Taxing Social Media
Tax Alert - May 2021
By Robyn Walker and Mila Robertson
Social media influencers can live a complex life. From keeping up with TikTok trends, to ‘vlogging’ their morning routines, and even live streaming their gaming habits. With the release of Inland Revenue’s (‘IR’) latest draft Interpretation Statement, their lives are about to get just that little bit more taxing, literally.
Positively, social media creators are joining cryptocurrency investors in a group of taxpayers deemed to have situations complicated enough they deserve tailored guidance from IR for their nuanced circumstances (see our previous articles here and here). This guidance shows that IR are committed to helping taxpayers with unique situations take a correct tax position.
Much of the contents of the draft interpretation statement should not be new to accountants, but they serve as a reminder of the general principles that underpin our tax system, and, importantly how they apply to a some unique situations. Essentially, this statement applies to anyone that posts online content including bloggers, youtubers, gamers and even Instagram models. We summarise some of the key points from the draft statement below.
When considering whether income will arise in the hands of the content creator, the general factors that deem income to arise for an individual need to be considered. These boil down consideration of the following points:
- The regularity of receipts;
- The relationship between the recipient and the payer; and
- The reason for the payment of the amount.
For amounts received to be income for content creators IR suggests the most important consideration is likely to be the regularity of receipts. For content creators, it would likely be a question of whether they are regularly receiving compensation for their posts or content. Obviously, payments to influencers are not likely to be neatly tied into the concept of regularity like salary and wage earners. However, if there is a pattern of the influencer receiving payments, income is likely to be derived and will need to be included in their tax returns.
As discussed further below, income does not just relate to cash payments influencers receive.
Influencers and companies who leverage influencers as a part of their marketing strategies will be aware payment for online content is not always, or often, received in cash. This means that influencers have to be a bit more creative in order to derive financial gain from their online content. Often this results in companies providing creators with their products to promote to their audiences - “freebies” can be the currency being operated in rather than cash. This is what IR terms a barter transaction.
For example, you are a company that specialises in producing the latest in hair straightening products. A way to directly market your hair straighteners to your target market would be to provide a beauty influencer with your newest hair straightener. The obvious benefit to the creator being the free hair straightener (which may have a retail price of several hundred dollars), with the company able to achieve low cost, targeted marketing in return, through the influencer posting on social media promoting the product. Although no cash is being exchanged, IR’s guidance suggests that if this was a regular occurrence for the beauty influencer, or part of their overall income earning activity, the influencer would be subject to tax on the re-sale value of the hair straightener.
A further closely related issue is if the influencer then goes on to actually resell the hair straightener. The implication of this being that income is again likely to arise for the influencer, being the amount the influencer resells the hair straightener for. IR is clear that there will be no double taxation and the guidance notes that a deduction will be allowed for the ‘cost’ (being an amount equal to the receipt).
Interestingly, when the influencer is provided with an experience or consumable item, income is unlikely to arise – unless the item can be monetised through sale. IR provides an example where a fashion blogger is invited to attend a runway show and her name is put on the door. In this instance there is no invitation or ticket that the influencer can re-sell and as such there is no income that arises. The same position is also true for consumable items that must be used during the promotion of a product or service (for example an online gamer who receives energy drinks to consume while streaming). IR also accept that some items may be a very low, or no, resale value; for example second-hand personal items.
Claiming deductions for expenditure in connection with income
Like with all self-employed individuals, certain expenditure will be deductible where it is incurred in connection with an income earning activity. IR emphasises in this guidance the point that expenditure that is private and domestic in nature, such as clothing, will almost always not be an allowable deduction. IR also notes that where content creators are incurring expenditure with a dual purpose of deriving income and their own personal use, there will need to be an adjustment to apportion the private use element as non-deductible. For example, claiming a deduction for depreciation loss on a creator’s laptop will likely need to be apportioned for the element of personal use that most likely occurs on the laptop.
One topic that may come as a surprise is that some payments to influencers will be considered schedular payments. The implication of this is that the person or company paying the creator has an obligation to withhold tax on these payments. Some examples include payments for:
- A performance at a sporting event or competition (or advertising a product as part of the event);
- Acting, signing, playing music, dancing or entertaining generally (or advertising a product as part of the event);
- Modelling fees (which includes personal attendance for any promotional purpose, for photography, for supplying personal photographs, or for supplying personal endorsements or statements); and
- Media production fees (e.g. producing a video for an advertisement).
Payments to creators to livestream their online gaming in an esports competition is explicitly given as an example of a schedular payment.
A further matter that content creators need to keep in mind is the GST implications of their activities. This guidance provides a timely reminder that where creators expect their supplies of goods or services to exceed $60,000 in any 12 month period, they need to register for GST and charge it on the goods and services they provide. This supply includes amounts derived in barter transactions as detailed above.
For more information on any of the topics above, please contact your usual Deloitte advisor.
May 2021 Tax Alert contents
- Inland Revenue is watching your residential property transactions
- Research and development tax incentive – New guidance and deadlines, you might be back in the running for a 15% credit
- Loss carry back rules – is it too late to get the benefit?
- Data analytics - Inland Revenue loves it, how can you make it work for your business?
- Time to review your Employer Superannuation Contribution Tax rates
- Taxing Social Media
- Do you know who can sign your corporate tax return?
- Snapshot of recent developments