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As the influencer marketing sphere continues to grow through platforms like Twitch, YouTube, Twitter, TikTok, and Instagram – reaching a global $21.1 billion valuation in 2023 – Canadians are capitalizing on the opportunity to increase revenue through sponsorship deals, live events and platform-centred monetization.
While social celebrities turn their viewer counts into impressive profits, the CRA is starting to crack down on the platform economy by enforcing business tax rules.
We look at what influencers need to know when it comes to paying income, corporate, and sales tax in Canada.
When are you obligated to pay taxes?
Under Canada’s tax laws, influencers are treated like any entrepreneur, and must report and pay tax on all income earned through social media platforms, both nationally and internationally.
Those who are considered sole proprietors or partnerships would pay through income taxes at a personal rate, while influencers who opted to incorporate would pay corporate taxes, which are often charged at a lower rate.
Taxable income includes:
- Revenue earned through subscriptions
- Social media advertising, including any income earned through referral codes
- Brand deals and other business partnerships
- Gifts from followers
- Brand-sponsored trips
Understanding sales taxes
The platform economy is unique, as many influencers profit from passive income. For example, if you’re a YouTube celebrity who has monetized your channel, you would be making money without offering goods and services. Similarly, you could increase your revenue by allowing a business to use your digital content in exchange for royalties.
Those using this type of revenue model are still obligated to register for sales tax according to the CRA as long as they’re earning over $30,000 a year. Influencers earning less than $30,000 are seen as “small suppliers” and don’t need to charge sales tax.
Influencers who aren’t Canadian residents and don’t do business within the country aren’t required to register for sales tax, though there are exceptions based on the CRA’s simplified non-resident regime. It’s important to speak with a trusted tax consultant to better understand your tax obligations.
Which expenses are tax deductible?
Like any business, influencers have a host of expenses that can be written off to reduce your taxable income. Tax deductible expenses include:
- Gas, parking, and car payments
- Travel expenses for events, including food and hotels
- Home office square footage
- Marketing efforts, including digital advertising
- Trade-specific publication subscriptions
It’s important to note that some expenditures can’t be written off through your taxes as they’re considered capital expenses, which are treated differently under our tax system. These include:
- Computer equipment and software
- Smartphones
- Internet fees
- Cameras
- Sound and lighting equipment
U.S. Taxation of Market Influencers
For U.S. tax purposes, different rules determine if and/or whether a market influencer is subject to tax in the U.S. and/or in a particular state.
Under U.S. federal tax law and under certain state laws, the influencer will be taxed in the U.S. and/or in a particular state based on where their performance is rendered. In this case, that would mean where the video was filmed, and/or where the promotional appearances are made.
The rules in other states and an emerging overall trend is to subject said influencer to tax based on “market based rules”. For example, California and various other states source income to their state to the extent that the purchaser of said service is in the state.
Each state has its own idiosyncratic rules in this area. While performing services outside of the U.S. federal taxation, it may not protect the performer from state taxation.
Navigating taxes while in the platform economy
While influencers may operate differently from traditional startups, those in the platform economy are still obligated to pay sales, income, or corporate taxes, depending on your business structure and annual revenue.
To avoid any tax repercussions, it’s important to work with a trusted tax professional. Zeifmans has years of experience helping entrepreneurs in a variety of markets. Reach out below to connect with one of our skilled team members.
