Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 191551
Business Number: […]
[Dear Client]:
Subject: GST/HST ruling and GST/HST interpretation
Application of GST/HST on funds raised through crowdfunding
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) on funds raised through crowdfunding. We apologize for the delay in this response.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts as follows based on your letter, the crowdfunding website […][the Platform], and [your] telephone conversations [with] HQ officers on [mm/dd/yyyy, mm/dd/yyyy], and [mm/dd/yyyy]:
1. […][X] created […][property], hereinafter referred to as the “Goods”.
2. [X] is […][a business] based in [Canada] and registered for GST/HST with Business Number […].
3. Funds necessary for the production of [X]’s Goods were raised through […] (the Platform).
4. Each project on the Platform is independently created […] by the person or team behind it (i.e. [X]). Each [X] has complete control and responsibility over their projects […][including website, pledge amounts and reward related decisions]. […][Supporters (Y) pledge 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. The Platform is “reward-based”.
5. […][Y may] make pledges […] from around the world […][and will be] charged the amount of their pledges on their credit card and entitled to the corresponding reward.
6. […][Information about Platform fees and payment processing].
7. […].
8. […] of the terms of use of the Platform creates a contract between [X] and […][Y]. […][X, by] posting a project is making an offer and […][Y, by pledging funds to] the project is accepting [X]’s offer and forming that contract. […].
9. […][Information about X’s responsibility with respect to the payment of Platform fees and applicable taxes]
10. […][The Platform does not accept projects with incentives such as equity, revenue sharing and investment opportunities]
11. [X] ran [...] successful Projects (Footnote 1) . […]. The projects obtained $[…] in pledges […].
12. […][Information on the Platform about X’s Projects and the fulfillment of rewards].
13. The Goods offered as rewards for the Projects are described as […].
14. The pledge amounts ranged from $[…] to $[…]. […][Y] who made pledges received the Goods made by [X] as a reward. […].
15. […].
16. […][Information about shipping].
RULING REQUESTED
You would like to know the following:
1. Is GST/HST applicable to the funds received for the Projects?
2. If GST/HST is applicable:
a. When does the tax become payable?
b. What tax rate should be applied?
We acknowledge your request for rulings on the above matters. However, as noted in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, a ruling provides the Canada Revenue Agency's (CRA's) position on specific provisions of the legislation as these relate to a clearly defined fact situation of a particular person. As the circumstances are such that all of the pertinent facts cannot be established at this time, we are unable to rule on some of these issues. Rather, we are providing general information which we trust will be of assistance.
RULING GIVEN
Based on the facts set out above, we rule that:
1. The GST/HST is applicable to the funds pledged for the [...] Projects.
EXPLANATION
Ruling #1:
Generally, all supplies of property and services made in Canada are taxable unless an exemption from the GST/HST applies. Taxable supplies are supplies made in the course of a commercial activity and may be taxable at the rate of 0% (zero-rated supplies), 5%, 13%, or 15% on the value of the consideration for the supply depending on the province in which the supply is made. Zero-rated supplies are included in Schedule VI. Exempt supplies are not subject to the GST/HST and are included in Schedule V.
Subsection 123(1) defines key terms as follow:
“Supply” as the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition.
“Property” to mean any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money.
“Service” to mean anything other than property, money, and anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person.
“Taxable supply” is a supply that is made in the course of a commercial activity.
“Commercial activity” is defined to include a business carried on by a person or an adventure or concern of the person in the nature of trade, other than a business carried on, or an adventure or concern engaged in, without a reasonable expectation of profit by an individual, except to the extent to which the business involves the making of exempt supplies.
Any property that is not real property is either tangible or intangible personal property. While these terms are not defined by the Act, tangible personal property (TPP) may be viewed as including all objects or things that may be touched or seen, and that are movable at the time the supply is made, other than money.
According to the [Platform’s terms of use], a project cannot offer equity. Investment is not permitted and projects cannot offer incentives like equity, revenue sharing, or investment opportunities. Accordingly, the funds raised by [X] through the Projects are not a capital contribution, loan or gift. [Y] made pledges [to X] and […][Y was] charged for the amount of their pledge and were entitled to a “reward” in return.
[X] is a GST/HST registrant and operates a business that is a commercial activity. [X] raised funds necessary for the production of the Goods sold in the business through reward-based crowdfunding and made the Goods available on its business website, [...]. The Goods provided by [X] for the Projects are taxable supplies of TPP per subsection 123(1).
[…] the Platform provides a funding platform for creative projects. When [X] posts a project on the Platform, they’re inviting other people to form a contract with them. […][By making a pledge to support a project, Y] is accepting [X]’s offer, and forming that contract. The Platform is not a part of this contract - the contract is a direct legal agreement between [X] and [Y]. [X] is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by [Y].
As [X] is the supplier it is required to account for the tax in the reporting period of the business on the earlier of the day the consideration is paid or becomes payable.
INTERPRETATION GIVEN
Tax Extra or Tax Included
Subsection 223(1) imposes disclosure requirements on a registrant who makes a taxable supply. Essentially, where the tax is charged on a tax-extra basis, the registrant must indicate the total amount of tax payable in respect of the supply. Where the tax is included in the amount charged for the supply, the registrant must indicate that the amount charged includes the tax payable in respect of the supply.
As per section 165, GST/HST is calculated on the value of the consideration for the supply. It is a question of fact whether tax has been added to the value of consideration or if the GST/HST is extra. […] of the Platform’s terms of use require [X] to pay any taxes associated with the use of the platform.
GST/HST Policy Statement P-118R (P-118R), Assessments on a Tax Extra or Tax Included Basis, may provide you with some guidance as to whether GST/HST should apply to the pledge amounts on a tax-included or tax-extra basis. P-118R provides that the determination of whether a tax-extra or tax-included assessment should be made is a question of fact to be resolved by the auditor based on the facts and the circumstances of the particular situation. Factors such as the invoicing practices, industry practices and supporting documentation will be pertinent and used in the determination.
Place of Supply
The GST (or federal part of the HST) is imposed under subsection 165(1) in respect of taxable supplies that are made in Canada. The provincial part of the HST is imposed under subsection 165(2) in addition to the federal part of the HST in respect of taxable supplies that are made in a participating province.
The general place of supply rules for determining if a supply is made, or deemed to be made, in Canada are found in subsection 142(1) of the ETA. Paragraph 142(1)(a) deems a supply of TPP that is, or is to be, delivered or made available in Canada to the recipient of the supply to be made in Canada.
The general place of supply rules for determining if a supply is made, or deemed to be made, outside Canada are found in subsection 142(2) of the ETA. Paragraph 142(2)(a) deems a supply of TPP that is, or is to be, delivered or made available outside Canada to the recipient of the supply to be made outside Canada.
Pursuant to section 1 of Part II of Schedule IX, a supply of TPP is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. This rule is generally based on the province in which legal delivery of the property occurs. For purposes of this rule, under section 3 of Part II of Schedule IX, property is deemed to be delivered in a particular province if certain conditions are met, including if a supplier sends the property by mail or courier to an address in the particular province.
Timing of Tax Payable
Whether the amounts collected from [Y] […][on] a reward-based crowdfunding [project] are an advance payment is a question of fact.
As per subsection 168(1), tax in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.
Under section 133, the entering into of any agreement to supply any property is deemed to be a supply of the property made at the time the agreement is entered into. The provision of the property under the agreement is treated as being a part of the same supply and not as a separate supply. As a result, 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.
Generally, an advance payment is an amount paid on account of a payment to become due under an obligation and recorded in the supplier's books and records as income. The GST/HST is payable at the time the advance payment is made, pursuant to paragraph 152(1)(c), assuming that the advance payment did not become due at an earlier time. If under a written agreement, a customer is required to make an advance payment equal to 100% of the consideration for property to be supplied in the future, the customer would be required to pay, and the supplier would be required to collect, the GST/HST calculated on the amount at the earlier of the time the advance payment became due under the agreement or was paid.
Consideration is defined under subsection 123(1) and includes any amount that is payable for a supply by operation of law. [Y] is required to pay GST/HST on the full consideration payable for the pledge amounts that was supplied by [X]. Tax is calculated on the pledge amount and not the amount received by [X] after the fees are deducted from the Platform and the payment processor.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3972
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
David Phoenix, CPA, CGA
Industry Sector Specialist
Services and Intangibles
General Operations and Border Issues Division
GST/HST Rulings Directorate
FOOTNOTES
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