Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Treatment of funds obtained through "crowdfunding" received by a taxpayer.
Position: Amounts received by a taxpayer from crowdfunding activities would generally be included in income pursuant to subsection 9(1) of the Act, as income from carrying on a business.
Reasons: Paragraph 4 of IT-334R2 indicates that voluntary payments received by virtue of a profession or by virtue of carrying on a business are taxable receipts.
August 16, 2013
This is in response to your letter of April 10, 2013, requesting our views regarding the treatment of funds obtained through "crowdfunding" received by a taxpayer and related expenses under the Income Tax Act ("the Act").
The specific scenario outlined in your letter involves a project such as producing a recording by a musical group, or a project relating to developing a product for market. Crowdfunding operations are undertaken to allow individuals and businesses to raise funds from the public towards a specific project. The person making the contribution generally receives an incentive gift such as a copy of the finished product (for example, a musical recording) or promotional items such as T-shirts. The contributors do not receive any form of equity in the project.
You have requested clarification on whether the funds received by the recipient would be considered business income and if the related expenses are deductible.
You have also requested our comments related to GST/HST issues related to the scenario described. GST/HST issues are beyond the subject matter for which this Directorate can provide comment. We have forwarded a copy of your original letter to the GST/HST Rulings Directorate.
Your request appears to relate to a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be given by this Directorate in response to a request for an advance income tax ruling. The procedures for making a request for an advance income tax ruling are outlined in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002, issued by the Canada Revenue Agency (the "CRA"). Where the particular transactions are completed, enquiries may be addressed to the relevant Tax Services Office. We can, however, provide the following general comments.
In our view, amounts received by a taxpayer from crowdfunding activities would generally be included in income pursuant to subsection 9(1) of the Act as income from carrying on a business. As indicated in paragraph 4 of Interpretation Bulletin IT-334R2, Miscellaneous Payments, voluntary payments (or other transfers of benefits) received by virtue of a profession or by virtue of carrying on a business are taxable receipts.
Whether certain expenses are deductible is a question of fact. Expenses related to crowdfunding efforts incurred by a taxpayer for the purpose of gaining or producing income from a business within the meaning of paragraph 18(1)(a) of the Act may be deductible. It is our view that the cost to a business to provide donor gifts (ex. cost of T-shirts) and fees paid to undertake crowdfunding activities may be deductible if the requirements of the Act are otherwise met.
We trust that these comments will be of assistance.
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2013
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2013