Crowd Funding: Tax & GST Implications
This fact sheet provides a brief introduction to Crowdfunding and the implications of this practice on both the entity receiving the funding and the entities that contribute or pledge money.
Crowdfunding is a method used to raise funds to finance a project or venture. Crowdfunding is typically achieved through an intermediary, accessed via an online platform. The two most common models of crowdfunding used within Australia are:
- Donation-based crowdfunding-funders make donations to the project without receiving anything in return; and
- Reward-based crowdfunding-the promoter provides a reward to funders in return for their payment (eg. Free or discounted merchandise)
Equity-based and debt-based crowdfunding where funders make payments in return for a commercial loan or an interest in the equity of the business are also available.
In 2013, over US$5.1 billion was raised via crowdfunding worldwide. This increased to US$16 billion in 2014 and was estimated at over US$34 billion in 2015. Businesses can capitalise on the growth of this industry to access funding for projects which may otherwise be difficult or costly to obtain. Crowdfunding can also be a useful means of generating buzz around your project and facilitating social media interest.
The two main players in the Australian market are Pozible and Kickstarter who claim a funding success rate of 57% and 35.8% respectively - projects are generally not funded until the funding target is reached.
When engaging in crowdfunding, it is important to determine whether the money you receive is assessable income for tax purposes and whether GST needs to be applied to any funds received. The income tax and GST treatment of any crowdfunding arrangement will vary depending on the nature of any agreements made and consideration given.
At Brentnalls SA, we have the knowledge and experience to help you to investigate the broad range of funding opportunities available to businesses in this current digital age and to navigate the complex taxation implications associated with transactions of this nature.
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The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.