Kickstarter - Is crowdfunding income Taxable?

taxsupport.ca Vancouvertaxsupport.ca Vancouver

Kickstarter/IndiegogoKickstarter/Indiegogo


KickstarterKickstarter and and IndiegogoIndiegogo has has become a trusted source of seed become a trusted source of seed money for Canadian Startups.money for Canadian Startups.


Is crowd funded money taxable Is crowd funded money taxable business income?business income?


A question is going to haunt A question is going to haunt Canadian startups and Canadian startups and

entrepreneurs going forward.entrepreneurs going forward.


According to Canada Revenue According to Canada Revenue Agency (CRA) crowd funded Agency (CRA) crowd funded capital is ordinary business capital is ordinary business

income as per Income Tax Act of income as per Income Tax Act of CanadaCanada


It is like a pre sale of yourIt is like a pre sale of yourservice or product.service or product.


You collect funds (money) in You collect funds (money) in advance promising a service or advance promising a service or

product in future to your product in future to your customers.customers.


Are your customers donating Are your customers donating money to your project?money to your project?


NO! They are not.NO! They are not.They are expecting a service or They are expecting a service or product in exchange of funding product in exchange of funding your project on your project on KickstarterKickstarter and and

IndiegogoIndiegogo..


KickstarterKickstarter and and IndiegogoIndiegogo might might give you the impression that you give you the impression that you are raising capital, but in reality are raising capital, but in reality and as per the Income Tax Act., and as per the Income Tax Act., you are pre selling your product you are pre selling your product

or service.or service.


Funding from Funding from KickstarterKickstarter and and IndiegogoIndiegogo are not Capital. are not Capital.

These are business revenue and These are business revenue and as such part of your taxable as such part of your taxable

business income.business income.


Expenses related to crowd Expenses related to crowd funding and providing of service funding and providing of service and product are part of business and product are part of business expense if they meet the criteria expense if they meet the criteria of business expense as stated in of business expense as stated in

the Income Tax Act.the Income Tax Act.


How much tax you could pay on How much tax you could pay on your Crowd sourced income?your Crowd sourced income?


It depends,It depends,on your business entity.on your business entity.

How you are sourcing the fund?How you are sourcing the fund?


Are you sourcing fund as aAre you sourcing fund as asole proprietor,sole proprietor,partnership orpartnership ora corporation?a corporation?


If you are a sole proprietor or If you are a sole proprietor or partnership, you could pay a partnership, you could pay a

minimum of 22% to maximum of minimum of 22% to maximum of 43% of your net business income 43% of your net business income

from Crowd Funding. from Crowd Funding.


For Example, if you sourced For Example, if you sourced $10,000 from crowd through $10,000 from crowd through

KickstarterKickstarter and and IndiegogoIndiegogo, your , your Business Income is $10,000 for Business Income is $10,000 for

the project as per the project as per Income Tax Act.Income Tax Act.


Your expenses to raise the fund Your expenses to raise the fund and provide service or product to and provide service or product to

the crowd are $8,000.the crowd are $8,000.


Your net taxable business income Your net taxable business income from the project is $2,000 and from the project is $2,000 and

you will pay tax 0n that amount.you will pay tax 0n that amount.


If you are raising the fund as a If you are raising the fund as a corporation, your taxable income corporation, your taxable income

might be about 15%.might be about 15%.


It is important to keep in mind It is important to keep in mind the selling point for the selling point for KickstarterKickstarterand and IndiegogoIndiegogo may be donation, may be donation, startup funding, crowd funding startup funding, crowd funding etc., but from legal definition as etc., but from legal definition as per Income Tax Act in Canada, per Income Tax Act in Canada,

itit’’s a pres a pre--sale business income, in sale business income, in the ordinary course of business.the ordinary course of business.


Canada Revenue Agency (CRA) Canada Revenue Agency (CRA) has provided a detail technical has provided a detail technical

interpretation of taxation of interpretation of taxation of crowd funding in a technical crowd funding in a technical

bulletin. You can request a copy bulletin. You can request a copy through our website.through our website.


It is important to consult your It is important to consult your tax advisor before you decide to tax advisor before you decide to raise funds through raise funds through KickstarterKickstarter, ,

IndiegogoIndiegogo or any other or any other crowd funder.crowd funder.


You can contact us, if you need You can contact us, if you need expert business tax advice for expert business tax advice for

your business or crowd funding your business or crowd funding projects.projects.


New Edge Management New Edge Management Consulting, Inc.Consulting, Inc.

Vancouver, CanadaVancouver, Canada604604--764764--78647864

www.taxsupport.cawww.taxsupport.ca

http://www.taxsupport.ca

http://www.taxsupport.ca

Kickstarter - Is crowdfunding income Taxable?

Documents

ordinary business income

business revenue

income tax act of income

business entity

ordinary business capital

crowd sourced income

criteria of business

crowd funding