Taxpayers Australia, a non-profit entity that promotes “fairer and more transparent taxation system for every Australian taxpayer” has published a cautionary note on individuals using crowdfunding and the potential tax liability that may be incurred.
The advocacy group warns that the Tax Office has taken into account the Goods and Services tax (GST) may be “triggered” through crowdfunding activities.
In reviewing crowdfunding Taxpayers Australia states:
The Tax Office said GST outcomes for a promoter may vary according to:
- the model adopted and what supplies (if any) are made to the funder
- whether the promoter is carrying on an enterprise
- whether the promoter is registered for GST, or required to be registered
- whether the promoter makes supplies that are “connected with Australia” (a basic qualifier for GST, to ensure the tax is kept in our own backyard).
It said the intermediary may have a GST liability for services to the promoter if:
- the intermediary is carrying on an enterprise
- the intermediary is registered for GST, or required to be registered
- the intermediary provides the services for consideration (again that are “connected” with Australia).
(Note that if either the promoter or the intermediary is not physically in Australia, GST may not apply anyway.)
The main crowdfunding models that the Tax Office has identified so far involve:
- donation-based funding
- reward-based funding
- equity-based funding
- debt-based funding
In its review of rewards based crowdfunding, Taxpayer Australia states:
Reward-based model
Under a reward-based model, the promoter provides goods, services or rights in return for payments by funders. The promoter will have a GST liability if a taxable supply is made to the funder.
If the promoter makes a taxable supply, the funder is entitled to an input tax credit if the funder is registered for GST and the acquisition is made for a creditable purpose. Generally, no input tax credit is available if the acquisition relates to the funder making input taxed supplies. The intermediary makes a taxable supply of services to the promoter.
GST taxes are generally not applicable to donations, equity and debt based crowdfunding but, as always, be certain to check with your tax professional for tax ramifications.