David J. Rotfleisch, CPA, CA, JD, is the incorporation tax attorney for Rotfleisch & Samulovitch PC, a Toronto-based boutique tax law firm. |
TORONTO – On December 3, 2020, the Canada Revenue Agency (CRA) confirmed that its auditors are monitoring Canada’s social media influencers and video game streamers to see if their paid endorsements and income from social media and online video games are complete income tax returns are shown in their report. According to the CRA, the purpose of keeping an eye on social media influencers and video game streamers is to identify tax evaders, promote compliance with the Canadian tax system, and collect taxes on unreported income.
The rating agency has conducted initial research into the income of social media influencers and video game streamers and is currently in the process of finalizing an enforcement plan to encourage compliance with the Canadian income tax system. The rating agency’s enforcement plan will focus on social media influencers and video game streamers earning over $ 500,000 per year.
The CRA relies on open source information to determine unreported earnings from social media influencers and video game streamers. Open source intelligence is a multi-method approach in which the rating agency collects, analyzes, and decides data based on data obtained from the Facebook and Twitter pages associated with social media influencers and video game players. Connected to streamers. According to the CRA, open source intelligence has brought specific vendors into contact with the targeted social media influencers and video game streamers.
The rating agency stated that its enforcement plan aims to educate social media influencers and video game streamers about their tax obligations in accordance with Canadian income tax laws and then see if they act accordingly. According to the CRA, based on their initial research, many Canadian social media influencers and video game streamers earn millions of online followers on sites like YouTube and Amazon and have become high-income individuals through subscription fees and merchandise sales. For example, Evan Fong of Richmond Hill, Ontario has more than 25 million subscribers to his VanossGaming channel and it is reported that his 2018 profit was approximately $ 17 million.
To improve enforcement of Canadian tax law, particularly those related to social media and video games, the rating agency intends to reach out to advisory firms to ensure they are aware of the digital tax laws, which will be effective July 1st 2021. The new Digital Tax Act requires digital companies like Google, Netflix, and Airbnb to collect federal sales tax from Canadian consumers.
However, Parliament has not yet approved this new legislation. The rating agency anticipates that international digital platforms like Google, Netflix and Airbnb will have to bring in $ 1.2 billion over the next five years to register with Canadian consumers and collect federal sales tax. It has also stated that it is ready to apply a new corporate tax on digital services if necessary. The rating agency also announced that it will have $ 606 million in new funding over the next five years to support programs aimed at international tax evasion and aggressive tax avoidance.
The CRA and social media platforms
The rating agency has long been monitoring social media platforms to see if taxpayers post information and content inconsistent with their reported income. In this respect, the observation of social media influencers and video game streamers looking for tax revenue reflects CRA’s ongoing efforts to ensure compliance with the Canadian tax system, particularly when it comes to e-commerce transactions and digital platforms. The rating agency’s enforcement plan also reflects its initiatives to address issues related to international tax evasion and aggressive tax avoidance, and to promote transparency and fairness across Canada’s tax system.
However, it is not clear how efficient the rating agency’s enforcement plan will be in identifying unreported revenue from e-commerce transactions and digital platforms.
The use of open source information by the rating agency is also problematic. There are ongoing concerns about the reliability of information and data retrieved from the Internet, including social media platforms such as Facebook and Twitter pages. Even if the application of open source information provides convincing evidence, it is inconclusive. Collecting, analyzing and making decisions based on data obtained from the Facebook and Twitter pages can therefore lead to misrepresentation, errors and inappropriate behavior by CRA agents, which can create financial difficulties for Canadian taxpayers .
As mentioned earlier, the rating agency’s enforcement plan focuses on social media influencers and video game streamers with annual income in excess of $ 500,000. This can be problematic as it could potentially shift the rating agency’s focus from enforcing Canadian income tax law to social media influencers and video game streamers earning less than $ 500,000 a year.
The focus on social media influencers and video game streamers with incomes over $ 500,000 does not address the ongoing violations of Canada’s tax systems related to e-commerce transactions and the digital world, but also unreported ones Cash sales. While it is important to establish review criteria, the rating agency’s narrow approach seems to turn a blind eye to social media influencers and video game streamers with tax revenues below $ 500,000 who may also have significant unreported income.
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Canadian accountant |
Options for social media influencers
Social media influencers or video game streamers who are undergoing a CRA tax audit or whose income has not been reported through social media or online video games can be relieved through the CRA’s Voluntary Disclosures Program (VDP). The purpose of the VDP is to prevent “tax evasion and aggressive tax avoidance” in order to ensure a tax system that is responsive and fair for all Canadians.
It promotes compliance with the law and gives taxpayers the opportunity to voluntarily (1) correct inaccurate or incomplete information; and / or (2) disclose information to the CRA that was not previously reported. In this regard, Canadian taxpayers whose income has not been reported through social media or online video games may be eligible for penalty relief and partial interest relief under the VDP.
David J. Rotfleisch, CPA, CA, JD, is the incorporation tax attorney for Rotfleisch & Samulovitch PC, a Toronto-based boutique tax law firm. With over 30 years of experience as a lawyer and accountant, he has assisted start-ups, resident and non-resident entrepreneurs and corporations in their tax planning, including will and estate planning, voluntary disclosure and tax dispute resolution. Visit www.Taxpage.com and email David at [email protected].
Image by Gerd Altmann from Pixabay.
