CRA on some Tax Consequences of Crowdfunding

CRA has released a short letter (thanks to taxinterpretations.com for doing a great job providing CRA’s ‘severed letters’ to the public) written in response to questions about the tax consequences of crowdfunding. There isn’t much new or surprising, but nevertheless the principles are important to keep in mind for those contemplating crowdfunding projects. The heart of CRA’s analysis is the following:

where funds are received by a taxpayer as a result of a crowdfunding arrangement for the development of a new product and that taxpayer carries on a business or profession, the CRA generally considers such funds to be taxable income (i.e., income from a source) unless it can be shown that the crowdfunding arrangement otherwise clearly represents a loan, capital contribution or other form of equity

And doing crowdfunding to raise business capital is fraught with danger under the provincial Securities Acts. I don’t currently recommend that for anyone, either on the raising end or the suckers’ end. (Sorry, did I say “suckers”? I meant “investors” of course.)

However, I’d say the money you raised on your GoFundMe page to help replace your stolen bike–unless you use it professionally–is going to almost certainly not be taxable income. And yes, my bike was stolen this morning, thanks for asking! But I don’t have a GoFundMe page.

As always, this is not legal advice and if you have questions about how to treat money you received from crowdfunding for tax purposes (or indeed, money you supplied to the crowdfunded!) you should consult your tax advisor.

Severed letters, incidentally, are released by CRA in redacted versions under the Access To Information Act. We can be grateful for this important legislation, compliance with which is increasingly difficult to obtain from government and its agencies.

Written by Craig Burley

Craig is a tax lawyer in private practice in Hamilton, Ontario. Call Craig at (905) 870-0196 to discuss issues that you think may need independent tax advice. In addition to tax, Craig writes and works publicly on a number of other issues related to law, justice, and public affairs.

Website: http://craigburley.com