Streaming and Taxation
With the introduction of YouTube Shorts, the Google-Alphabet-YouTube conglomerate is fighting for the niche market largely dominated by TikTok. But Twitch remains a fierce competitor to YouTube, at least for the online streaming market.
One of the upsides of Twitch is its user-friendly platform. It has had a larger amount of time and experience in providing users with a community-building platform. An element of this is the Gifted Sub; viewers can gift a one-month subscription (for any channel of their choosing) to another viewer. This can be friends, but it is also a way for the streamer to engage with their audience: often the streamer can use this monetary incentive as a bet to continue engaging their audience in real time.
But what does this mean for tax purposes ? Is a “gifted sub” truly a gift ?
Gifts and Taxation
Under Canada’s Income Tax Act, only income from a taxable source is included in computing tax. As a result, gifts generally fall outside of these sources and are considered “tax-free.” Please refer to our previous article for a discussion on the taxation consequence of gifting Capital Property.
The Federal Court of Appeal discussed gifts in greater detail in Bellingham v. The Queen, [1996] 1 CTC 187. Particularly, the Court noted that the purpose of the non-taxable gift is to pass value rather than generate value de novo. In essence, a non-taxable gift is one that is given without consideration to the giver (i.e. no compensation or taxable advantage) for the purpose of absolutely transferring the ownership right to the recipient. Throughout multiple cases, the Canadian courts have found several helpful factors to identify whether a gift is truly a gift.
Notable factors include the recipient having no legal claim or right to the gift, the recipient did not seek out or expect the amount, the gift was not to replace what would otherwise be the recipient’s taxable income, and similar transfers are unlikely to occur again. (For more discussions, please see Abraham v. MNR, [1960] 24 ABC 133 and Federal Farms Limited v. MNR, [1959] CTC 98).
Streaming and Taxation
Returning to the Gifted Sub, what is the most likely outcome ?
Unfortunately, the most glaring hurdle to characterize a Gifted Sub as a “non-taxable” gift is that it replaces a taxable source of income for the recipient streamer: employment or business income. This isn’t determinative, however, since in Federal Farms Limited, the farmer received an amount from a charity as relief for the devastation caused by a hurricane. The government wanted to charge the farmer tax on this amount, as it replaced the income he would have earned by farming. The Court rejected this argument, finding that there was no contract between the donors and the farmer, the farmer had no legal right or expectation to the amounts, and the donation was unlikely to be a recurring transfer.
There are arguments to be made that Gifted Subs are similar, and the facts may vary depending on the streamer, whether they stream as their primary source of income, whether they specifically solicit Gifted Subs etc. Generally, however, it would be quite difficult to characterize a Gifted Sub as a non-taxable gift if it forms the primary source of income for the streamer or was an expectation.
Unfortunately, each situation is unique to its circumstances and must be analyzed to answer the question as to whether it is taxable, or not.
If you have a question about your streaming income, gifts, or other tax matters, R&A Tax Law is here to help ! We aim to make the complex regime accessible to everyday taxpayers and our experienced professionals are well-equipped to assist with international and domestic tax issues, so give us a call today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
Sung Samson An