The Canadian government has made a significant move to introduce a digital advertisement tax, as digital advertising is still important for businesses to thrive and enter new markets. The government explained that the tax would be levied on e-commerce platforms based in Canada, targeting those platforms whose global income is more than 1.5 billion. Big tech like Google, Facebook, and Amazon are the ones most affected. But what does this mean for Canadian businesses that rely on these platforms?
In this blog, we’ll explore what the digital advertising tax Canada is, how it could impact Canadian businesses, and what steps you can take to stay ahead of these changes.
What is the Digital Advertising Tax in Canada?
Table of Contents
Basically, the digital advertising tax is a plan to only tax the very large international companies that get advertising revenues from Canada although they get it as a result of end-users’ viewing ads on these platforms. The Canadian government is the one responsible for taxing major companies like Google, Facebook, and Amazon, who bring in huge amounts of revenue and pay very low taxes.
It is expected that this tax shall apply to only big foreign companies offering digital advertising in Canada. While the actual businesses won’t be taxed, there’s a very high chance that these big tech companies, to compensate for the tax, shall put the burden on the advertisers by increasing the cost of online advertising. Indeed, the higher the tax goes, the bigger the price of advertising gets.
What Could This Mean for Your Business?
If your business relies on digital advertising, understanding how this online advertising tax could affect you is crucial. The tax could lead to higher advertising costs, disrupt your current marketing budget, and require you to rethink your advertising strategies. Let’s break it down:
Increased Costs for Online Advertising
One of the first direct and most likely tax implications for advertisers is that the ad cost would increase. It would become more expensive for Google and Facebook as they might hike the prices of the ads they offer in order to cover the alleged new tax, that is, in the end, the Canadian businesses would have to pay more for the same number of ad placements.
Digital advertising is often a very important part of the marketing budget for many businesses, especially smaller ones. If costs go up, you could ask yourself if you need to budget more money to keep your current level of visibility or if you should choose different platforms.
If your company is among those mentioned here, then you should analyze how much of your marketing budget is allocated to digital ads and how the price hikes could affect the growth of your business. You might have to contemplate how you can make your campaigns more effective with the given ad budget.
Also Read: Hook Ads That Work: 10 Real Examples and Strategies
A Bigger Hit for Small and Medium-Sized Businesses
Small and medium-sized businesses (SMEs) may be impacted severely by this tax. Many Canadian SMEs rely on cost-effective digital advertising to have a fighting chance against the larger and stronger players in the market. Increasing the costs of advertisement, these businesses can struggle to receive the same product from their advertising campaigns as before.
Rethinking Your Advertising Strategy
With the rising costs, businesses may possibly find the need to change the strategies of their digital advertising. Those of you who have been used to marketing only on Facebook, Google, or Instagram need to look for other advertising channels besides the big three. Take into account the fact that content marketing, email marketing, and search engine optimization (SEO) are things that are crucial for you to maintain your marketing efforts, cut down the costs of paid digital ads, and therefore be successful in the future.
An alternative might be to look at other platforms that might not be as affected by the tax. Local advertising options and/or influencer marketing could be great ways to keep your company on the radar without investing much in digital ad marketing that would be affected by the increases of the cost.
Tax Compliance and Record Keeping
The implementation of the Canadian business tax laws for digital marketing will require companies to keep a more vigilant record of their advertising expenses. You most likely will have to monitor the amount you are spending on digital advertising and the platforms you are using. In addition, this will ensure compliance with the tax reporting requirements and you can also make calculated conclusions about your marketing strategy in the future.
If you work with multiple platforms or ad agencies, you may want to revisit your contracts to better understand how they’ll be impacted by the tax and whether you’ll need to revise your budgeting approach.
How Can You Prepare for the Digital Advertising Tax?
While the digital advertising tax is still in the proposal phase, it’s important to start preparing. Here are some practical steps to take now:
Reevaluate Your Marketing Budget
The first step is to reevaluate your marketing budget. If you rely heavily on digital advertising, now is the time to assess how much of your budget goes to online ads and whether you can expect costs to increase. If digital ad costs do rise, you’ll need to ensure that your budget can absorb the changes.
Consider running simulations to see how a price increase would affect your campaigns. You might also want to set aside a contingency fund to cover potential cost increases.
Diversify Your Advertising Channels
Don’t put all your eggs in one basket. While Google and Facebook dominate the digital ad space, they may soon become more expensive. To prepare for this, think about diversifying your advertising channels. Explore other social media platforms, like LinkedIn or Twitter, that might offer lower ad costs or better engagement for your audience.
You can also focus on non-paid advertising strategies, such as organic social media growth, SEO, or content marketing. These strategies might take more time to yield results but can provide long-term benefits without the increased cost burden.
Work with a Tax Professional
Since new taxes can bring confusion, it’s always a good idea to consult a tax professional. A tax expert can help you understand how the digital advertising tax might affect your specific business. They can also guide you on how to stay compliant and manage any increased advertising costs effectively.
For businesses that operate in multiple regions or rely on cross-border transactions, getting professional advice is essential for navigating the complexities of international tax laws.
Stay Up to Date with Policy Changes
Tax laws can change quickly, so it’s important to stay informed about the latest developments. Keep an eye on government announcements, industry news, and expert opinions on the digital advertising tax. By staying updated, you can be proactive rather than reactive, which will give you a competitive edge.
Conclusion: The Road Ahead for Canadian Businesses
The digital marketing tax Canada represents a significant change that could affect the way businesses approach online marketing. While it will primarily impact large international companies like Google and Facebook, Canadian businesses will feel the effects through increased advertising costs.
To prepare, it’s essential for businesses to reevaluate their marketing budgets, diversify advertising channels, and stay informed about the potential tax changes. For SMEs, especially, adjusting your advertising strategies now will help you stay competitive and maintain your marketing effectiveness.
As this new tax proposal develops, staying ahead of the curve will be key to ensuring your business continues to thrive in the digital advertising space.