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: What is the tax treatment of amounts received through crowdfunding?
Position: Question of fact.
Reasons: See below.
XXXXXXXXXX
2013-050910
K. Robinson
October 29, 2013
Dear XXXXXXXXXX:
Re: Crowdfunding
We are writing in response to your email of October 21, 2013, requesting our views regarding the tax treatment of funds received by a taxpayer under a "crowdfunding" arrangement.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act ("Act") and related legislation. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
It is our general understanding that crowdfunding is a way of raising funds for a broad range of purposes, using the internet, where conventional forms of raising funds might not be possible. In addition, we understand that typically crowdfunding does not involve the issuance of securities; however, in some jurisdictions this might be permitted. Finally, we understand that some securities regulators in Canada are considering whether changes to existing regulatory rules are needed to better facilitate the raising of equity funds in Canada by way of crowdfunding.
Based on the above, depending on the facts and circumstances of a specific situation, monies received by a taxpayer under a crowdfunding arrangement could represent a loan, capital contribution, gift, income, or a combination thereof. However, since the terms and conditions of these types of arrangements may vary greatly from one situation to another, the CRA would not be able to make any determination on the income tax consequences of a particular crowdfunding arrangement without a full review of all the facts, circumstances and documentation, if any, relating to that arrangement. This could only be done on a case-by-case basis.
Notwithstanding the above, as indicated in paragraph 4 of Interpretation Bulletin IT-334R2, "Miscellaneous Receipts", voluntary payments (or other transfers of benefits) received by virtue of a profession or by virtue of carrying on a business are considered to be taxable receipts. However, IT-334R2 also discusses non-taxable windfalls. Among the characteristics used to identify a windfall are (1) that the recipient has made no organized effort to receive the payment and (2) that the recipient has neither sought nor solicited the payment.
Subsection 248(1) of the Act provides that a "business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever and, except for certain purposes, an adventure or concern in the nature of trade. A business does not include an office or employment. Generally, we consider a business to have commenced when some significant activity that is a regular part of the business or that is necessary to get the business going has started. For more information on business commencement, please refer to Interpretation Bulletin IT-364, "Commencement of Business Operations".
The term "gift" is not defined in the Act; however, the courts have said that a bona fide gift is a voluntary transfer of property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given with no right, privilege, material benefit, or advantage conferred on the donor or any person designated by the donor in exchange for the donor making the gift. Whether a transfer of property has been made voluntarily is a question of fact. In order for a transfer to be considered as voluntary there must be no obligation to make such a transfer.
We trust that these comments will be of assistance.
Yours truly,
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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