NP View: Close the tax loophole that allows foreign tech giants to bleed Canadian media dry

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You would be hard pressed to think of an industry that is struggling more than the Canadian news industry. It’s a business in which success is measured by survival — and there are fewer and fewer survivors with each passing year.

Our parliamentarians have rightly recognized that the rapid decline of the fourth estate is an existential threat to the very foundation of our democracy. And there has been an honest effort from Canadian governments to provide support to an industry at risk of implosion.

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Earlier this week, for example, it was announced that Google will soon be signing over a $100-million cheque to Canadian media organizations as part of a deal allowing the company to post news stories to its platform. “This is good news for the sustainability of the news ecosystem in Canada,” a spokesman for Heritage Minister Pascale St-Onge was quoted as saying.

The help is certainly welcome and needed, but this measure — and others like it — will not ensure the longevity of the news business. Drastic action is needed. Which brings us to an interesting little loophole in the Income Tax Act.

Starting in the 1960s, U.S. media companies realized they could sell Canadian companies advertising space on their radio and television broadcasts, as well as in magazines and newspapers. The idea was pretty simple. You create a thinly veiled Canadian edition of your product and sell Canadian companies cheap ads. It was easy money that required little-to-no additional investment on the part of the U.S. behemoths. The impact on Canadian media, however, was significant.

To address the issue, the Income Tax Act was amended so Canadian companies would no longer get a tax deduction if they advertised in foreign media. It was a powerful tool, which arguably helped to ensure the survival of Canadian media — until the advent of the internet, that is.

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Unfortunately, the act as it stands now is old and toothless, as it was drafted long before Mark Zuckerberg was accepted to Harvard. It was simply never properly amended to address the rapid shift of advertising revenue from traditional print and broadcast models to digital platforms.

As it stands now, an ad placed on Facebook is as deductible as one that is placed on a Canadian news platform. In short, the Canada Revenue Agency allows companies to deduct the full amount of any advertising purchases they make on the internet.

A lot of money is at stake here. By the end of this year, the total Internet advertising spend in this country could reach $17 billion, according to the Interactive Advertising Bureau of Canada. But very little of that is going to support Canadian companies and their media operations.

In 2021, Google and Meta alone gobbled up 79 per cent of the country’s online advertising revenue. Once you add in the money going to TikTok, LinkedIn and X, there isn’t much left. And the trend is only going to get worse.

Canadian news operations have been squeezed out of their own market and starved of revenue as they go toe-to-toe with the largest companies in the world, which spend a fraction of the money they earn from their Canadian operations on staffing and infrastructure. Some might call it dumping.

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If the Canadian news industry is going to survive, we believe that serious and immediate action must be taken. And in this country, there is no institution as feared as the Canada Revenue Agency, and the Income Tax Act that it administers. As Peter Miller and David Keeble argue in their exhaustive paper written for the Friends of Canadian Media in March, “Advertising purchased on foreign Internet-delivered media that act as, or akin to, broadcast and newspaper services should not be deemed to be a deductible expense.” We couldn’t agree more.

It’s time to revisit the advertising tax deductibility provisions of the Income Tax Act and make the necessary changes to ensure the long-term viability of Canada’s news industry. Depending on how the act is revised, Miller and Keeble estimate that between 15 and 90 per cent of current internet advertising expenditures could be deemed partially or fully non-deductible.

A large percentage of that money, possibly hundreds of millions in incremental revenue, would flow back to Canadian media. It’s a revenue boost that the industry desperately needs. What’s more, the money that continued to be spent with the internet goliaths would now be subject to tax — funds that could help to offset existing government programs that support Canadian news operations.

Of course, when billions of dollars are at stake, we fully expect significant pushback on the mere mention of any change to the status quo, especially on the trade front with the United States. It won’t be easy. But that’s the price of a functioning and independent fourth estate.

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