CRA discusses the GST/HST treatment of crowdfunding pledges

A Canadian corporate registrant (“X”) raises money to fund a project through a crowdfunding website from supporters around the world. By their pledging funds to support X’s project in exchange for a reward such as a copy of a product, a limited edition, or a custom experience related to the project, they thereby enter into a contract with X. The contract does not specify whether the pledge amounts are inclusive or exclusive of GST/HST.

CRA indicated:

  • If the product was essentially a digitized product to be downloaded by the supporters, CRA would regard this as a supply of intangible personal property (“IPP”).
  • If the contract did not provide any restrictions regarding the place of use of the IPP, then it would be the case that the IPP may be used in whole or in part in Canada, so that the place of supply would be in Canada (which would be relevant if there was no zero-rating under ETA Sched. VI, Pt. V, s. 10.1.)
  • If there were no restrictions regarding where the Canadian rights could be used, and X did not obtain the address of the supporter then, pursuant to s. 11 of the New Harmonized Value-Added Tax System Regulations, the provincial place of supply would then be in the specified (highest-rate) province “closest in proximity, determined in any reasonable manner, to the supplier’s business address that is most closely connected with the supply.”
  • Pursuant to s. 133, “the tax applies to any advance payment or part payment of the consideration for a supply even if, at the time payment is made, property has not in fact been transferred.”

Neal Armstrong. Summaries of 12 July 2023 GST/HST Ruling and Interpretation 174441 under ETA s. 142(1)(c)(i), s. 133, s. 223(1) and New Harmonized Value-Added Tax System Regulations, s. 11.