On August 16, 2013, the Canada Revenue Agency (CRA) issued a technical interpretation dealing with the treatment of funds obtained through, and related expenses incurred in respect of, “crowdfunding” activities by a taxpayer under the Income Tax Act (Canada). The CRA recently made further comments on this issue at the 2013 APFF Conference Federal Round Table.


Crowdfunding has emerged as a modern financing trend, touted by many entrepreneurs as an attractive alternative to more traditional means of raising capital such as financial institutions, foundations, angel investors or venture capitalists.

Generally, crowdfunding is an innovative way to raise capital for a project. Essentially, this financing mechanism involves the pooling of small, individual contributions through crowdfunding portals, which connect capital seekers and capital providers (i.e., contributors) through the Internet and social media networks. From a purely commercial perspective, the intention is to enable start-ups by reducing the cost of raising capital.

A few variants of crowdfunding include the donation model, the reward-based model and the equity-based model, which are described in more detail in our May 15, 2013 Osler Update.

Until now, there has been considerable debate, in Canada and abroad, as to the tax treatment to be afforded funds raised through crowdfunding activities along with corresponding expenses. The CRA technical interpretation and its statement at the 2013 APFF Conference Federal Round Table shed light as to the CRA’s view of the appropriate tax treatment to be afforded such funds.

CRA Technical Interpretation

On August 16, 2013 the CRA issued its first technical interpretation dealing with crowdfunding activities.

The technical interpretation was issued in response to a particular taxpayer’s query and addressed a scenario in which funds are raised from the public for a project relating to the development of a product for market, such as producing a recording by a musical group. As consideration for the contribution, the person making a contribution would receive an incentive gift such as a copy of the finished product (for example, a musical recording) or a promotional item such as a T-shirt. The contributors would not receive any form of equity in the project. In effect, the CRA was dealing with a reward-based crowdfunding model.

The CRA took the position that funds received by a taxpayer from such crowdfunding activities would generally be included as income from carrying on a business.

In addition, the CRA was of the view that related expenses in respect of such crowdfunding activities (along with the cost to a business to provide donor gifts) would generally be deductible by the taxpayer as expenses incurred for the purpose of gaining or producing income.

2013 APFF Conference Federal Round Table

More recently, the CRA addressed a similar factual situation at the 2013 APFF Conference Federal Round Table. In that case, for each $25 donation, the corporation would offer the contributor a gift (i.e., a reward) with a value of $10 (a copy of an album with a cost of $6 per unit to the corporation). The corporation would assume the costs of the crowdfunding platform (4% of the funds raised) and the costs associated with the use of Paypal (3% of the funds raised), which would amount to $1.75.

The CRA was asked three questions with respect to the scenario described above, namely:

  • would the $25 received by the corporation be (i) taxable to the corporation, and (ii) subject to the application of paragraph 12(1)(x) of the Income Tax Act

  • would the amount of $10 or rather only the $6 constitute an expense for the corporation and whether

  • the $1.75 in respect of platform and Paypal fees would be deductible for the corporation.

In its response, the CRA made only general comments, and largely avoided any specific answers to the foregoing questions. Specifically, the CRA responded that depending on the exact form of the crowdfunding arrangement, the funds raised could be treated as a loan, a capital contribution, a gift or income to be included in calculating taxable income or any combination thereof. The CRA was of the view that under the circumstances described above, the amount of $25 could constitute business income. The CRA refused, however, to provide a definitive answer with respect to the tax treatment of funds raised under this scenario without a further examination of the facts relating to the particular crowdfunding activities.


The CRA’s position in the foregoing Technical Interpretation provides some clarity in what was until now a gray taxation area. Funds raised by a taxpayer through (reward-based) crowdfunding activities will likely constitute business income to the taxpayer. Correspondingly, the CRA has clarified that in their view expenses relating to such crowdfunding activities should generally be deductible by the taxpayer in computing its taxable income. It should be noted that the taxpayer also requested the CRA’s comments relating to the possible application of GST/HST under the circumstances. It will be interesting to see whether to the Excise and GST/HST Rulings Directorate will adopt a consistent view with that of the Income Tax Rulings Directorate and subject crowdfunding activities to GST/HST.

A priori, the CRA’s position may have a significant commercial impact on crowdfunding as a means of raising capital. Unlike indebtedness or amounts received in consideration for the subscription of shares, funds raised through reward-based crowdfunding would be taxable to the recipient. That being said, the tax burden associated with crowdfunding activities may be considerably mitigated by the significant expenses that will likely be incurred by a corporation undertaking such crowdfunding activities.

In addition, the fact that the CRA has specified that the contributors in the scenario described above received no form of equity in the project does provide some hope for equity-based crowdfunding. Indeed, the CRA’s statements at the 2013 APFF Conference Federal Round Table clearly leave the possibility open for funds received in the context of equity-based crowdfunding to be treated as a capital contribution.