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.
