Month: December 2023

 

Crowdfunding involves a team of people raising funds online to finance a new project or business concept. The money comes from a large pool of people who believe in the cause–these may be investors, everyday individuals, or sponsors.

As it’s a means of generating income–whether it’s hundreds or thousands–the Australian Taxation Office imposes several tax implications that could impact profits businesses and individual contributors receive.

Read on as we outline applicable taxes, share model-specific obligations, and highlight where GST applies. 

 

Which Taxes Apply to Crowdfunding? 

You must declare profits generated through crowdfunding on your individual tax return. Your position in the project could impact what you pay:

• Promoter: Profits or funds generated while using crowdfunding as an employee, taking profits for your own gain, carrying on a business, or entering the scheme as a profit-maker become assessable income.
• Intermediaries: The ATO may assess income generated from a charged flat fee or take commission taken from the total funds raised in exchange for offering a platform for projects to promote their cause.
• Contributors: If you invest in a crowdfunding initiative and receive a financial return, you could become income tax-liable. 

Fundamentally, the intention to make a profit or profits earned generally becomes assessable, especially if you’re carrying on a business. 

Even if you haven’t launched a business, performing commercial activities like drafting a business plan or marketing a product can be deemed “carrying on a business.” Here, income tax can apply.

Contact a business advisor for guidance on navigating taxes.

 

4 Types of Crowdfunding

Specific tax obligations may vary depending on the type of crowdfunding you perform. Here’s an overview: 

• Donation-based crowdfunding: Funds are typically voluntary, so promoters may not be tax liable provided the money complies with the payment terms. 
• Reward-based crowdfunding: Goods and services tax (GST) may apply when promoters reward contributors with financial returns, a product, or a service, as it’s like a business transaction.
• Equity-based crowdfunding: Contributors who receive dividends for investing in this model might become tax-liable. Here the tax doesn’t typically implicate promoters, as investments aren’t considered profits. 
• Debt-based crowdfunding: Promoters’ income isn’t assessable when contributors lend funds. The interest taken by contributors could then become tax-liable. 

 

Can You Claim Income Tax Deductions? 

Depending on your individual circumstances, models, and position, you could receive income tax deductions for any costs relating to business expenses. You must have substantial evidence proving that payments are eligible for deductions.  

If you’re carrying on a business and liable for income tax, including through profits generated by crowdfunding, you could claim the following:

• Operational expenses
• Depreciating assets
• Start-up expenses
• Motor-vehicle costs
• Travel expenses

 

Stay Updated with Ongoing Guidance

Crowdfunding is an ever-changing sector that a rapidly increasing number of people use. As such, the ATO pledges to update its guidance based on advancements shown across all models. 

Get in touch with Glance Consultants for unparalleled advice on complying with current tax obligations.

 

Managing substantial wealth and assets in Australia comes with the responsibility of effective tax planning. High-net-worth individuals often face significant tax liabilities, making it imperative to navigate the complexities of the Australian tax system while remaining fully compliant with the law. In this article, we will discuss four essential tax planning strategies tailored for individuals seeking to minimize their tax liabilities while staying within legal boundaries.

 

Utilize Self-Managed Superannuation Funds (SMSFs):

A self-managed super fund (SMSF) can be a powerful investment vehicle for high net worth individuals seeking greater control over their retirement investments. To establish an SMSF, individuals must establish a trust deed and register their SMSF with the Australian Taxation Office (ATO). Unlike traditional superannuation funds, SMSFs empower you and up to five other members to oversee your investment decisions, potentially reducing administrative and investment fees.

One of the key advantages of SMSFs is the ability to diversify investments across various asset classes, including shares, cash, fine art, foreign shares, managed funds, and property. SMSFs also offer favorable tax benefits, with a standard tax rate of 15% or lower, provided all compliance requirements are met. Investments made within an SMSF, such as property and equipment, can result in reduced tax liabilities.

It is crucial to note that establishing and managing an SMSF can be complex. Seeking professional business advisory support is highly recommended to ensure full compliance with current legislation.

Even if you did not have an SMSF, you can potentially maximise your deductible superannuation contributions for the year and claim such contributions as a tax deduction. Various factors need to be considered prior to making such contributions and tax planning is essential.

 

Engage in Negatively Geared Investments:

Negative gearing is a strategy where individuals borrow money to invest in assets, such as property, with the goal of generating long-term wealth through asset appreciation rather than immediate returns. In this approach, the total deductible costs, including interest costs, depreciation and property maintenance costs, exceed the rental income received.

The tax advantage of negative gearing lies in the fact that it can lower your assessable income. The Australian Taxation Office (ATO) taxes individuals on the reduced income after deducting expenses, which can lead to reduced tax liabilities.

 

Implement Debt Recycling:

Debt recycling is a more advanced strategy that involves repaying one debt (e.g., a student or mortgage loan) by investing funds obtained from the equity of another loaned asset. While this strategy carries higher risk, meticulous execution can unlock substantial equity for further investments.

By investing equity from an existing asset, such as your home or a vehicle, into income-producing assets like rental properties, you can reduce your tax liability. Interest incurred on the loan taken against your equity to invest in an income bearing asset can be deductible, further lowering your overall assessable income.

 

Explore Shares for Franking Credits:

Investing in shares of companies that pay taxes on their profits can provide access to franking credits with dividend distributions. Franking credits can assist in in reducing your overall tax liability as you will be required to only pay the differential tax between your marginal tax rate and the company tax rate.

In some instances, accumulating franking credits through diversified investments may even lead to an overpayment of tax, potentially resulting in a tax refund.

Effective tax planning is essential for high net worth individuals in Australia to minimize tax liabilities while adhering to legal requirements. These tax planning strategies, when employed carefully, can significantly reduce tax burdens and enhance wealth accumulation. However, due to the complexities involved, it is strongly advised to seek professional guidance and personalized tax planning services to maximize tax savings and ensure compliance with current tax laws. To get started on optimizing your tax strategy, please contact us for our tailored individual taxation services, offering expert advice, meticulous planning, and preparation of tax lodgments that consider your unique financial situation.