In a short technical interpretation (CRA Document 2015-0579031I7 “Crowdfunding” (April 1, 2015)), the CRA has restated its views on the tax treatment of amounts raised via crowdfunding arrangements (see our previous post here).
The CRA stated that amounts received by a taxpayer under a crowdfunding arrangement could represent a loan, capital contribution, gift, income or a combination thereof. The CRA will evaluate each situation on a case-by-case basis.
The CRA stated that, in its view, where funds are received by a taxpayer for the development of a new product and the taxpayer carries on a business or profession, the funds will be taxable income unless the taxpayer can establish that such funds are a loan, capital contribution or other form of equity. The CRA noted that any reasonable costs related to the crowdfunding arrangements would likely be deductible in computing that income.
The CRA noted that, in Canada, crowdfunding activities typically do not involve the issuance of securities, but that some securities regulators may be considering changes to existing regulatory rules. The CRA will evaluate the income tax consequences if such regulatory changes take place.
Finally, the CRA noted that the subject of crowdfunding is briefly addressed in Folio S3-F9-C1 “Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime” (April 3, 2015) in respect of whether such amounts may be a gift by a donor. The CRA provided an example from the Folio:
Assume a business uses crowdfunding as a method of raising funds for the development of a new product and the contributors do not receive any form of equity. The amounts received by the business would be included in its income pursuant to subsection 9(1).
Taxpayers who seek and obtain crowdfunding (for business and non-business purposes) should be aware of the potential tax implications, particularly in light of fact-specific results and the CRA’s evolving views on the subject.