Canadian Taxation

Crowdfunding as taxable income

Published On November 13, 2013 | By Joseph (Ken) | Corporate tax, Government, Personal tax
crowd funding

In a decision that I’m sure is going to shock people (sarcasm) Crowdfunding counts as taxable income, Revenue Canada says

“In many cases, the money raised on crowdfunding websites like Kickstarter and Indiegogo — for everything from independent films to quirky device prototypes — might not amount to much, but it still counts as business income, according to the Canada Revenue Agency.

“Tax attorneys and several media outlets reported earlier this week that a recent interpretation the CRA issued in response to a query about crowdfunding makes clear that if the money raised is related to professional or business activities, then it qualifies as income.”

Sarcasm aside, it would be comparable to donating to support public television.  In the case of crowdfunding though, the individual who receives the contribution isn’t a non-profit institution and, therefore, the funds received are “income”.

“But that doesn’t necessarily mean the person doing the fundraising can’t deduct certain expenses associated with the crowdfunding campaign, the CRA said.

“Many musicians or artists will, for example, offer those who donate money to their crowdfunding campaigns some small token of appreciation, such as a limited editions of their work or a band T-shirt, and these items might qualify for certain tax deductions.

“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 [Income Tax] Act are otherwise met,” the CRA said in its letter.”

It is also important to remember that if the crowdfunding was incurred to offset costs to generate income or produce a product for future sale, you can deduct those costs against that future income.  Therefore, even if you pay tax on the crowdfunding, you can recover the tax paid by deducting expenses paid for by those funds.

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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