Published: June 8, 2023
In the ever-evolving world of social media, individuals have found new avenues to express their creativity, share their passions, and build thriving businesses. Social media influencers, in particular, have gained prominence by attracting substantial ‘followers’ and leveraging their online presence to generate income. However, with this newfound success comes the responsibility of understanding the tax consequences associated with earning income through social media platforms.
What is a Social Media Influencer?
Not everyone who uses social media is an influencer. Social media influencers are individuals and sometimes groups of individuals who have gained a significant following and influence on social media platforms such as Instagram, YouTube, TikTok, Twitter, or Facebook. What separates influencers from other social media users is the former’s ability to affect opinions, behaviours and purchasing decisions of their followers through their content.
Social media influencers typically create and share content to a specific niche or area of interest such as fashion, beauty, fitness, travel, technology, or lifestyle Vlogs. They engage their followers through posts, videos, stories, and live streams.
Social media influencers can be instrumental in increasing brand awareness and altering consumer behavior through their publicly shared opinions. Many businesses recognize the value of partnering with social media influencers to reach their target audience, increase brand visibility, and drive sales. Therefore, influencer marketing, which typically involves compensating social media influencers, has become a popular strategy employed by businesses.
I am a Social Media Influencer – Now what?
It is crucial to note that as a Canada-based social media influencer, you must report all your income to the Canada Revenue Agency (CRA). Under s.3(a) of the Income Tax Act all income, whether sourced inside or outside Canada is included in the taxpayer’s computation of taxable income. Therefore, payments received while on a short-term foreign trip to a travel destination must also be included in the computation of taxable income as is the value of the trip if it is provided as part of social media compensation.
Failure to report income or providing incorrect information in your tax returns can lead to adverse tax consequences, including penalties and interest charges. The CRA may also impose gross negligence penalties under s.162 or s.163 of the Income Tax Act if it believes the taxpayer has demonstrated wilful disregard of his or her tax obligations such as filing returns incorrectly or engaging in fraudulent activities.
Influencers paid through cryptocurrency also need to report these earnings. The CRA treats cryptocurrency transactions as taxable events and the fair market value of the cryptocurrency at the time of receipt should be reported as income.
The CRA employs various methods to detect unreported income from social media activities. They may conduct tax audits or use data matching techniques to compare information from financial institutions, advertising platforms or third-party payment processors. CRA will also monitor social media platforms and carry out tax audits of influencers. It is crucial for influencers to accurately report their income and ensure their reported earnings match the receipts generated by the businesses that hire them.
Failure to report past income to the CRA or reporting inaccurate income can be corrected if taxpayers wish to voluntarily correct their errors. The CRA’s Voluntary Disclosures Program allows taxpayers to come forward and correct their past tax filings. By voluntarily disclosing previously unreported income, influencers may avoid or reduce the penalties and interest they could otherwise be subjected to by the CRA. Social media influencers with unreported income should get in touch with an experienced tax lawyer to determine their eligibility for the Voluntary Disclosure Program.
Pro tax tips – Social Media Influencers Must Understand their Tax Obligations
Social media influencers are required to report all income earned from their online activities when filing their tax returns. These include both monetary and non-monetary income such as products received as PR packages, sponsored trips, or gifts received in lieu of brand endorsements. All non-monetary income, including crypto currency, should be reported at its fair market value. Failing to report this income may lead to penalties and interest charges and even potential criminal tax evasion charges. An experienced Canadian Tax Lawyer can ensure that you accurately report all your earnings to avoid any tax-related issues.
In addition to Income tax requirements, social media influencers may also need to register for the Goods and Services Tax/Harmonized Sales Tax (GST/HST). Depending on the scale of their activities, if influencers’ taxable supply exceeds $30,000 over 4 consecutive quarters i.e., a period of 12 months, they must register, collect and remit GST/HST on their taxable sales. Consult an experienced Canadian Tax lawyer to familiarize yourself with the GST/HST registration requirements to ensure compliance with tax laws.
When can my use of social media be considered a business activity?
If you generate income through social media, you will be considered a business entity by the Canada Revenue Agency (CRA). This business activity could include income through product placements, sponsored posts, affiliate marketing, or other revenue streams that involve your social media being used as a vessel for what would otherwise be considered taxable supply. However, since every tax situation is different, it is important to get in touch with a Canadian tax lawyer to ensure you are not avoiding your tax obligations.
Am I allowed to deduct expenses I incur for my social media activities?
Answer: The short answer is yes, but there are many variables to account for. Only certain reasonable expenses may be eligible for deductions and must not only be directly related to the business but also supported by proper documentation. Keeping a track of all your income, expenses, invoices, receipts, and any other relevant financial documentations. You should also seek to record your correspondence and renumerations by your sponsors and patrons. Retain the services of a top Canadian Tax Lawyer make sure you are onside of your Canadian tax reporting obligations.
How can I ensure my income from social media is properly disclosed?
Answer: Documenting your income is the first step to ensuring you understand how much you earned as social media income and the expenses you incurred in the process. It is important to dichotomize your personal and social media finances. Maintaining separate bank accounts and credit cards can be a good way to ensure your finances do not get convoluted. Get in touch with an experienced Canadian lawyer for efficient tax planning strategies for your social media business.
“This article just offers general information. It is only up to date as of the publication date. It hasn’t been updated; thus, it might not be applicable anymore. It does not provide legal advice, hence it cannot or should not be relied upon. Every tax situation is different from the cases discussed in the articles since it is specific to its facts. If you have specific legal questions, you should get in touch with a Canadian tax lawyer.”
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."