Advertising and Promotion

Definition

Reasonable advertising incurred to earn business income can be deductible. The medium, audience and nature of the expenditure matter: current advertising, a capital asset, a gift and entertainment are not interchangeable categories.

Media restrictions

• Newspaper advertising directed primarily at Canada is subject to the Canadian-newspaper eligibility conditions in section 19, including relevant ownership and publication requirements. A Canadian mailing address alone does not settle eligibility.
• For a periodical advertisement directed at the Canadian market, an otherwise eligible cost is fully deductible if the issue has at least 80% original editorial content as defined in the Act; otherwise the deduction is 50%. This is not solely a foreign-magazine rule. Section 19.01
• Advertising directed mainly at Canada with a foreign broadcaster is not deductible under the applicable restriction. CRA advertising guidance
• Ordinary search and social advertising is assessed under the business-purpose and reasonableness rules. Separate promotional services from any bundled production of a capital asset.

Other promotion

A genuine sponsorship can qualify as advertising when the business receives promotional value. A charitable gift follows the donation rules where that is its substance. Separate golf green fees, meals and other restricted items from sponsorship invoices rather than deducting the entire bundle as advertising.

A permanent sign, purchased software or substantial website-development asset may require capitalization. The correct tax class and timing depend on what was acquired and the applicable rules; a multi-year useful life does not automatically make every website Class 12 or Class 14.1. CRA current and capital expenses

Example

A corporation incurs $42,000 of ordinary digital ads, $9,000 of eligible Canadian newspaper ads, $14,000 of current trade-show services and a $6,500 magazine ad directed at Canada. Assume reasonable business purpose and costs net of recoverable taxes.

The first three items total $65,000. If the magazine issue has less than 80% qualifying original editorial content, its deduction is $3,250, giving $68,250 in total. If it meets the 80% test and all other conditions, the magazine deduction is $6,500 and the total is $71,500. Keep evidence of the publication's eligibility and the content test.

Related concepts

• Business Expense Principle (ITA 18)
• Business Gifts
• Meals and Entertainment (50% Rule)