OTTAWA – In 1974, in the middle of the night, a truck crossed the border towards Canada. No, on board was not contraband, but what had been a North Dakota TV station, KCND, bought then by Canadian future media mogul Izzy Asper.
A tax lawyer by trade, the late Asper likely knew he would benefit from a corporate tax disposition as a Canadian broadcaster, whereas advertising on an American TV station was not a deductible expense and remains so today.
Tuesday morning, the Senate Transportation and Communications Committee heard a report commissioned by the Friends of Canadian Broadcasting which proposes the definition of ‘broadcasting’ be amended to ensure non-Canadian on-line companies cannot benefit from this corporate tax incentive which was intended to help Canadian media.
Essentially, the report ponders the question why Canadian companies advertising on the likes of Facebook and Google can claim the expense as tax deductible when they can not do the same when purchasing ad time on WXYZ Buffalo or KING Seattle?
Friends says the federal government should “Close the Loophole’ and reap the benefits.
Section 19 of the Income Tax Act states that “no deduction shall be made for … an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking.”
At the heart of this issue is the definition of broadcasting used by the Canadian Revenue Agency (CRA) dates from the original 1968 Broadcasting Act and was not revised in 1991, when a new definition of broadcasting was included in the new Broadcasting Act, so on-line advertising is tax deductible, whether Canadian or foreign. This, notionally, goes against the intent of the Section 19.
This issue was not a problem in 1991, as on-line advertising was non-existent. In the old days, a Toronto car dealer advertising on a Toronto TV station could deduct its advertising expenses from his taxable revenues but when advertising on a Buffalo station, there would be no such tax deduction.
Today, that same car dealership that would advertise on Facebook would get its expenses deducted.
But as Daniel Bernhard, the new executive director of Friends of Canadian Broadcasting said at today’s hearing, “In 2017, Canadian advertisers spent an estimated $6.2 billion on digital ads. Eighty percent of that, $5 billion, flows to foreign media companies, principally Google, its subsidiary, YouTube, and Facebook. Google’s Canadian revenue now exceeds that of all Canadian over-the-air TV stations combined.”
Friends’ report projects that if CRA would modify its definition of Broadcasting it would repatriate up to $440 million of ad spending per year, while boosting federal and provincial revenues by $1.3 billion.
The report proposes three options:
- Update the definition of “broadcasting” in the Income Tax Act to match the Broadcasting Act,
- Amend the Interpretation Act to replace its obsolete definition of “broadcasting” with the Broadcasting Act’s definition, and/or
- Revise the advertising tax deductibility provisions of the Income Tax Act to apply to all foreign media, including internet-delivered media.
In a technical interpretation issued May 25, 2017, but not an official advance ruling, a CRA official provides “general comments” in response to a taxpayer request for clarification and reiterated the existing definition of broadcasting as per the Interpretation Act.
The Senate Committee will meet tomorrow in camera to determine is further witnesses will be asked to appear. Various government departments could appear next. When the Committee concludes it hearings, it would then issue a report.
