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David Rotfleisch on How OnlyFans Income is Taxed in Canada, Plus How Other Social Media Income is Taxed

posted 3 months ago

Overview: Understanding OnlyFans

Back in 2016, British entrepreneur Timothy Stokely introduced a fresh social media platform known as OnlyFans. This platform operates on a subscription-based model, providing content creators and social media influencers the means to earn money from their content, including videos and images. Notably, OnlyFans serves as a platform where these individuals can share content that might be deemed excessively provocative or sexual for conventional social media platforms. Creators have the option to grant free access to their OnlyFans page or limit it by requiring payment via a monthly fee or a one-time tip to access their content.

Individuals known as fans (or subscribers) who decide to subscribe to an OnlyFans page must be of legal age, that is, at least 18 years old. They are obligated to furnish authentic government identification during the sign-up process. Subscribers who opt to make payments through a monthly fee or a one-time tip:

(1) Obtain entry to a stream of provocative, frequently explicit, and adult-oriented content featured on the content creator’s OnlyFans page,

(2) Are able to directly communicate with the content creator through private messages, and

(3) Have the option to provide a “tip” to the content creator, leading to the reception of customized pictures and videos crafted to fulfill their particular sexual inclinations and preferences.

Content creators and social media influencers who maintain an OnlyFans page have the option to raise their fees according to the specific requests and preferences of their subscribers. Platforms like OnlyFans facilitate an interactive environment, enabling content creators to effectively monetize their content while fostering a direct connection with their audience.

Ordinarily, the monthly subscription charge for an OnlyFans page spans from $5 to $20. These fees, along with tips, are collected by OnlyFans, with 80% of the total (comprising the fees and tips) being remitted to the content creator. The remaining 20% is retained as the platform’s service fee. Additionally, OnlyFans presents a referral initiative, granting individuals who refer content creators the opportunity to receive 5% of the earnings generated by the referred creator during the initial 12 months, on the first $1 million earned by the creator.

As reported by the New York Times, during OnlyFans’ inception in 2016, Dannii Harwood was among the initial ten content creators who garnered subscribers. In her initial month, Harwood’s earnings from her OnlyFans page amounted to $257. Subsequently, in August 2020, her earnings reached $29,420.47, followed by $34,303.24 in September, $52,693.29 in October, and $52,760.49 in November, all sourced from her OnlyFans page. According to the official OnlyFans website, the platform boasts over 1 million content creators worldwide and disburses more than $3 billion in annual payments to its content creators.

OnlyFans offers content creators and social media influencers a digital platform that offers numerous avenues for diversifying and maximizing earnings. However, the Canada Revenue Agency (CRA) maintains ongoing concerns regarding the potential failure of content creators to declare their taxable income from OnlyFans, as well as income generated from other online platforms.

On the other hand , professional Canadian tax lawyers hold reservations about the CRA’s tax audit strategies (outlined below), which primarily target identifying instances where content creators might be evading their appropriate tax obligations on OnlyFans earnings in Canada.

Is Income Earned from OnlyFans Subject to Taxation?

Canadians must disclose all income derived from their OnlyFans page, other online platforms, and any other sources of revenue, including offshore sources, to the CRA.

Is Reporting OnlyFans Income Mandatory for Canadian Taxes?

In case you have undisclosed taxable income from OnlyFans or revenue stemming from other online platforms, it’s prudent to reach out to our certified specialist Canadian tax lawyer within our tax law firm in Toronto. Our Canadian tax lawyers can provide pertinent tax advice on legitimate approaches to lessen and meet your tax liabilities concerning OnlyFans earnings in Canada, effectively averting penalties and the possibility of facing tax evasion charges.

How Should OnlyFans Income Be Reported for Canadian Taxes?

If you are an individual creating content on OnlyFans and earning income, you are generating taxable earnings that necessitate the payment of taxes, just like other self-employed individuals and Canadian business proprietors. The positive aspect is that you also have the opportunity to deduct applicable business expenses to mitigate the amount of taxes you owe on your OnlyFans income.

The extent of your OnlyFans tax obligation, the timing of your OnlyFans income tax payment, and the specific OnlyFans tax forms to be filed, among other factors, are contingent on your registration status with the CRA and your earnings level. These determinations hinge on whether you are registered as a sole proprietorship or a corporation. For instance, if you are established as a sole proprietorship, your tax rate will sometimes be higher compared to being registered as a corporation, depending on the amount of your income. Furthermore, if your OnlyFans revenue surpasses $30,000, it is mandatory for you to register for, levy and remit GST/HST.

These are merely two fundamental rationales for seeking advice from a top Canadian tax lawyer to obtain expert tax planning guidance before setting up your OnlyFans business.

How CRA Auditors Detect Unreported OnlyFans Income for Canadian Taxes

On December 3, 2020, the Canada Revenue Agency (CRA) confirmed that its tax auditors are closely monitoring Canadian social media influencers, aiming to verify if their earnings from social media are accurately disclosed in their individual income tax returns.

For instance, the CRA continually observes social media profiles and content for conspicuous indications of undisclosed wealth and/or gifts (like winnings or assets), cross-referencing these findings with the details content creators declare on their tax filings.

As per the National Post, Ted Gallivan, the Assistant Commissioner at the Canada Revenue Agency, mentioned that content shared on social media platforms can offer insights into an individual’s earnings, received prizes, or assets. This content can function as tangible proof that validates initiating discussions with content creators regarding their OnlyFans tax responsibilities and other income derived from social media, as per Canadian tax regulations.

The CRA’s intention in closely monitoring social media influencers is to spot individuals evading taxes, foster adherence to Canada’s tax framework, and ensure the collection of taxes on unreported earnings.

The CRA initially conducted research concerning taxable income from OnlyFans and the earnings of social media influencers. Presently, the agency is executing its strategy aimed at motivating online creators to adhere to Canada’s income tax regulations.

The current emphasis of the CRA’s enforcement strategy is on social media influencers and OnlyFans content creators earning over $500,000 per year. Recently the tax agency has allocated a specialized team of 60 tax auditors specifically dedicated to addressing OnlyFans taxes in Canada and unreported income originating from online platforms.

They depend on open-source intelligence to aid in the identification of unreported income generated by social media influencers. Open-source intelligence involves a multifaceted methodology where the CRA gathers, evaluates, and draws conclusions from data extracted from online platforms linked to social media influencers, like their posts on Facebook and Twitter.

The CRA clarified that its enforcement strategy is designed to educate social media influencers about their tax responsibilities as outlined in Canada’s income tax laws. Subsequently, the tax agency assesses whether these influencers respond in accordance with the information provided.

As reported by the National Post, Ted Gallivan, Assistant Commissioner at the Canada Revenue Agency, communicated that the CRA has effectively concluded 40 tax audits based on internet platforms, resulting in a total of approximately $500,000 in suspected unpaid taxes being reassessed. Moreover, there are currently 200 ongoing audits.

In a bid to enhance the enforcement of Canada’s tax regulations, particularly in the realm of social media, the CRA engaged with consulting firms to ensure their awareness of the digital tax legislation that took effect on July 1, 2021.

The new digital tax legislation mandates specific digital platform operators to gather federal sales tax from Canadian consumers.

The CRA estimated that the inclusion of international digital platforms like Google, Netflix, and Airbnb in the requirement to register for and gather GST/HST from Canadian consumers will generate $1.2 billion over the next five years. Additionally, the CRA disclosed its allocation of $606 million in new funding over that period to reinforce tax audit initiatives aimed at addressing international tax evasion and aggressive tax avoidance.

NewNew: What is This?

NewNew is a different income-generating social media platform, providing content creators and social media influencers the opportunity to share videos, form private chat groups, and monetize various aspects of their lives.

Content creators extend invitations to their fans for participation in private or semi-private groups, with fans making payments to cast votes on the content creator’s daily activities and the activities they choose to engage in.

As reported by the New York Times, Courtne Smith, the founder of NewNew, mentioned that content creators and social media influencers are embracing this platform due to the potential for diversification it offers.

Exploring the Pros and Cons of CRA Auditors Monitoring Canadian Social Media Influencers for OnlyFans Income and Tax Compliance

For a considerable time, the CRA has been actively observing social media platforms to ascertain if taxpayers are sharing information and content that doesn’t align with their declared income. Therefore, the scrutiny of social media influencers as a means to track tax revenues is a continuation of the CRA’s persistent endeavours to ensure adherence to Canada’s tax system, especially concerning e-commerce activities and social media channels.

The CRA’s enforcement strategy also mirrors its initiatives to tackle concerns related to international tax evasion and aggressive tax avoidance, while promoting transparency and equity within Canada’s tax framework.

Yet, the efficacy of the CRA’s enforcement plan in identifying unreported income derived from social media platforms like OnlyFans and NewNew remains uncertain.

As highlighted earlier, Canadians are obligated to declare all income derived from their social media accounts and other online platforms, and settle their dues, including OnlyFans Canada taxes, with the CRA. Neglecting this responsibility amounts to tax evasion in Canada.

Under Subsection 238(1) of the Income Tax Act, individuals who neglect to submit a tax return are deemed to have committed an offence. Apart from any other applicable penalties, individuals convicted of tax evasion on summary conviction could incur either (a) fines ranging between $1,000 and $25,000, or (b) both the fine outlined in paragraph (a) and imprisonment for a maximum period of 12 months.

Furthermore, in accordance with paragraph 239(1)(b) of the Income Tax Act, individuals who intentionally avoid payment of taxes levied by the Act could face, upon summary conviction, either (a) a fine spanning 50% to 200% of the sum of evaded tax, or (b) both the fine mentioned in paragraph (a) and a potential imprisonment term of up to two years.

Additionally, under subsection 327(1) of the Excise Tax Act, individuals convicted of tax evasion on summary conviction could face fines ranging from 50% to 200% of the GST/HST amount attempted to be evaded, along with the possibility of up to two years of imprisonment.

Also, under subsection 327(2), the Canadian tax litigation lawyers responsible for prosecuting the cases for the CRA possess discretionary powers to opt for indictment. In this scenario, fines could vary between 100% and 200% of the tax amount that was attempted to be evaded, along with the potential for imprisonment of up to five years.

Concentrating solely on social media influencers earning over $500,000 fails to fully tackle the persistent non-compliance challenges within Canada’s tax regulations. It’s highly likely that, with the current mechanisms established to analyze social media data and cross-reference it with income, awards, and assets declared in tax filings, the CRA will adopt a more comprehensive approach to tax audits and extend their focus to encompass lower levels of unreported income.

As social media platforms like OnlyFans drive the CRA to develop fresh and innovative approaches for income tax audits and verification, the intense monitoring of social media profiles raises ethical and privacy considerations. Questions arise about the legality of CRA agents investigating OnlyFans and NewNew pages without initial evidence of the content creator’s misconduct.

Furthermore, the restricted nature of the invite-only feature on NewNew might pose challenges to the CRA’s efforts to scrutinize NewNew pages. This raises a significant question about the adequacy of these efforts to ensure adherence to Canada’s tax regulations and effectively address concerns of tax avoidance or evasion within the rapidly expanding digital market.

Tax Pro Tips – Understanding OnlyFans Taxes in Canada: Tax Advice and the CRA’s Quest for Unreported Taxable Income

Should you have inquiries regarding CRA tax audits, undisclosed taxable income from OnlyFans or other social media-generated revenue, or if you are a content creator on OnlyFans or NewNew facing a CRA tax audit, reach out to our experienced Canadian tax lawyers for expert advice. You could potentially be eligible for relief through the CRA’s voluntary disclosures program (VDP).

Voluntary disclosures, often referred to as tax amnesty, constitute an intricate realm of law necessitating comprehensive assessment and guidance from a seasoned Canadian tax lawyer.

The aim of the VDP is to prevent “tax evasion and aggressive tax avoidance” in order to establish a tax system that is equitable and responsive to all Canadians. Canada’s Voluntary Disclosures Program encourages adherence to the law and provides taxpayers the chance to voluntarily (1) rectify incorrect or incomplete information, and/or (2) disclose to the CRA information that was previously unreported.

Regarding OnlyFans taxes in Canada, individuals who possess unreported income from social media or content creation could qualify for penalty relief and partial interest relief through Canada’s Voluntary Disclosures Program. A valid application for the Voluntary Disclosures Program must:

     

      • Be submitted voluntarily;

      • Be complete and thorough;

      • Include payment of estimated outstanding taxes. If the taxpayer is unable to make immediate payment, he or she can request a “payment arrangement”;

      • Provide information about overdue income tax for at least one year;

      • Include information regarding outstanding GST/HST for at least one overdue reporting period.

    For eligibility in the Voluntary Disclosures Program, the taxpayer needs to present a comprehensive application that adheres to the program’s aforementioned criteria.

    If you’ve failed to report taxable income from OnlyFans or require assistance with tax planning to mitigate your tax obligations, contact our tax law firm where our top Canadian tax lawyers are ready to provide expert guidance.

    Frequently Asked Questions

    I have a full-time job and recently started creating content on OnlyFans to earn some additional income. Do I have to pay taxes on this income?

    Any income, such as from OnlyFans, earned in Canada, including earnings on a part-time basis, has to be reported on your Canadian tax return. If you don’t report all of your income you face the risk of being charged with tax evasion.

    OnlyFans constitutes my only source of income and I have a large OnlyFans presence and incur expenses for my Internet, costumes and makeup etc. Can I deduct these expenses?

    Your OnlyFans business is treated in the same way as every other business in Canada.  This means that you need to keep proper books and records and should probably consider hiring an accountant or a bookkeeper. All of your revenue has to be declared and all expenses incurred in earning that revenue are deductible.  You will file an annual tax return showing what your net income is. If you earned more than $30,000 you will also need to register for GST/HST.

    Disclaimer:

    “This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.”

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