Ottawa plans tax reform to drive advertising with Google and Meta back to Canadian media

Ottawa is looking closely at tax reform to encourage businesses to shift advertising from Meta, Google and other foreign tech platforms, back to Canadian media, Heritage Minister Pascale St-Onge told a Commons committee on Thursday.

The government is examining reforms to the Income Tax Act to strip away incentives to advertise with foreign platforms, which mean that Canadian newspapers and broadcasters lose out.

The move to further help the media follows a deal struck by Ms. St-Onge with Google on Wednesday, which will lead to an annual $100-million cash injection into Canadian print, digital and broadcast media.

In heated scenes at the House of Commons heritage committee Thursday morning, Conservative heritage critic Rachael Thomas faced a backlash from other MPs, after she said she would prefer it if Ms. St-Onge, who is a francophone, reply to her in English rather than French.

Bloc Québécois MP Martin Champoux said the request was “insulting to Quebeckers and francophones” and the minister should be able to reply in the language of her choice.

Ms. St-Onge told reporters afterward that she felt “very insulted” to be told she could not speak in a Commons committee in her mother tongue, adding that French is one of Canada’s two official languages. On the floor of the House of Commons, she expressed her dismay at Ms. Thomas’s request.

Ms. Thomas apologized later in the day in a letter to the heritage committee saying the Conservative Party supported bilingualism, the preservation of French and the right of Canadians to communicate in the language of their choice.

Answering questions from MPs, Ms. St-Onge said the deal with Google was “the first step” in help for the news industry, which has seen closings and job losses. Ms. St-Onge said the government is looking “very seriously” at how to encourage people to advertise on Canadian news outlets, including through the tax system.

In reply to a question from NDP heritage critic Peter Julian, she said reform of tax rules on deducting the cost of advertising “is one solution that we are considering to better support the sector, but also to encourage people to advertise mostly via our Canadian news outlets.”

She said digital platforms had “disrupted the advertising market and most of the revenues now flow to Google and Facebook.”

A 2018 Senate committee report recommended changes to the Income Tax Act, including rules that allow advertising purchased by businesses on foreign websites to be counted as a fully deductible expense, while there are restrictions for deducting the cost of advertising with Canadian media.

Owen Ripley, associate assistant deputy minister, said Section 19 of the Income Tax Act allows businesses to deduct expenses including for advertising.

Mr. Julian suggested the tax provision, allowing businesses to deduct the cost of advertising with Google, amounts to an indirect subsidy of the tech giant.

Friends of Canadian Broadcasting told the Senate committee inquiry into the tax deductibility of foreign internet advertising in Canada that it estimated around 10 per cent of money spent by Canadian businesses on foreign internet advertising would shift back to Canada if the expenses were no longer entirely tax deductible.

“FRIENDS first brought attention to this matter back in 2017, so we are pleased to see that parliamentarians are finally looking at options to close the loophole in the Income Tax Act – a loophole that is the product of definitions not keeping up with technology,” executive director Marla Boltman said. “With some easy fixes, Ottawa could reinvigorate a significant means of supporting Canadian media and journalism.”

News Media Canada, a national association that represents the news industry, including The Globe and Mail, said the tax reform is long overdue.

“Since 1996, we have had an uneven playing field where Canadian businesses are incentivized for income tax reasons to advertise with foreign web giants over our domestic news publishers. It is time to end this unfair practice, which sends scarce ad dollars south,” said Paul Deegan, president and chief executive officer.

Google and Meta declined to comment.