Crowdfunding has been defined as "the practice of funding a
project or venture by raising many small amounts of money from a
large number of people, typically via the Internet".
Crowdfunding has been used to support various activities, ranging
from disaster relief and political campaigns to commercial
enterprises such as motion picture promotion and start-up company
funding. In a recent technical interpretation (CRA document number
2013-0484941E5), the Canada Revenue Agency ("CRA") was
asked for its view on the tax treatment of funds received by a
taxpayer via crowdfunding.
It appears that the CRA's comments are intended to apply to
a specific scenario where a person who contributes funds to a
commercial venture, such as producing a musical recording, may
receive a free product or promotional item, but would not receive
any equity and would not be entitled to a share of the profits from
the venture. The CRA stated that it generally considers
crowdfunding proceeds to be taxable as business income, and would
not constitute a tax-free "windfall". This treatment is
consistent with the CRA's position in Interpretation Bulletin
IT-334R2 Miscellaneous Payments, that voluntary payments received
by virtue of a profession or by virtue of carrying on a business
are taxable receipts. The CRA also stated that certain expenses,
such as the cost of producing promotional items given to donors and
the cost of financing activities, may be deductible if the
requirements for deductibility in the Income Tax Act are
The CRA's position will raise the after-tax cost of
crowdfunding, which may significantly impact independent artists
and start-up businesses that cannot access capital from more
traditional sources. The technical interpretation does not address
the tax treatment of crowdfunding proceeds used for a non-business
purpose, such as humanitarian aid. Based on the reasons set out in
the technical interpretation, taxpayers receiving crowdsourced
funds should not be subject to tax where no business is carried on.
The tax treatment of crowdfunding proceeds would also presumably be
different if contributors received equity in the venture. In
Ontario, equity crowdfunding is generally prohibited; however the
Ontario Securities Commission recently issued an exemptive relief
order to permit Social Venture Connection, the non-profit part of
the MaRS Discovery District in Toronto, to sell securities over the
internet to accredited investors, as described in greater detail in
an article by my colleague Brian Koscak, available here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The CRA provides new housing rebates for individuals who have purchased or built a new house or have substantially renovated a house or made a major addition to a house who plan on living in it personally or letting a relative live there.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).