Written by Principal, Jennifer Tutty and Senior Associate, Harry Croft.
Influencer marketing and the exchanging of social media posts for gifts and free products has boomed over the past few years.
Despite its popularity, there is still a lot of unknowns surrounding these sorts of transactions. In particular, many are questioning:
– Whether influencers are required to declare non-cash payments (such as gifts and free products) as income in their tax return.
– Whether influencers need to pay tax on these sorts of payments.
This article answers some of the key questions influencers will have when it comes to receiving gifts and free products, and what income tax obligations they need to be aware of.
Before we get started, please note the following.
1. Although we are fascinated by tax and how it interacts with influencer marketing, we are not tax or financial advisors, nor can we give tax or financial advice.
2. This article is intended for general information purposes only and should not be relied on as legal advice in relation to your individual needs.
3. Each influencer has unique personal circumstances. Some influencers run their business as sole traders and some through corporate structures such as proprietary limited companies. This means that one size doesn’t necessarily fit all!
4. Before making a final decision on whether you should declare certain gifts or free products as income, or pay tax on these, you should seek advice from your accountant or other tax advisor. Influencers need a kick arse accountant to help them run their business.
5. This article only applies to influencers covered by Australian laws.
In what ways are influencers paid for influencer marketing?
Payments for the provision of influencer services may simply be limited to cash payments, for example, a flat service fee of $20,000.
However, influencers are often paid in other ways, such as the following:
- Free goods (i.e. a handbag or car).
- Free services (i.e. hair cuts or beauty treatments).
- Expenses paid travel (i.e. flights, accommodation and meals paid for an overseas trip).
- Memberships (i.e. a wellness centre membership, or gym membership).
We will refer to these sorts of payments, as ‘non-cash payments’ in this blog.
Often, an influencer might get paid with a combination of cash and non-cash payments, for example a cash payment of $20,000 plus a handbag and expenses paid trip to NY.
When might an influencer receive non-cash payments?
Here are 4 common arrangements we see, where influencers provide social media and other marketing services in exchange for non-cash payments.
An influencer receives goods in exchange for posting on social media about the business who provided the goods.
EXAMPLE: An influencer creates and posts 1 Instagram post and 2 stories about a beauty brand (tagging the beauty brand in the photographs of course). In exchange, the beauty brand supplies the influencer with $5,000 worth of free product.
An influencer receives an all-expenses paid trip in exchange for posting on social media about the business who paid for the trip.
EXAMPLE: A fashion house sends a model influencer on an all-expenses paid international trip to Ibiza (including flights, accommodation, meals, etc). In exchange for the trip, the influencer is required to take 10 ‘behind the scenes’ photographs and post them on their Instagram grid and stories (tagging the fashion house of course).
An influencer receives goods from a business with whom it has a pre-existing business relationship with. The influencer didn’t expect to receive the goods, and did not provide a guarantee that they would post about the goods.
EXAMPLE: A shoe brand sends a sports influencer 3 new pairs of high-tech running shoes in the hope that the influencer will wear and post about the shoes on their socials. There is a pre-existing business relationship between the brand and influencer, and they are about to enter into a new contract on a separate campaign.
An influencer receives goods from a business with whom it does not have a pre-existing business relationship with. The influencer didn’t expect to receive the goods, and did not provide a guarantee that they would post about the goods.
EXAMPLE: A luxury goods brand sends an influencer a handbag worth $10,000 in the hope that the influencer will wear and post about the bag on their socials. The influencer has never heard of the brand.
What do influencers need to know about ‘Bartering Transactions’ when running their businesses?
When receiving non-cash payments from brands or other businesses in exchange for providing marketing services, influencers need to understand whether the transaction will be a ‘bartering transaction’ for the purposes of tax laws in Australia.
What is ‘Bartering’?
‘Bartering’ is described by the Australian Tax Office (ATO) as the ‘direct exchange of goods or services for other goods or services without reference to money or money value’.
How does this apply to influencers?
The ATO tends to take the view that:
(a) When an influencer engages in sponsorships (i.e. social media promotional activities) for a business and
(b) is paid in non-cash payments (i.e. in free products or services)…
this is likely to be considered a ‘bartering transaction’.
A key component of a bartering transaction is that there is an ‘exchange of services for products’.
To work out whether a transaction between an influencer and a business is a ‘bartering transaction’, the influencer will need to look at whether they have provided services ‘in exchange’ for receipt of a product (i.e. receipt of goods or services).
What does this mean for your tax?
The ATO makes it clear that ‘business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions’.
If an influencer has received non-cash payments via a bartering transaction, then the influencer needs to discuss with their accountant whether they should declare the value of the non-cash payments as part of their taxable income for the year.
Sometimes, however, it can be difficult to assess whether there has in fact been an ‘exchange’. For example, referring back to Arrangement 3 or Arrangement 4 above, the influencer was not aware that free products were being sent to the influencer. So, is there an exchange?
What do influencers need to know about non-cash business benefits?
‘Non-cash business benefits’ include goods or services received by a business trader in respect of, or in relation directly or indirectly to, a business relationship (either in whole or in part).
Typical non-cash business benefits include:
– Free travel
– Free accommodation
– Tickets to events
– Free clothes
– Free goods
Non-cash business benefits are also likely to be treated as taxable income under Australian tax laws. Accordingly, if an influencer receives any non-cash business benefits (as described above), they should speak to their accountant to confirm whether they need to declare the value of these as taxable income.
How should an influencer value a non-cash payment?
If an influencer receives payments in forms other than cash and is required to declare the payments as taxable income, how should an influencer value the payments received?
The ATO has indicated that it will accept the value of non-cash payments (such as those provided under a bartering transaction or deemed non-cash business benefits) to be the ‘fair market value’ of the goods or services.
This can be simply described as the ‘normal cash price’ that the business would have charged for relevant goods or services (i.e. the current retail price).
For example, if an influencer received a handbag in a bartering transaction and the business was retailing the handbag at the time for $10,000, the value of the non-cash payment would be $10,000.
The influencer would therefore be required to add the sum of $10,000 to its taxable income for the year.
Are the examples provided in the 4 arrangements above ‘Bartering Transactions’?
Example in Arrangement 1
This is a clear bartering transaction.
There is an agreement under which the influencer provides social media marketing services to the beauty brand in exchange for receipt of free goods (that being beauty products).
As the influencer has received goods worth $5,000, the influencer must declare $5,000 as taxable income for that tax year.
Example in Arrangement 2
Yes. This is a bartering transaction.
The influencer agreed to provide photographs and social media posts to the fashion house for promotional purposes. In exchange for this, the influencer received an all-expenses paid international trip to Ibiza.
If the retail price of the trip was worth $20,000, the influencer will need to declare $20,000 as taxable income for that tax year.
Example in Arrangement 3
This one is more complicated.
Scenario 1 – the influencer posts about the shoes.
If the influencer posts about the shoes, then there would likely be a bartering transaction between the parties (because there has been an exchange of social media marketing services for free goods). If the retail value of the shoes are $1,500, the influencer should declare $1,500 on their taxable income for the year.
Scenario 2 – the influencer doesn’t post about the shoes.
If the influencer did not post about the shoes, then arguably there is no bartering transaction. However, there is still a chance that the shoes will be considered a ‘non-cash benefit’ due to the existing ongoing business relationship between the influencer and brand.
Example in Arrangement 4
This one is tricky!
Scenario 1 – the influencer doesn’t post about the handbag.
We note that this situation is different to arrangement 3, because there is no prior, current or upcoming business relationship between the brand and the influencer. If the influencer accepts and keeps the bag but doesn’t promote the bag or the brand, then it’s likely there is no bartering transaction.
Additionally, as there is no business relationship between the influencer and the brand, it’s likely the bag is not a ‘non-cash benefit’.
Scenario 2 – the influencer posts about the handbag.
If the influencer decides to post about the bag, then it’s possible that even though there is no business relationship between the brand and the influencer, the influencer has entered into a bartering arrangement with the brand as a result of posting about the bag.
As there is no business relationship between the influencer and the brand, it’s reasonable to argue that the bag is not a ‘non-cash benefit’.
Why is your accountant so important at tax time?
When preparing their annual taxes, influencers should disclose and discuss with their accountant the various sorts of influencer arrangements they enter into.
Accountants are qualified to help influencers determine whether they need to declare the value of products supplied to influencers under various types of arrangements as taxable income.
This is something you shouldn’t DIY!
What should an influencer know about GST and bartering transactions?
As outlined above, the ATO makes it clear that ‘business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions’.
If an influencer is registered for GST, they may be able claim GST credits in relation to bartering transactions.
In addition, they may be required to charge GST in relation to bartering transactions.
The application of GST to bartering transactions involves complex legal and accounting questions. This should be carefully discussed with the influencer’s accountant based on their individual circumstances.
Does an influencer have to provide an invoice for services exchanged as a part of a bartering transaction?
According to the ATO, a tax invoice is required for a barter transaction as it is for any other business transaction.
Therefore, as best practice, influencers should be providing invoices for their services provided under bartering transactions and quoting their ABN on the invoice.
What about record keeping? What records does an influencer have to keep when exchanging services for gifts and other free products?
According to the ATO, influencers must keep business records of all bartering transactions. These records need to include (amongst other things) details of services provided and products received as part of the transactions.
Records might include things like invoices, receipts and delivery dockets. It is also important to keep written documents or contracts confirming the scope of the transaction, including services and products to be exchanged.
Records need to be kept for 5 years from the completion of each transaction.
So where does this leave influencers?
Accepting unsolicited gifts and free goods and then posting about them on social media may have significant legal and tax consequences on influencers.
Failing to comply with tax laws and tax reporting requirements, can result in financial penalties and even criminal charges for influencers.
Tip: Consider creating a ‘Gift Policy’
Influencers might like to create and document in writing (in consultation with their legal and accounting team), a ‘gift policy’.
The policy could outline when and how the influencer will accept (or reject) gifts and free products, and when they will post (or not) about gifts and free products online.
Influencers should understand, and be comfortable with, the legal and tax consequences associated with acting in accordance with the gift policy.
Finally, due to the legal and tax consequences outlined above in this article, it would be entirely fair and reasonable (and certainly not ungrateful) for an influencer to simply accept the gifts or other free products, enjoy them privately and not mention it on socials!
Written by Principal, Jennifer Tutty and Senior Associate, Harry Croft.
Published 23 March 2023
The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.