Making money from YouTube videos has been clarified as potentially taxable even if you are not running a business.
An Inland Revenue statement says the earnings may be taxable either as ordinary income or from a profit-making undertaking or scheme.
Director of Public Rulings Susan Price says it’s more common these days for people to make money from uploading videos on YouTube by charging sponsorship fees, selling advertising and taking commissions.
“People may not be aware that even though this money is earned online, it still falls within the tax system and should be declared as income.
“Money that is earned on a regular basis may be taxable income and when a YouTuber, creates a video with the intent of profiting from it, then tax should probably be paid on any profits that result.”
Inland Revenue’s statement contains guidelines and sets out three examples, which show the sort of income that’s taxable.
Earning commissions
Let’s say you have a regular 9-5 job but in the evenings you like playing video games. You also enjoy making videos of yourself playing these games, which are then uploaded online. These videos quickly gain a following and before long the game producer asks you to promote their other products. Every month you would be expected to produce three videos in order to be paid a monthly commission.
“You might not be doing this with the intention of making a profit,” says Ms Price, “but the commission is clearly regular income so it’s definitely taxable.”
Aiming for profit
Many YouTubers know what it takes to make a video go viral. Filming cute cats is one such ploy. Let’s say you decide to write a short film, build sets and props and make your cat the star. Your video becomes an overnight sensation attracting millions of hits. You create an advertising account to earn money from the video and quickly generate $10,000.
“This might seem like a one-off windfall,” says Ms Price. “However, in this case the income is subject to tax because by choosing to monetise the video with ads, you have shown intent to make a profit.”
Not all videos are taxable
Let’s say you are an amateur photographer and on your annual holidays you enjoy taking pictures of wildlife. When you get home you sometimes put your favourite pictures on a video timeline and upload them to your YouTube channel. In the video description you post a link to your website where the pictures can be purchased. The proceeds are used to cover the cost of your holiday and photography equipment.
“This is a case where the photographer doesn’t seem to be operating a business and receives sporadic income. The money made is used to recoup costs so there’s a lack of profit-making intention.”
How to comply
Even though earning money from YouTube seems like a new concept, it still falls under existing rules in the Income Tax Act.
”If you are generating income this way you have an obligation to declare it in your tax return,” Ms Price says.
“You should also be keeping a financial record of your endeavours and retaining them for at least seven years.”
Anyone in doubt as to whether the money earned from their YouTube exploits is considered assessable income should seek advice.
Inland Revenue's full statement on whether YouTube receipts are taxable can be found at this link.