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April 26, 2022, 11:32 a.m.

Canada offered a tax credit to encourage digital news subscriptions. Here’s how it’s going.

Data from the tax credit’s first year is now available. The effect has been muted.

Two years into a consequential — and occasionally controversial — program of government support for the Canadian news industry, we have a window into how one provision is working.

Back in 2019, citing the importance of journalism for a healthy democracy, Canada announced a 5-year, $600 million initiative to support the country’s news industry. Some key provisions mirror what’s been proposed in the U.S., including a tax credit on wages and a tax credit to encourage subscriptions. (A related Canadian program that gives grants to news organizations to hire local journalists for underserved communities, known as the Local Journalism Initiative, accounts for a fraction of overall spending at $50 million over five years.)

Under the new tax provisions, Canadians can get reimbursed for 15% of what they spend on digital news subscriptions from outlets designated as “qualified,” up to $500. The digital subscription tax credit is worth a close look because — the thinking goes — it could encourage subscription habits that will allow news organizations to better stand on their own two feet without government assistance.

Indirect help is also often seen as less politically and ethically fraught than more direct assistance. In this case, individuals decide which outlets to support (albeit from a list of outlets pre-approved by the Canadian government) rather than officials choosing an amount of state aid.

According to information provided by the Canada Revenue Agency, about 302,000 Canadians filed for the tax credit in 2020. The average tax credit was $36, meaning those who claimed the credit spent an average of $240 on digital subscriptions over the year.

With more than 27 million tax filers in Canada, that’s an uptake around 1%. (The 2020 Reuters Institute’s Digital News Report found about 13% of Canadians paid for online news.) The Canada Revenue Agency said it does not track which publications’ subscriptions are most commonly subsidized under the tax credit.

For their subscribers to be eligible for the tax credit, Canadian publishers had to apply and meet certain standards, including producing original content and employing at least two journalists. Some news orgs that may have qualified have declined to apply. A number of those that were deemed qualified Canadian journalism organizations have pitched the tax credit to existing subscribers, and used it as a perk to entice new ones.

At The Logic, a digital-only outlet where subscriptions start at $300 per year, information on the tax credit was sent to all existing subscribers and advertised to potential subscribers, said founder and editor-in-chief David Skok, a 2012 Nieman Fellow.

The end result was “negligible,” Skok said.

Rather than prompting new subscribers to sign up, Skok said, “the people who would have subscribed anyway are using the credit.” Skok suggests that subscribers weren’t swayed because they wouldn’t see the benefit until tax time and because the 15% credit was too low to change many minds on paying for news.

Paul Deegan, president and CEO of the industry group News Media Canada, agreed. While the 25% tax credit on wages for journalists has been “very valuable,” many publishers see the subscription tax credit as merely “a positive,” Deegan said.

“The fact that there is a digital subscription tax credit signals that society values journalism and the content that our journalists produce,” Deegan acknowledged. His group thinks the subscription credit would need to be raised to 25% or 50% to generate new subscriptions.

“Our current tax credit is 15%, which isn’t necessarily going to change one’s behavior on one subscription. If you’ve got multiple subscriptions — if you’ve got three or four — it could definitely be a meaningful credit to the reader,” Deegan said. “In order to be effective, to really change behavior, that number needs to be higher.”

The tax credit proposed in the U.S. as part of the Local Journalism Sustainability Act is much higher, covering 80% in the first year and 50% in the subsequent four years, up to $250 per year. It’s also, currently, not going anywhere fast in Congress.

Unlike in Canada, where outlets without a paywall (like The Narwhal) can’t benefit from the tax credit because they don’t offer subscriptions, the American version applies to donations as well as subscriptions. Both versions are non-refundable tax credits, so the sizable percentage of households that don’t pay federal income taxes are left out.

Photo of the port of Vancouver by Morgan Schmorgan used under a Creative Commons license.

POSTED     April 26, 2022, 11:32 a.m.
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