If you’ve raised a good amount of cash through crowdfunding, what do you need to know about possible taxation? Remember, any amount of cash which comes towards your business, whether as gift or a raised amount of money needs to be declared, and in some cases (most cases) there may be tax to pay on that money. If you’ve received crowdfunding money, here is what you need to know about taxation.
Once you receive cash via crowdfunding, you will need to declare it regardless of whether you think you need to be taxed on it or not. This will probably come to you as a surprise.
The CRA’s Stance on Crowdfunding Cash
The CRA’s stance on crowdfunding cash is that generally it is viewed as business income. With this in mind, there will be the possibility of deductions, which would lower the amount of tax paid on that amount. The fact is that crowdfunding cash is there so that you can continue with your business and that is therefore seen as income for your business. When you break it down to that level, it is far easier to understand.
Of course, crowdfunded monies can come as a donation to a charity, a gift, or it can be a form of income which is taxable. What you deem it to be and what it is in the eyes of the CRA may be different, and that is something you need to bear in mind at the time.
Is it Taxable?
Such money can only be classed as a donation to charity if the charity is registered as non-profit. A gift is a grey area, as many businesses deem their crowdfunding cash as a gift. The tax people may not agree. If they do, you will pay a small amount of tax only on this money. If however your crowdfunding money falls into the taxable income bracket, you will need to pay a regular amount of tax.
As crowdfunding taxation is another complicated subject overall, it is best to seek advice in general. Ensuring that you declare any income is vital in order to avoid issues after your tax return has been filed. This could also land you with hefty penalties, simply because you weren’t sure the actual advice to follow. It’s best to preempt this and seek advice in the first place.
By assuming that crowdfunding money is a gift that doesn’t require tax to be paid is a dangerous game. While there is a lot of confusion and greyness about this type of cash and taxation pertaining to it, the bottom line is that it is money which has been received by your business and is therefore used to help you continue with whatever products or services you’re selling. In that regard, it is taxable. The level at which it is taxable is the question we cannot answer in a general manner; this is a case by case issue which you will need to discuss with your particular accountant as tax filing time looms in the distance.
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- The Capex Team