Trump’s tax plan could help Canadian advertising firms that use free rental ads to advertise the Trump brand and other brands, The Globe and Mail’s Andrew Coyne reports.
The government has said that it wants to discourage companies from doing business with the president.
That’s a big win for advertising and digital businesses that rely on free rental ad revenue, which is one of the main drivers of online ad revenue.
But some of those firms could be left with a $2 million tax bill.
“The tax break is designed to be a win for those companies that rely heavily on rental ad revenues, but it could be a big deal for a handful of the companies that are in Canada,” said Michael Pacey, senior vice president for research at market research firm Canaccord Genuity.
The Globe & Mail reported last month that the federal government is asking for a total of $3.6 billion in back tax relief for Canada’s advertising industries in the next three years, the most in recent memory.
The move follows a ruling by the Canadian Broadcasting Corporation (CBC) in February that free rental advert revenue had become a form of political spending by the Trump administration.
“We’re still at the beginning stages of figuring out exactly how it will be applied,” CBC senior political editor Peter Mansbridge said in a CBC News interview at the time.
“I think there’s going to be some significant issues, but I think the basic point is it’s an incentive to engage in political activity that’s generally prohibited under Canadian law.”
Pacey said the CBC decision would likely not impact Canada’s ad revenue because most Canadian companies have been operating under a tax exemption for advertising for decades.
But he said the new tax measure could lead to significant tax increases for Canada-based advertising companies that have relied on free advertising revenue for a long time.
Canadian advertising companies, like some other countries, have long used the tax code to exempt from their own tax bills a portion of the cost of political advertising, often as much as 10 per cent or more.
That means many advertising firms rely on rental ads, which are used to advertise brands like Trump, to advertise products and services.
“They’re the big beneficiaries, and they’re going to get the most benefit from this,” Pacey told The Globe.
Canada-owned digital media giants like CBC and Postmedia have already filed lawsuits to challenge the Trump tax plan, and have argued the move would hurt them and others in the advertising industry.
Canada’s Advertising Standards Authority is still reviewing the Trump proposal, but Pacey and other industry experts say the plan could make it more difficult for Canadian ad agencies to compete on the international stage.
“There’s going of course a potential tax bite for some Canadian companies that depend on rental advertising,” said Kevin D’Orazio, senior analyst at market researcher Canaccent.
“It would be a huge hit to them.”