Tax Implications of Crowdfunding
Crowdfunding is a method of raising funds for a project through the general public. As this is a rapidly evolving field the tax implications are constantly changing. The below article represents the ATO’s current view at the time of writing this article.
If you have any involvement in crowdfunding you should be aware of the tax implications, regardless of your role. At the core of the tax issues is whether the money raised from crowdfunding is considered assessable income, and any GST consequences. If it is considered income, you may be entitled to deductions.
The ATO considers crowdfunding to have three primary roles:
The person or business that began the crowdfunding venture aka the promoter
The organisation providing a platform to crowdfund aka the intermediary
People or businesses that provide the funds aka the contributors
Depending on the structure of the crowdfunding arrangement there may be income tax and GST obligations for each of these roles.
The ATO considers crowdfunding to have four types of arrangements:
Donation-based crowdfunding: contributor makes a donation with no benefit received in return
Reward-based crowdfunding: contributor makes a payment in return for a benefit
Equity-based crowdfunding: contributor makes a payment in return for a share in the company making the venture
Debt-based crowdfunding: contributor provides a loan to the promoter who in return pays the interest and principle of the loan
Once you’ve established your role and type of crowdfunding arrangement, you must consider whether the income is assessable.
Promoter assessable income:
Donation-based and Reward-Based crowdfunding income is generally assessable if:
The crowdfunding is used in the course of employment
The crowdfunding is entered into with the purpose of generating a profit
Receive money in the ordinary course of business
Thus, it is important to distinguish if the promoter is carrying on a business or a profit- making scheme. To be carrying on a business you must have actively taken steps to start your business; being in the process of setting up a business does not count. Money received prior to the commencement of a business is not considered assessable income, and no deductions are available. A profit-making scheme is a scheme entered into with the intention of making a profit. It is irrelevant of whether a business is being carried on.
Intermediary assessable income:
Typically, the intermediary will charge the promoter for using their platform for this crowdfunding. This may be a % fee or flat fee. This is considered assessable income. In addition, the money raised may also be considered assessable income.
Contributor assessable income:
If you receive some form of benefit for payment to a crowdfunding campaign, this may be classified as assessable income. The ATO is currently developing examples of this to assist contributors in establishing their liability.
It is possible for certain types of Crowdfunding transactions to be subject to GST.
Crowdfunding for Drought Relief
The above rules in relation to assessable income apply to crowdfunding used for the purpose of helping farmers with Drought Relief. The funds would only be assessable to the extent that they are business related. It is therefore important to consider the tax implications to the farmers of such funding.
However you can contribute to causes such as this via regular registered not for profits and have the standard tax deductions available there. This is crowdfunding specific above.
Contributors and Tax Deductions
A tax deduction for an individual contributor to a crowdfunding platform is not deductible. In contrast, donations to deductible gift recipients by an individual are deductible.
If you’re seeking clarification on the tax implications of crowdfunding, contact your local team at The Great Bean Counters Pty Ltd.
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