Senate committee calls for study of online ad tax deductibility

The Senate transport and communications committee said Tuesday the government should hold a full study into the issue of taxing advertising on foreign online platforms. “Witnesses representing various segments of Canada’s media industry told the committee that eliminating tax deduction for ads on foreign Internet news outlets could give the domestic news industry a much-needed boost,” the committee said in a press release. “However, other witnesses told the committee that eliminating the tax deduction could put Canadian businesses at a disadvantage relative to their international competitors.” Tuesday’s report on the issue followed five committee meetings held in the spring on the topic. Those meetings were in response to reports from groups including the Friends of Canadian Broadcasting and the Public Policy Forum (PPF), which asked the government to change the tax rules. Taxes levied on advertising on foreign websites are deductible, even though taxes on ads in foreign newspapers and magazines are not. Friends said in a Jan. 2017 paper that’s an outdated rule that doesn’t reflect the growth of the internet in the previous two decades. The group argued that if that deductibility was eliminated, and 10 per cent of newly non-deductible Internet spending returned to Canadian outlets, that could bring in $250 to $450 million annually in incremental advertising revenue for Canadian media. The Senate committee noted in its report that the different tax treatment stems partly from a 1996 tax decision, which defines “periodical” and “newspaper” as print products. “It has been suggested by witnesses that this decision may have been accurate in 1996, when the Internet was still in its infancy, but does not reflect the dominant place Internet advertising plays in media today and the broad array of broadcast and news media available online,” the report said. The committee said it heard from witnesses that companies like Facebook Inc. and Alphabet Inc.’s Google account for a large majority of Canadian online ad revenues. A report last year from Carleton University communications professor Dwayne Winseck said those two companies took up an estimated 72 per cent of Canada’s $5.5 billion internet advertising market in 2016. Meanwhile, the report noted, the Canadian local news media have seen advertising revenue decline, “with many traditional media and local news organizations having closed or having been forced to significantly reduce the depth and scope of their reporting.” While the proposal to change the tax rules could help in the short term, the report said, whether it would “place an undue tax burden on Canadian businesses remains a subject for further study.” Friends executive director Daniel Bernhard said in May that a challenge to implementing the group’s proposal could lie in the government’s sensitivity to tax-related matters given the optics of amendments to the Income Tax Act. The idea of eliminating the tax exemption previously received support from the committee’s vice-chair, Dennis Dawson, while the House of Commons heritage committee released a report in June 2017 that recommended reforming the Income Tax Act “to allow deduction of digital advertising on Canadian-owned platforms.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Bryson Masse at bmasse@thewirereport.ca

Senate committee calls for study of online ad tax deductibility

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Senate committee calls for study of online ad tax deductibility

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