Introduction - What is OnlyFans?
In 2016, British entrepreneur Timothy Stokely launched a new social media platform, namely, OnlyFans. OnlyFans is a subscription-based website that allows content creators and social media influencers to monetize their content such as videos and photos. In particular, OnlyFans is where content creators and media influencers post content that is too provocative or sexual for other social media platforms such as Instagram. Content creators or social media influences can allow free access to their OnlyFans page or they can restrict access by locking their content behind a paywall for a monthly fee or a "one-off" tip.
Fans (also referred to as subscribers) who subscribe to an OnlyFans page must be at least 18 years of age and are required to provide a valid government identification to sign up. Subscribers who pay a monthly fee or a "one-off" tip (1) gain access to a feed of provocative, often sexual including pornographic, videos and pictures and content on the content creator's OnlyFans page (2) can send direct messages to the content creator, and (3) may "tip" the content creator to receive pictures and videos, created on demand, according to their sexual desires and preference. Content creators and social medial influences with an OnlyFans page can increase their fees depending on the subscriber's requests and demands. In this context, web platforms including OnlyFans provide an interactive space between content creators and their fans thereby making it easier for content creators and social media influencers to monetize various aspects of their lives. Typically, the subscription fee for an OnlyFans page ranges between $5 and 20 monthly. Subscription fees and tips are collected by OnlyFans which pays out 80% (of the fee or tips collected) to the content creator and retains the remaining 20% as its fee.
OnlyFans also offers a referral program wherein individuals who refer a content creator can earn 5% of the referred creator's earnings for the first 12 months on the first $1 million earned by the creator. According to the New York Times, when OnlyFans was established in 2016, Dannii Harwood was one of ten content creators who gained subscribers. Harwood's first month earnings from her OnlyFans page was $257. In 2020, Harwood earned $29,420.47 in August, $34,303.24 in September, $52,693.29 in October and $52,760.49 in November from her OnlyFans page. According to the OnlyFans webpage, it has over 1 million content creators worldwide and it pays out over $3 billions annually to its content creators.
OnlyFans provides content creators and social media influencers with a web platform that allows a wide range of options to diversify and optimize earnings. However, CRA has ongoing concerns associated with unreported income earned by content creators and social media influencers appearing on OnlyFans, and all other web platforms. In addition, professional Canadian tax lawyers have concerns surrounding the Canada Revenue Agency's (CRA) tax audit methods (described below) focused on detecting when content creators are not paying their fair share of income tax.
If you have unreported income earned from OnlyFans, and all other web platforms, consider contacting our certified specialists in taxation Canadian tax lawyer for appropriate tax guidance with respect to a remedying your compliance issues to avoid penalties and potential tax evasion prosecution.
OnlyFans and CRA's Auditors Search for Unreported Tax Revenues
Canadians are required to report all income earned through their OnlyFans page, all other web platforms, and all other sources, to the CRA. On December 3, 2020, the Canada Revenue Agency (CRA) confirmed that its tax auditors are watching Canada's social media influencers to determine whether their income from social media are fully reported in their personal income tax filings. For example, the CRA is spying on social media pages and content for clear signs of unreported wealth and/or gifts (such as prize money or assets) and is subsequently comparing such content with the information that such content creators are reporting as income. According to the National Post, Ted Gallivan, Assistant Commissioner at the Canada Revenue Agency, stated that social media platforms could provide a sense of a person's revenue and prize money or assets received, all of which can serve as physical evidence that facilities a conversation with the content creator regarding their income tax obligations pursuant to Canada's tax laws. In addition, according to the CRA, the purpose of keeping a close eye on social media influencers is to identify tax evading taxpayers, encourage compliance with Canada's tax system and collect taxes on unreported income.
The CRA conducted initial research surrounding income earned by social media influencers and it is currently in the process of finalizing an enforcement plan that encourages compliance with Canada's income tax system. CRA's enforcement plan will focus on social media influencers with income earnings of above $500,000 annually. At present CRA has a dedicated team of 60 specialized tax auditors focused on unreported income from Internet platforms. In particular, the CRA is relying on open-source intelligence to help identify unreported income earned by social media influencers on Facebook and Twitter. Open-source intelligence is a multi-method approach whereby the CRA collects, analyzes and makes decisions based on data retrieved from online pages associated with social media influencers such as Facebook and Twitter. The CRA explained that its enforcement plan aims to educate social media influencers about their tax obligations, pursuant to Canada's income tax legislations, and then check to see if they respond accordingly. According to the National Post, Ted Gallivan, Assistant Commissioner at the Canada Revenue Agency stated that the CRA have successfully concluded 40 Internet platform-based tax audits and "reassessed roughly $500,000 in total suspected unpaid taxes. There are another 200 audits currently underway."
In an effort to increase enforcement with Canada's tax law, specifically in context of social media, CRA's intends to reach out to consulting businesses to ensure that they are aware of the digital tax legislation which will become applicable effective as of July 1, 2021. The new digital tax legislation will require digital corporations such as Google, Netflix and Airbnb to collect federal sales tax from Canadian consumers. However, Parliament has yet to approve this new legislation. The CRA anticipates that requiring international digital platforms such as Google, Netflix and Airbnb to register for and collect GST/HST from Canadian consumers will raise $1.2 billion dollars over the next five years. The CRA has also announced that over the next five years it will have $606 million dollars in new funding to support tax audit programs that target international tax evasion and aggressive tax avoidance.
What is NewNew?
Another new emerging social media platform is NewNew and it allows content creators and social media influences to share videos and create invite-only chat groups. In particular, NewNew allows content creators and social media influencers to monetize all aspects of their lives whereby, content creators invite their fans to private or semi-private groups and the fans pay to vote on the content creator's daily activities and choice of activity. Five votes on NewNew cost fans $4.99. According to the New York Times, NewNew's founder, Courtne Smith, stated that content creators and social media influencers are joining this platform "for the promise of diversification".
The Benefits & Concerns Associated with CRA's Auditors Keeping an Eye on Canada's Social Media Influencers in Search for Tax Revenues
The CRA has long monitored social media platforms to determine whether Taxpayers are posting information and content that are inconsistent with their reported income. As such, keeping an eye on social media influencers in search for tax revenues reflects CRA's ongoing effort at ensuring compliance with Canada's tax system, particularly in context of e-commerce transactions and social media platforms. CRA's enforcement plan also reflects its initiatives at addressing issues pertaining to international tax evasion and aggressive tax avoidance, as well as encouraging transparency and fairness throughout Canada's tax system. However, it is not clear how efficient CRA's enforcement plan will be in context of identifying unreported revenue generated through social media platforms such as OnlyFans and NewNew. Even if the digital tax legislation is approved, it is unclear whether (or not) OnlyFans will be subject to new legislation.
As previously mentioned, Canadians are required to report all income earned through their OnlyFans page, and all other web platforms, to the CRA and failure to do so constitutes tax evasion. In addition, CRA has data mining tools to allow it to monitor web platforms, including OnlyFans or NewNew, and it can then check for compliance. In context of tax evasion, subsection 238(1) of the Income Tax Act provides that a person who has failed to file a tax return is guilty of an offence and, in addition to any penalty other provide provided, on summary conviction of tax evasion (a) fines range between $1,000 and $25,000, or (b) both the fine described in paragraph (a) and imprisonment not exceeding 12 months. In addition, paragraph 239(1)(b) of the Income Tax Act provides that a person who evades payment of a tax imposed by Canada's tax act is liable on summary conviction to (a) a fine ranging between 50% to 200% of the amount of the tax that was sought to be evaded, or (b) both the fine described in paragraph (a) as well as up to two years imprisonment. Further, subsection 327(1) of the Excise Tax Act provides that on summary conviction of tax evasion, fines range between 50% to 200% of the amount of the tax that was sought to be evaded as well as up to two years imprisonment. Moreover, subsection 327(2) grants the Canadian tax litigator carrying out the prosecution for CRA discretionary powers to proceed by way of indictment in which case fines range between 100% and 200% of the amount of tax that was sought to be evaded plus up to five years imprisonment.
CRA's enforcement plan at present is focused on social media influencers with income above $500,000 annually. Focusing on social media influencers with income above $500,000 does not address the ongoing non-compliance issues of Canada's tax systems, in context of the digital world including OnlyFans so there is little doubt that once CRA puts systems in place they will take a more broadly based tax audit approach and will target lower unreported income amounts.
As previously explained, the CRA is scrutinizing social media pages to tackles issues surrounding tax evasion or avoidance by content creators and social media influencers. In addition, the CRA is scrutinizing the pages of Canada's top social media influencers to ensure compliance with Canada's tax system and to collect taxes on unreported income. On the one hand, social media platforms, such as OnlyFans, are forcing the CRA to find new innovative methods to conduct its income tax audit and verification techniques (such as examining content creator's online presence and content). On the other hand, CRA's scrutiny of social media pages raises privacy and ethical concerns, and whether CRA agents have the legal authority to investigation OnlyFans and NewNew pages without preliminarily evidence of the content creator's wrongdoing. In addition, the invite only feature on NewNew could potentially limit CRA's attempts to investigate NewNew pages. This also begs the question of whether CRA's efforts are enough to ensure compliance with Canada's tax laws and tackle issues of tax avoidance or evasion, within the realm of booming digital market.
Pro Tax Tips - OnlyFans, NewNew, Tax Guidance and CRA's Search for Unreported Tax Revenues
If you have questions concerning CRA's tax audits or if you are an OnlyFans and/or a NewNew content creator or a social media influencer undergoing a CRA tax audit contact one of our top Canadian tax lawyers for tax guidance.
If you have unreported income earned through OnlyFans or any other social media platform you may qualify for relief through CRA's voluntary-disclosures program (VDP). Voluntary disclosures, also known as tax amnesty, are a complex area of law that requires detailed analysis and advice from an experienced Canadian tax lawyer. Consider contacting our certified specialists in taxation Canadian tax lawyer for appropriate tax guidance with respect to a possible voluntary disclosure application.
The purpose of the Voluntary Disclosures Program is the avoidance of "tax evasion and aggressive tax avoidance" to ensure a tax system that is responsive and fair for all Canadians. Canada's Voluntary Disclosures Program promotes compliance with the law and allows taxpayers the opportunity to voluntarily (1) correct inaccurate or incomplete information; and/or (2) disclose to the CRA information which was not previously reported. In context of OnlyFans, Canadian taxpayers who have unreported income earned through social media or content creation may be eligible for penalty relief and partial interest relief under Canada's Voluntary Disclosures Program. A valid Voluntary Disclosures Program application must:
- Be "voluntary";
- Be "complete";
- Include payment of the estimated taxes owing. A taxpayer who is not capable of making such payment at the time of the application may request consideration for a "payment arrangement";
- Include information pertaining to income tax that is at least one year past due;
- Include information pertaining to GST/HST for at least one reporting period that is past due.
To qualify for the relief under the Voluntary Disclosures Program, the taxpayer must submit a complete application to the program and meet its above-mentioned requirements. If you have unreported income or would like to carry it tax planning to reduce your tax burden please contact our tax law office for tax guidance from one of our top Canadian tax lawyers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.