Crowdfunding has certainly reached all aspects of our culture with the Simpsons airing season 27 episode 6 centering around Homer’s crowdfunding campaign. While the Simpsons may take this to an extreme, it has certainly become a successful way for some businesses and individuals to raise funding. A question I often get asked is are these funds taxable?
Like everything, it depends on specific facts and circumstances. Such funding likely falls into one or more of these categories:
Income from business
When crowdfunding activity is undertaken for the purpose obtaining funding in a business context, for example to fund operations or a new product or service, the CRA takes the position that the funding is business income and is therefore taxable. Whenever an entity earns income, one must also consider the GST/HST implications. If the recipient is not a small supplier the CRA would consider GST/HST to have been collected on the proceeds and therefore must be reported and remitted. On the flip side, the entity would be able to claim expenses and Investment Tax Credits for expenses incurred in the course of carrying on such business.
Donation – gift or windfall
The terms ‘gift’ or ‘windfall’ are often used synonymously to describe a donation. They both typically involve a voluntary transfer of property from a free donor to a donee with no benefit or advantage conferred on the donor. A windfall is generally considered to be unsolicited, as such, a crowd funding donation would likely be considered to be more of a gift. Regardless gifts and windfalls received are not considered taxable.
Is Homer Taxable?
Homer’s crowdfunding campaign would be considered to be gifts and as such would be tax free. The reason is that he is merely soliciting gifts to purchase a product for himself. There is no benefit or advantage to the donor and he is not using the funds business operations or to develop a new product or service.
Jonathan Audette Professional Corporation offers a free, no obligation one hour meeting for potential clients to ask any accounting related questions, including understanding more about the taxation of crowd funding.
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Jonathan Audette, CPA, CA Jonathan Audette Professional Corporation