Our tax laws prohibit companies from deducting the cost of foreign advertising. But a loophole in the law allows Ottawa to look the other way when Canadian companies buy digital foreign advertising. The result? A $1.6 billion subsidy to companies that buy ad space from the likes of Facebook.
Here’s how ridiculous this is. A Canadian company advertising in the New York Times cannot deduct the cost of the ad. But if they put the exact same ad on nytimes.com, they can claim the full deduction.
Why the Canadian government subsidizes foreign internet media companies that kill Canadian journalism is beyond me. But that’s exactly what they’re doing.
This rich tax deduction cost Canadians an estimated $1.6 billion in 2018. To put that into perspective, the government spends $1.2 billion on CBC. And the recently-announced support package for the journalism industry is worth just $120 million.
If Ottawa were to close the internet advertising tax loophole, Canadian companies could still buy all the ads they want from foreign publishers like Facebook. But these would be treated like all other foreign advertising, and they would not be tax deductible.
We estimate this move would repatriated about $600 million that is currently going south for Canadian media that tell the truth, follow the rules, and contribute to our society.
And it would mean increased corporate tax revenue of over $1.45 billion annually. That would make a huge difference to struggling Canadian media – much more than the $120 million the government is offering in its bailout.
The scale of Ottawa’s plan doesn’t come close to matching the scope of the problem.
It boggles the mind that with the Canadian journalism industry on its deathbed, all the government could muster was a kiss goodbye.
We need to do better. The good news is that we know what to do: close the internet advertising loophole. The bad news is that the government isn’t doing it.
Why does Ottawa allow this gaping loophole to persist? Why do they exempt big tech from Canadian tax law?
The consequences of this special treatment go far beyond lost public money. The story of Toronto City Councilor Kristen Wong-Tam is instructive.
Recently, the veteran politician revealed that she was the target of a vicious smear during the 2018 Toronto municipal election. A political opponent and a gang of his supporters mobbed Wong-Tam, alleging corruption on her part, and they recorded the ambush on their phones. Wong-Tam called them “vicious, ridiculous and easy-to-disprove lies”. But it didn’t matter. Her opponent had what he wanted: video of an intimidated Wong-Tam walking away without refuting the charges.
This video and other false allegations were shared far and wide on social media, boosted by paid Facebook ads.
Canadian media are subject to hate speech, defamation and slander laws. They would face legal action if they published this kind of propaganda, even as advertising. How can Facebook get away with it? Because we let them.
It’s bad enough that these tech companies circulate misinformation and extremism with impunity. What’s worse is that in doing so, they are siphoning advertising revenue away from respectable, Canadian publishers that sustain our democracy with quality journalism. Ottawa’s messed up tax policy does not just empower the sickness. It also suppresses the cure.
So here’s some unsolicited advice to Finance Minister Morneau. Want to help the struggling journalism industry, fight misinformation, and reduce the deficit all at once? Close the internet advertising loophole.
© Toronto Star