Toronto accounting firm Advises taxpayers that the Canada Revenue Agency (CRA) considers crowdfunding proceeds to be taxable.
Accounting firm Mark Feldstein and Associates has released a statement to Canadian tax payers that the CRA’s stance on crowdfunding will apply to a specific scenario where a person who donates money to a commercial venture, like producing a musical recording, may receive a free product or promotional item, but would not receive any equity or be entitled to a share of the profits from the venture. Certain expenses, like the cost of producing promotional items given to donors and the cost of financing activities, may be deductible if the requirements for deductibility in the Income Tax Act are also met.
Non-business purpose tax treatments of crowdfunding proceeds like donations to humanitarian aid are not addressed by the CRA; taxpayers receiving crowd sourced funds should not be subject to tax where no business is carried on.
“The practice of funding a venture by raising small amounts of money from a large number of people, typically via the Internet,” says Mark Feldstein. “The CRA’s position will raise the after-tax cost of crowdfunding, which may have a significant impact on independent artists and start-ups that cannot access capital from more traditional sources.”
Crowdfunding in Ontario is generally prohibited, yet the Ontario Securities commission has issued an exceptive relief order to permit Social Venture Connection. More information on crowdfunding is available on the CRA’s website.