential application of a penalty, include information that is at least one year past due, and include payment of the estimated taxes owed.
If you don’t qualify for the Voluntary Disclosure Program, it is also possible to request a change or an adjustment to a prior year’s tax return. In such cases, you may be assessed applicable penalties and/or interest.
Getting Early Help from A Tax Accountant Is A Good Idea
As you continue your efforts to grow your brand, remember that not everyone who follows you is there to simply like or comment on your content. The CRA is also online, keeping a close eye on social media influencers to ensure they comply with income tax obligations from their activities online.
By accurately reporting income, claiming eligible expenses, and adhering to GST/HST requirements, influencers can ensure compliance with CRA regulations while optimizing their tax position. Given the complexity of Canadian tax laws and individual circumstances, with the right support and guidance from our tax accountants in Toronto influencers can confidently manage their tax affairs and focus on what they do best: creating engaging content and building their online presence.
Not all accounting firms and accountants understand enough about social media influencers to be a big help. So, if you are a social media influencer – or streamer or podcaster – and are starting to make money from your efforts, it is the best time to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances and ensure you comply with CRA reporting and payroll deductions.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.