When Do Influencers Have To Pay Income Tax On Gifts and Other Free Products?

In the world of social media, influencer gifts remain an incredibly potent method for generating social buzz, fostering user-generated content (UGC), and securing authentic endorsements.

Nevertheless, earlier this year, the Australian Tax Office (ATO) issued a stern caution to influencers, highlighting the potential financial penalties awaiting those who fail to report gifted items as part of their income or incentives. These non-cash benefits encompass a wide array of items, including jewellery, high-end fashion, vehicles, vacations, appliances, and more. Though not in the form of cold, hard cash, the ATO classifies these items as taxable income.

In light of these circumstances, it’s important to recognize the significant variations in how influencers receive gifts. With this in mind, we aim to shed light on the crucial questions surrounding this issue.

Disclaimer Before we delve into this intricate subject, we want to make a few points clear.
 
1 – We’re not tax or financial advisors, but we are hugely passionate about the benefits of influencer gifting done right. If you’re an influencer who’s regularly receiving high value gifts from brands we recommend you consult your accountant or specialist tax advisor such as clearyhoare.com.au before making decisions about declaring gifts or free products as income.
 
 
2 – Some influencers can have diverse financial structures – some operate as sole proprietors, others through corporations. There’s no one-size-fits-all solution.

How Do Influencers Get Paid?
We’ve already established that influencer compensation isn’t limited to cash. While some receive flat fees, others enjoy a variety of non-cash payments, such as:

1. Gifts: Think makeup, gadgets, or fashion items.
2. Free Goods: Handbags, cars, and other tangible goodies.
3. Free Services: Complimentary haircuts, spa days, or beauty treatments.
4. Travel Expenses: All-expenses-paid trips, covering flights, accommodations, and
   meals.
5. Memberships and Services: Wellness or gym memberships or even health insurance.
   Sometimes, it can be a mix of cash and the above making the subject even more complex.

When Do Influencers Get Non-Cash Payments?
Influencers can enter various arrangements to provide their services marketing services in exchange for non-cash payments. Here are four common scenarios:

Arrangement 1: An influencer agrees to promote a brand on social media in return for receiving products. Example: A post on Instagram about a beauty brand in exchange for $2,000 worth of products.

Arrangement 2: An influencer gets an all-expenses-paid trip in exchange for social media promotion. Example: A fashion influencer enjoys a luxurious trip to Ibiza, including flights, accommodation, and meals, in return for posting behind-the-scenes content.

Arrangement 3: An influencer receives unexpected products from a brand they have an existing relationship with. Example: A sports influencer receives running shoes from a shoe brand they work with. There’s no prior agreement on posting about these shoes.

Arrangement 4: An influencer receives goods from a brand they have no prior relationship with. Example: A luxury brand sends an influencer a $2,000 handbag without any prior connection. The influencer has never mentioned the brand before.

Understanding Bartering Transactions
In Australia, influencers must grasp the concept of ‘bartering transactions’ when dealing with non-cash payments. The Australian Tax Office (ATO) defines bartering as the exchange of goods or services without involving money. In most cases where influencers engage in sponsorships and receive non-cash payments, it’s considered a bartering transaction. This means they may need to include the value of these non-cash payments in their taxable income for the year.

Valuing Non-Cash Payments
To determine the value of non-cash payments, like those in bartering transactions, the ATO suggests using the ‘fair market value.’ This is essentially the normal cash price that a business would charge for the given goods or services. For example, if an influencer received a handbag that retails for $10,000, they’d need to report $10,000 as taxable income.

Assessing the Four Arrangements
Let’s revisit the four arrangements and assess whether they qualify as bartering transactions:

Arrangement 1: This clearly fits the bartering transaction criteria, with the influencer exchanging social media promotion for beauty products worth $2,000.

Arrangement 2: Another bartering transaction. The influencer received a $10,000 trip in exchange for promotional content.

Arrangement 3: This one’s a bit tricky. If the influencer posts about the shoes, it likely becomes a bartering transaction, with a declared value of the shoes e.g. $1,500. If they don’t post, it might still be considered a non-cash benefit due to their existing business relationship with the brand.

Arrangement 4: If the influencer doesn’t post about the handbag, it should not qualify as a bartering transaction, considering there’s no prior relationship or discussion. However, if they do post, it could potentially be seen as a bartering arrangement.

Why Should Marketers or Brands Care?
All marketers and brands should be aware of the influencers taxation responsibilities particularly when considering high value gifting campaigns. Not only is it important to be aware of the implications in the name of best practice, but as influencers become more educated on the subject of gifting taxation, it is inevitable they will become far more selective about the gifts they choose to receive thus making the gifting efforts of marketers and brands more challenging.

What Should Influencers Do To Manage Their Tax?
Record-Keeping As you can see, there’s a huge volume of variables so to be safe it’s highly recommended all Influencers should treat bartering transactions like any other business transaction and keep a detailed record for at least five years after each transaction’s completion. Involve Your Accountant Influencers should involve their accountants when dealing with these scenarios. Accountants are well-equipped to determine whether non-cash payments should be declared as taxable income, ensuring compliance with tax laws. One solution to help navigate these waters safely, may be to consider creating a ‘Gift Policy’ in consultation with your account.

In conclusion, whether you’re a brand, marketer or influencer, being aware of the ever evolving legal and tax consequences of this fast-paced industry is essential if you want to thrive. One easy way to keep up is to join the Australian Influencer Marketing Council (AIMCo). The council is made up of industry experts across all remits of influencer marketing including taxation and law.

If you’re looking to get your products in the hands of the right influencers at scale to generate 100% genuine endorsements or UCG, get in touch with our influencer gifting specialist at Hello Ernie.