Mr. Chair and members of the committee, I thank you for allowing the organization Friends of Canadian Broadcasting to appear before you today.
On August 5, we submitted a proposal to you which contained several ideas for Budget 2017. Today, I am going to discuss subsection 19(1) of the Income Tax Act, which concerns the deductibility of advertizing expenses.
Recent changes in the advertising market threaten the future of Canadian media. In the 1960s and 1970s, Parliament recognized the threat of foreign media to the viability of Canadian media and introduced measures to prevent the deductibility of advertising expenditures in foreign-owned publications and broadcasters.
Section 19(1) was enacted in 1976. Its immediate result was to reduce Canadian ad spending on U.S. border TV stations by $10 million, which was about 10% of that year's total TV ad buy.
Since then, and until recently, section 19 has underpinned the viability of Canadian media, keeping Canadian ad revenues largely in the hands of Canadian players.
Early this century, Internet advertising began to take off in the Canadian market, growing from a total of $562 million in 2005 to $5.6 billion projected to 2016. Mr. Chair, in my remarks today, I have a couple of charts that illustrate this.
Today more than $5 billion in Canadian ad spending is going to foreign-owned Internet companies, approximately one-third of major media ad spend. That's 90% of Canadian digital advertising.
Section 19 provides that advertising expenses in newspapers and periodicals are deductible only if the ad is placed in an issue of the newspaper or publication that is edited and published in Canada and is owned by a Canadian citizen or a corporation that is effectively owned by Canadians.
Broadcast advertising expenses are not deductible if the ad is placed on a station or network whose content is controlled by an operator located outside Canada, if the ad is directed primarily to a market in Canada.
In 1996, the CRA issued an opinion that a “website” is not a newspaper, a periodical, or a broadcasting undertaking. This opinion specified that the comments represented a current position—that's a 1996 position—and might not indicate future views. It reflected the context of the Internet 20 years ago when websites did not perform the functions of print media or broadcasting because of bandwidth limitations. Of course, the only viewing platform then was the personal computer because there were no mobile smart phones and tablets. They just did not exist.
While the CRA interpretation may have been appropriate for 1996 technology, it does not apply to current practice where the content is distributed over the Internet to a wide range of devices using a variety of technologies and program languages to enable video and audio. Where a 1996 website could not provide broadcasting, newspapers, or periodicals, in 2016, the Internet does. Hence, a new interpretation of the Income Tax Act is required, one that acknowledges this reality.
The CRA noted that “newspaper” was not defined in the act. It therefore drew its definition from a contemporary version of Webster's dictionary, as well as a 1935 court case. Its definition of “broadcasting” derived from various references in the act, as no other definition was available in 1996.
Three years later, the CRTC which, as you know, is the body charged with interpreting the meaning of broadcasting in Canadian law, defined broadcasting transmitted over the Internet in its new media exemption order. The commission determined that broadcasting over the Internet was indeed broadcasting, since the Internet represented simply another form of telecommunication.
Hence, the time has come for the CRA to update its interpretation and end the deductibility of ads placed on foreign-owned, digital platforms. Doing so would respect the original intent of section 19 by helping Canadian media, essential to our democracy and to our culture, at a time when they need it more than ever.
Mr. Chair, this proposal is unusual because it would boost the consolidated revenue fund while defending Canadian media and hence, democracy.
Thank you.