Since the early 2010’s there has been a huge resurgence in the popularity of crowdfunding, largely due to the success of websites such as ‘Kickstater’ and ‘GoFundMe’. It can be an extremely effective way of raising quick capital and has become a major factor in the success of many startup companies around Australia. By accessing these services, emerging startup businesses have been able to promote their business idea to a global pool of online backers, who share a passion for these creative projects and are willing to make donations to support them. However, If you earn or receive any money through crowdfunding there are a range of tax and GST implications you should consider.
There are currently 4 forms of crowdfunding recognised by the ATO and each has its own tax and GST obligations. The two most common forms are;
- Donation-Based crowdfunding: A form of crowdfunding that involves payments (or donations) made from funders directly to the business without receiving anything in return.
- Reward-Based Crowdfunding: A form of crowd funding where funders make contributions to a crowdfunding project or venture in which a good, service or right is exchange for their payment
All funds obtained using crowdfunding by Start Ups may be considered taxable income and as such must be declared on the tax return. However, you may be eligible for tax deductions if there were any costs in producing this income i.e. third party intermediary fee.
- Business: As a business any funds raised through crowdfunding is likely to be considered taxable income when;
- You use crowdfunding in the course of your operation
- Crowd sourcing funds are raised with the intent of making a profit or gain
- Funders: If you contribute funds to a crowdfunding project or venture any promised returns may be considered taxable income
- Intermediaries: These are third party crowdfunding platforms such as Kickstarter that charge service fees usually in the form of a flat rate or percentage of funds raised. These fees may be considered taxable income
The GST treatment of crowdfunding is largely dependent on the crowdfunding model used and varies on a party to party basis (i.e. Promoter or Funder)
- Donation-based Model: So long as the business acknowledges the payment made by a funder, there are no GST liabilities on these payments as they are not consideration for any supply in return.
- Reward-based Model: Since the business provides a good or service in return for payment from the funder, the business will have a GST liability as a taxable supply was made to the funder.