Social media influencers better think twice about accepting all the free swag they're offered.
A draft statement published this week by the Inland Revenue Department suggests that in certain circumstances so-called content creators could be liable to pay tax on any free items they've received from brands.
The 47-page IRD document strives to offer guidance to gamers, streamers, bloggers, influencers, artists and any other online creators on meeting their tax obligations.
Tax expert Robyn Walker, a partner at Deloitte, describes the steps being taken by the IRD as really proactive. "I haven't seen anything similar from other revenue agencies around the world," she says.
"The IRD also earlier showed similar initiative by outlining the rules of cryptocurrencies and making it clear that these are forms of taxable property."
Walker says the area she found most intriguing in the draft paper is the interpretation of rules governing payments "in-kind" – essentially, receiving a product in lieu of payment.
She explains that if an influencer receives a product that could be resold, then there is still a cash tax obligation.
The cash value is determined by the amount the influencer could make in reselling the product to another person.
To explain, Walker uses the example of a DIY influencer who has received tools from a manufacturer to use in a video. Those tools could be sold on, and the value of that resale attracts a tax obligation that the influencer must disclose to the IRD.
Under the rules, the content creator will need to estimate the resale value of an item received by checking its price in the online marketplace, obtaining an estimate from a second-hand store or comparing the product to a similar item being sold online.
In some circumstances, these rules can also apply to gifts and donations given with no strings attached. The IRD will consider the regularity of these "gifts", why they're being given and the relationship between the gift giver and the content creator.
Walker says that there is quite a large grey area, which could lead to some confusion in applying the rules.
Take the example of an online gamer who is given a drinks fridge packed with energy drinks. During his e-sport streaming sessions, he's required to gulp the drinks and display the fridge in the background. Under the rules, he will have to disclose the resale value of a lightly used drinks fridge but not the energy drinks, because the empty cans will have no resale value.
Another example comes in the shape of a fashion blogger, who is invited to attend a ticket-only event. If the blogger's name is on the door, or on the ticket itself, then this will have no resale value as it is only valid for the person who received it.
Walker says that given the many variables, it will be important for IRD to make the rules as clear as possible – especially given that many influencers will be smaller operators.
Local influencers who receive items while on an international trip with a company aren't in the clear either.
The documents explain that your tax residency ultimately determines where you are required to pay your tax.
However, Walker adds that influencers need to be aware of whether they are also paying tax in another country, because this could entitle them to claim a tax credit in New Zealand to ensure they aren't double-taxed.
E-sports professionals making decent green from their streaming battles will also need to sharpen up their knowledge of the New Zealand tax scene. While amateur gamers won't be liable for tax obligations on the prize money they earn from entering a competition, professional gamers making a decent living from streaming and competing will have to pay tax on their winnings. Given this is all so new, there are again likely to be some grey areas.
The trend for influencers to accept free items in return for their promotional work is essentially a form of barter – a commercial activity that has been around for as long as people have owned things.
Most bartering happens quietly behind the scenes, without a paper trail tying the transaction back to those involved.
The difference with influencers is that the rewards of their bartering are made public - masterfully photoshopped on their carefully orchestrated social media channels. We generally know which brands they're working with based on what they're sharing on their social feeds, so it wouldn't be difficult for a tax official to ask a few prickly questions about why this or that wasn't disclosed.
Walker says it will be interesting to see if the IRD decides to make an example of an influencer or content creator who is breaking the rules.
We've already seen an example of this from the Advertising Standards Authority, which recently released decisions related specifically to the activities of some of the country's biggest influencers.
In an industry where public image is integral to everything, this type of public shaming can be deeply damaging to both the influencer and their collaborating brands.
The IRD report's focus may be on influencers and online content creators, but there's also an underlying warning here for companies commissioning promotional activities. If brands do want an influencer – however big or small – to tout the superiority of their products, then they will have to start paying for the privilege in cash.
The alternative is leaving the influencer to languish in a sea of awkward questions from the tax department.