31 January 2024 External T.I. 2024-1002821E5 - Employer Crowdfunding Contributions

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: Whether an employer’s contribution to an employee’s crowdfunding page set up to raise funds for cancer treatment costs would result in a taxable benefit to the employee.

Position: Question of fact. Voluntary contributions received by an individual in their personal capacity are generally not required to be included in income.

Reasons: Previously published position.

XXXXXXXXXX									2024-100282
B. Leung

January 31, 2024

Dear XXXXXXXXXX:

Re: Employer crowdfunding contributions

We are writing in response to your email dated December 8, 2023 wherein you asked whether a one-time contribution to an employee’s crowdfunding campaign would result in a taxable benefit to the employee. We understand that by virtue of the employee’s participation in the employer’s stock program, the employee is also a minor shareholder with no influence or control on business policy or company decisions.

In the situation described, your employee is battling XXXXXXXXXX. The employee is testing a new treatment and has set up a GoFundMe page to raise funds for XXXXXXXXXX of treatment, which is estimated to cost $XXXXXXXXXX. The employer has committed to make a matching contribution of up to $XXXXXXXXXX to help the employee reach their fundraising goal of $XXXXXXXXXX.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The Canada Revenue Agency (CRA) understands 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. Generally, the CRA does not consider there to be a difference for tax purposes between a person receiving funds directly from the contributors versus receiving funds through a crowdfunding platform.

Depending on the facts and circumstances, 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’s approach is to evaluate each situation on a case-by-case basis before making a determination on the income tax consequences of a particular crowdfunding arrangement.

Gifts and voluntary contributions

As stated in paragraph 1.4 of Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime, amounts received as gifts (i.e., voluntary transfers of property for no consideration) are not subject to tax in the hands of the recipient.

However, when a voluntary payment or other valuable transfer or benefit is received by virtue of employment, the amount of the payment or the value of the transfer or benefit is generally included in income under subsection 5(1) of the Act or paragraph 6(1)(a) of the Act. The broad wording of paragraph 6(1)(a) of the Act means that a taxable benefit may exist where there is any connection between a benefit and the particular office or employment.

Where an individual is both an employee and a shareholder, and a voluntary payment or other valuable transfer or benefit is received by virtue of shareholdings, the amount of the payment or the value of the transfer or benefit is generally included in income under subsection 15(1) of the Act.

Personal capacity

It is the position of the CRA that a crowdfunding contribution received by an individual from their employer is subject to tax as employment income where it was received in their capacity as an employee. Further, it is the CRA’s position that a crowdfunding contribution received by an individual from their employer is subject to tax as a shareholder benefit where it was received in their capacity as a shareholder.

By contrast, where it is determined that the individual received the contribution in their capacity as an individual, the contribution would not be included in their income. The determination of whether an individual receives a crowdfunding contribution in their capacity as an employee, as a shareholder, or as an individual is always a question of fact.

All of the following conditions must generally be met for an employer’s crowdfunding contribution (or other voluntary transfer) to be considered received by a person in their capacity as an individual:

• The contribution is provided voluntarily, for humanitarian or philanthropic reasons;
• The contribution is not based on employment factors such as performance, position, or years of service;
• The contribution is not provided in exchange for employment services;
• The contribution is made to an individual who deals with the company at arm’s length (Refer to Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm’s Length for more information);
• The contribution is not made to a person of influence (such as an executive with power to control company decisions);
• The contribution is not made to a shareholder or a connected person (a person who does not deal at arm’s length with, or is affiliated with, a shareholder); and
• The employer has not taken a business expense deduction in respect of the contribution.

Notwithstanding the above, when such contributions are received by an employee who is also a shareholder, it is possible for the amount to be considered received in a personal capacity where the facts support such a finding and all of the other conditions above are met. This may be the case where, for example, the employer would have made a crowdfunding contribution of similar size to any employee in the circumstances, including those who are not shareholders.

The CRA will also take into account case-specific factors in determining whether the contribution is received in their capacity as an individual. Additional factors could include whether:

• the individual was affected by extenuating circumstances or an event (outside of work) that was beyond their control (e.g. serious illness or injury of the individual or a family member, disaster, funeral expenses);
• the contribution is made voluntarily based on compassionate grounds and is meant to provide short term financial assistance to compensate the individual for personal losses or damage suffered or increased living costs incurred as a result of the extenuating circumstances or event, or to cover the basic necessities of life;
• the contribution is received as a one-time lump sum amount;
• the employer has a reasonable expectation that the contribution will be spent within a reasonable amount of time and on items or expenses arising from the extenuating circumstances or event or on the basic necessities of life;
• the value of the contribution is reasonable and is made within a reasonable period of time following the extenuating circumstances or event;
• the contribution is not meant to compensate for loss of income and is not subject to any conditions tied to the individual’s employment.

While it is always a question of fact whether a benefit or an amount is received in a person’s capacity as an individual, it appears likely in the situation you describe that the employer’s contribution to the crowdfunding campaign would be considered to be received by the employee in their capacity as an individual, provided that the employer would have made a crowdfunding contribution of similar size to any of its employees in the circumstances. Where this is the case, the contribution would not result in a taxable benefit to the employee.

Employer’s deduction

An employer who makes a crowdfunding contribution (or other voluntary transfer) to their employee in circumstances similar to those described above will not be entitled to a charitable deduction under subsection 110.1(1) of the Act since the contribution is not a gift made to a registered charity or other qualified donee. Additionally, as the contribution is also not an outlay or expense incurred for the purpose of gaining or producing income, it would not be deductible to the employer as a business expense under paragraph 18(1)(a) of the Act.

We trust these comments will be of assistance.

Yours truly,

Tom Baltkois, CPA, CGA
Acting Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch