Crowdfunding Contributions May Be Taxable
The Canada Revenue Agency (“CRA”) was recently asked to clarify how the proceeds from non-equity crowdfunding would be treated for income tax purposes (CRA document number 2013-0484941E5). Not surprisingly, the CRA confirmed that funds acquired by businesses through crowdfunding would be treated as (fully taxable) business income.
The CRA ruling deals with non-equity crowdfunding – in other words, it doesn’t talk about situations in which businesses raise crowdfunding in exchange for equity (shares) in the business. At the present time, Ontario companies are limited in their ability to raise equity financing through crowdfunding, but if the Ontario Securities Commission moves forward with their efforts to create a prospectus exemption for equity based crowdfunding, as discussed in a September 5, 2013 blog post, the tax impact of those crowdfunding exercises will become relevant as well.
The CRA ruling addressed the income tax consequences, but did not clarify how non-equity crowdfunding proceeds would be treated for GST/HST purposes. In many cases, businesses seeking non-equity crowdfunding offer products and/or services in exchange for contributions. Those products and services may be viewed as a taxable supply, and as a result, subject to applicable GST/HST rates. The CRA has forwarded this question to the GST/HST Rulings Directorate, so hopefully the question will be answered shortly.
You can read more about the CRA ruling in a recent article from the Financial Post.