Senate report urges feds to revisit tax deductibility of foreign internet ads

Senate Committee

The federal government should study the idea of changing tax measures that encourage advertisers to spend money with foreign companies like Facebook and Google, hobbling Canada’s already declining news industry, a Senate committee recommended in a report released Tuesday.

The Senate Committee on Transport and Communications report The Tax Deductibility of Foreign Internet Advertising in Canada recommends the government study Section 19 of the Income Tax Act, which makes advertising in newspapers, magazines and online publications a tax-deductible expense. Advertisers can write off 50 per cent of the cost of ads they buy in newspapers or magazines that publish less than 80 per cent original content. If the outlet publishes more than 80 per cent original content, its advertisers can deduct 100 per cent of their advertising expenses.

Foreign-based companies like Facebook and Google now account for as much as 80 per cent of Canadian online advertising revenues, competing for ad dollars with traditional Canadian broadcast and print media outlets.

According to the report, annual internet advertising revenues surged from $901 million in 2006 to $5.5 billion in 2016, while daily newspapers saw ad revenue decline over the same period from $2.7 billion to $1.6 billion.

“There’s no secret the internet has been a game changer for publishing in Canada, especially for the country’s news industry. It’s time for the government to respond to this rapidly changing sector with policies that address this reality,” Senator Dennis Dawson, deputy chair of the committee, said in a press release.

Witnesses representing various segments of Canada’s media industry, including the Canadian Association of Broadcasters (CAB), told the committee that eliminating tax deductions for ads on foreign digital news outlets could give the domestic news industry a much-needed boost.

However, groups like FRIENDS of Canadian Broadcasting also provided estimates suggesting just 10 per cent of foreign internet ad expenditures would shift back to Canada and that the proposal would increase the tax burden on Canadian businesses by more than $1 billion.

The committee has resolved to undertake a more detailed study of Canada’s broadcasting and telecommunications legislation this fall, examining how the Telecommunications Act, Broadcasting Act, and Radiocommunication Act can be modernized to account for the evolution of the broadcasting and telecommunications sectors in the last decades. Among the issues they’ll consider are the blurring of the distinction between broadcasting and telecommunications; corporate consolidation and concentration; CBC/Radio-Canada; lack of a national broadband strategy; net neutrality; and statutory authority and the role of the CRTC.

“We are watching Canada’s foundering news media industry desperately look for a business model that will work in the internet era. We are looking forward to studying the Telecommunications Act, the Broadcasting Act, and the Radiocommunication Act in the fall. We hope it will provide some solutions to the issues facing our newspaper and broadcast industry,” said Senator David Tkachuk, committee chair.

The committee is set to table that report to the Senate no later than June 28, 2019.


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