Imagine that you're a social media influencer with thousands of followers on Instagram. As a longtime personal shopper and stylist, you create and post fashion content on Instagram and YouTube to inspire your followers.
Just last week, one of the season's most coveted designer handbags was delivered to your door—a gift from its designer—with a note encouraging you to feature it in your next outfit of the day (OOTD). In your excitement, you immediately post a selfie showcasing the bag in your stories—but did you stop to think about whether that handbag is taxable?
Probably not, and you wouldn't be alone. With the constant, intense pressure to create new content, attract more followers, and build your brand, it can be easy to overlook that your online activities could also have income tax implications. But the Canada Revenue Agency (CRA) is well aware that there may be taxes to be paid and has started targeting social media influencers who are not complying with their income tax obligations.
What is a social media influencer?
In recent years, social media platforms such as Instagram, TikTok, and YouTube have given rise to a new category of celebrity: the social media influencer. These content creators generate a following on social media channels by sharing targeted posts that engage, educate, or inspire their followers.
How do social media influencers generate income?
Social media influencers can earn income from their online activities in several ways. By leveraging their insider knowledge or expertise on a chosen topic or field, a social media influencer's content can affect their followers' behaviours, including what products or services they buy, so much so that companies have taken note.
As a result, social media influencers who have cultivated a significant following can bring in a considerable amount of revenue from sponsored content, product placements, brand partnerships, and the like. Some influencers may also earn income from subscriptions, sponsorships, commissions, direct sales, or referral codes. Additional perks such as complimentary products, clothing, trips, or other gifts can also be sources of income.
What are the income tax implications for social media influencers?
According to its website, the CRA will generally consider the income you earn using social media platforms as business income, particularly if your activities on social media are undertaken in an organized and commercial manner.
As such, any income you earn from your business activities is taxable and must be reported to the CRA. This includes income from both monetary and non-monetary sources. The CRA affirms that if you receive goods in exchange for promotion on your social media channel(s) (i.e. non-monetary income), these transactions are subject to the same rules that apply to barter transactions. As such, you must include the fair value cash equivalent of the goods received in your taxable income.
Looking back at the social media influencer example above, the fair value of the handbag gifted in exchange for promotion would need to be included in your income for the year in which the item was received.
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. As a self-employed individual, you also need to remit both employer and employee portions of Canada Pension Plan (CPP) contributions. Residents of Quebec may have additional requirements to pay Quebec Pension Plan (QPP) contributions.
Be aware that self-employed individuals are required to maintain proper books and records to support the amounts reported on their returns.
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 for the purposes of earning income from your social media activities. You may not deduct personal expenses or expenses that are not reasonable in the circumstances.
Expenses incurred to purchase capital property, such as computers, lighting equipment, or cameras, are not immediately deductible. Instead, you may be able to deduct their cost over time as a capital cost allowance.
Assuming that you are self-employed, you would report any deductible expenses on Form T2125, Statement of Business or Professional Activities. You must be able to provide proof in support of any expenses that you claim, should the CRA request to see it.
Are there GST/HST implications for social media influencers?
Generally, if your social media activities earn $30,000 or more from “taxable supplies” in Canada over four consecutive calendar quarters, you will need to register for, collect, and pay GST/HST. Taxable supplies can include supplies of property and/or services made in the course of commercial activities and subject to the GST/HST. Even if you do not exceed this threshold, you may still choose to register voluntarily as a small supplier.
According to the CRA, “several factors need to be considered to determine if you are required to register for, collect, and remit (pay) GST/HST to the CRA on taxable supplies generated through social media”.
Contact your BDO Indirect Tax advisor to learn more about possible GST/HST implications from your social media activities.
What steps should be taken where income hasn't been reported?
Failure to report taxable income from your 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, in order 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 owing.
Where 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.
Helping social media influencers meet their income tax obligations
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.
Contact your BDO advisor if you have questions about how your activities on social media are taxed. We can help you develop a tax efficient strategy that ensures compliance and avoids penalties.
The information in this publication is current as of April 18, 2022.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.