Principal Issues: Whether amounts that are incurred to advertise on Social Media are deductible business expenses.
Position: Yes provided the conditions in paragraphs 18(1)(a), (b) and (h) are met and the amount is reasonable in the circumstance.
Reasons: See letter.
XXXXXXXXXX 2017-071947 S. D’Angelo September 20, 2017
Dear XXXXXXXXXX:
Re: Deductibility of Advertising Expenses
This is in reply to your correspondence of September 5, 2017, and our telephone conversations of September 1 and September 5, 2017 (D’Angelo/XXXXXXXXXX), wherein you requested our views on whether amounts incurred to advertise on social media networks by Canadian taxpayers would be considered deductible business expenses.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
In order to qualify as a deductible business expense, an expense must be made or incurred by the taxpayer for the purpose of gaining or producing income from a business (paragraph 18(1)(a) of the Act), must not be on account of capital (paragraph 18(1)(b)), must not be a personal expense (paragraph 18(1)(h)) and the amount of the expense must be reasonable in the circumstances (section 67). Accordingly, advertising expenses related to earning income are generally deductible provided these conditions are met.
However, sections 19, 19.01, and 19.1 of the Act may also apply to limit or deny the deduction of advertising expenses where such advertising (referred to in this letter as “foreign advertising”) takes place in a broadcast or an issue of a newspaper or periodical when certain Canadian content or Canadian ownership requirements are not met. It is our view that these particular rules do not apply to limit the deductibility of foreign advertising expenses on foreign social media sites or networks, including foreign websites.
We trust that these comments will be of assistance.
Yours truly,
Michael Cooke, CPA, CA
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate