The CRA stated that it understood crowdfunding to be a way of
raising funds for a broad range of purposes, using the internet,
where conventional forms of fundraising funds might not be possible
(and which may or may not involve the issuance of securities).
The CRA stated that, depending on the specific circumstances,
crowdfunding amounts received by the taxpayer could represent a
loan, capital contribution, gift, income or a combination thereof.
The CRA noted its position described in Interpretation Bulletin IT-334R2 "Miscellaneous Receipts"
(February 21, 1992) that voluntary payments received by virtue
of a taxpayer's profession or carrying on of a business are
considered taxable receipts. The CRA also noted that, on the other
hand, a non-taxable windfall may exist where the taxpayer made no
organized effort to receive the payment and neither sought nor
solicited the payment. The CRA's view is that a business has
commenced where the taxpayer has started some significant activity
that is a regular part of the business or that is necessary to get
the business going (see Interpretation Bulletin IT-364 "Commencement of Business
Operations" (March 14, 1977)). Conversely, a gift may
exist where the donor transfers property with no right, privilege,
material benefit or advantage conferred in return.
These two recent technical interpretations follow an earlier
CRA Document No. 2013-0484941E5 "Crowdfunding"
(August 13, 2013)), in which the CRA stated that amounts
received by a taxpayer from crowdfunding activities would generally
be included in the taxpayer's income pursuant to subsection
9(1) of the Income Tax Act as income from carrying on a
business (and that certain expenses may be deductible).
These views from the CRA are helpful guidance for those who have
undertaken or are considering crowdfunding. We agree that a
taxpayer's specific circumstances will be determinative of the
tax treatment of the crowdfunded amounts (i.e., on a case-by-case
basis). However, because of the various activities for which
crowdfunding may be sought, and the ease with which crowdfunding
may be accessed, it is less clear when a taxpayer's activities
(including seeking crowdfunding and any other associated
activities) will result in the conclusion that a taxpayer has
commenced carrying on business.
Accordingly, taxpayers who seek and obtain crowdfunding (for
business and non-business purposes) should be aware of the
potential tax implications, particularly in light of fact-specific
results and the CRA's evolving views on the subject.
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