Kickstarter Canada - Is My Crowdfunding income, taxable income

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Crowd fundingand TAXKickstarter/Indiegogo
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Kickstarter and Indiegogo has become a trusted
source of seed money for Canadian Startups.
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Is crowd funded money taxable business income?
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A question is going to haunt Canadian startups
and entrepreneurs going forward.
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According to Canada Revenue Agency (CRA) crowd
funded capital is ordinary business income as per
Income Tax Act of Canada
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It is like a pre sale of your service or product.
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You collect funds (money) in advance promising a
service or product in future to your customers.
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Are your customers donating money to your project?
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NO! They are not.They are expecting a service or
product in exchange of funding your project on
Kickstarter and Indiegogo.
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Kickstarter and Indiegogo might give you the
impression that you are raising capital, but in
reality and as per the Income Tax Act., you are
pre selling your product or service.
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Funding from Kickstarter and Indiegogo are not
Capital. These are business revenue and as such
part of your taxable business income.
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Expenses related to crowd funding and providing
of service and product are part of business
expense if they meet the criteria of business
expense as stated in the Income Tax Act.
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How much tax you could pay on your Crowd sourced
income?
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It depends, on your business entity.How you are
sourcing the fund?
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Are you sourcing fund as a sole proprietor,
partnership or a corporation?
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If you are a sole proprietor or partnership, you
could pay a minimum of 22 to maximum of 43 of
your net business income from Crowd Funding.
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For Example, if you sourced 10,000 from crowd
through Kickstarter and Indiegogo, your Business
Income is 10,000 for the project as per Income
Tax Act.
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Your expenses to raise the fund and provide
service or product to the crowd are 8,000.
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Your net taxable business income from the project
is 2,000 and you will pay tax 0n that amount.
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If you are raising the fund as a corporation,
your taxable income might be about 15.
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It is important to keep in mind the selling point
for Kickstarter and Indiegogo may be donation,
startup funding, crowd funding etc., but from
legal definition as per Income Tax Act in Canada,
its a pre-sale business income, in the ordinary
course of business.
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Canada Revenue Agency (CRA) has provided a detail
technical interpretation of taxation of crowd
funding in a technical bulletin. You can request
a copy through our website.
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It is important to consult your tax advisor
before you decide to raise funds through
Kickstarter, Indiegogo or any other crowd funder.
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You can contact us, if you need expert business
tax advice for your business or crowd funding
projects.
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New Edge Management Consulting, Inc.Vancouver,
Canada604-764-7864www.taxsupport.ca