kickstarter canada, is crowdfunding taxable income

taxsupport.ca Vancouvertaxsupport.ca Vancouver

Crowd Crowd fundingfundingand TAXand TAX

Kickstarter/IndiegogoKickstarter/Indiegogo


Kickstarter and Indiegogo Kickstarter and Indiegogo has become a trusted has become a trusted

source of seed money for source of seed money for Canadian Startups.Canadian Startups.


Is crowd funded money Is crowd funded money taxable business income?taxable business income?


A question is going to haunt A question is going to haunt Canadian startups and Canadian startups and entrepreneurs going entrepreneurs going

forward.forward.


According to Canada According to Canada Revenue Agency (CRA) Revenue Agency (CRA) crowd funded capital is crowd funded capital is

ordinary business income ordinary business income as per Income Tax Act of as per Income Tax Act of

CanadaCanada


It is like a pre sale of yourIt is like a pre sale of your service or product. service or product.


You collect funds (money) in You collect funds (money) in advance promising a service advance promising a service or product in future to your or product in future to your

customers.customers.


Are your customers Are your customers donating money to your donating money to your

project?project?


NO! They are not.NO! They are not.They are expecting a They are expecting a service or product in service or product in

exchange of funding your exchange of funding your project on Kickstarter and project on Kickstarter and

Indiegogo.Indiegogo.


Kickstarter and Indiegogo Kickstarter and Indiegogo might give you the might give you the

impression that you are impression that you are raising capital, but in reality raising capital, but in reality and as per the Income Tax and as per the Income Tax

Act., you are pre selling Act., you are pre selling your product or service.your product or service.


Funding from Kickstarter Funding from Kickstarter and Indiegogo are not and Indiegogo are not

Capital. Capital. These are business revenue These are business revenue

and as such part of your and as such part of your taxable business income.taxable business income.


Expenses related to crowd Expenses related to crowd funding and providing of funding and providing of

service and product are part service and product are part of business expense if they of business expense if they

meet the criteria of business meet the criteria of business expense as stated in the expense as stated in the

Income Tax Act.Income Tax Act.


How much tax you could How much tax you could pay on your Crowd sourced pay on your Crowd sourced

income?income?


It depends,It depends, on your business entity. on your business entity.

How you are sourcing the How you are sourcing the fund?fund?


Are you sourcing fund as aAre you sourcing fund as a sole proprietor, sole proprietor, partnership or partnership or a corporation? a corporation?


If you are a sole proprietor If you are a sole proprietor or partnership, you could or partnership, you could pay a minimum of 22% to pay a minimum of 22% to

maximum of 43% of your net maximum of 43% of your net business income from business income from

Crowd Funding. Crowd Funding.


For Example, if you sourced For Example, if you sourced $10,000 from crowd $10,000 from crowd

through Kickstarter and through Kickstarter and Indiegogo, your Business Indiegogo, your Business Income is $10,000 for the Income is $10,000 for the

project as per project as per Income Tax Act.Income Tax Act.


Your expenses to raise the Your expenses to raise the fund and provide service or fund and provide service or

product to the crowd are product to the crowd are $8,000.$8,000.


Your net taxable business Your net taxable business income from the project is income from the project is $2,000 and you will pay tax $2,000 and you will pay tax

0n that amount.0n that amount.


If you are raising the fund If you are raising the fund as a corporation, your as a corporation, your

taxable income might be taxable income might be about 15%.about 15%.


It is important to keep in It is important to keep in mind the selling point for mind the selling point for Kickstarter and Indiegogo Kickstarter and Indiegogo may be donation, startup may be donation, startup

funding, crowd funding etc., funding, crowd funding etc., but from legal definition as but from legal definition as

per Income Tax Act in per Income Tax Act in Canada, it’s a pre-sale Canada, it’s a pre-sale business income, in the business income, in the

ordinary course of business.ordinary course of business.


Canada Revenue Agency Canada Revenue Agency (CRA) has provided a detail (CRA) has provided a detail technical interpretation of technical interpretation of

taxation of crowd funding in taxation of crowd funding in a technical bulletin. You can a technical bulletin. You can request a copy through our request a copy through our

website.website.


It is important to consult It is important to consult your tax advisor before you your tax advisor before you

decide to raise funds decide to raise funds through Kickstarter, through Kickstarter,

Indiegogo or any other Indiegogo or any other crowd funder.crowd funder.


You can contact us, if you You can contact us, if you need expert business tax need expert business tax

advice for your business or advice for your business or crowd funding projects.crowd funding projects.


New Edge Management New Edge Management Consulting, Inc.Consulting, Inc.

Vancouver, CanadaVancouver, Canada604-764-7864604-764-7864

www.taxsupport.cawww.taxsupport.ca