The ATO has formed a view on Taxing Crowdfunding. The revolution is upon us and the ATO is having a hard time keeping up. ‘Crowdfunding’ is financial support for a project or venture. The collection and promotion are via internet platforms, mail-order subscriptions, benefit events and other methods.
Crowdfunding falls into 4 models:
The three participants are:
- Promoter – campaign creator (owns it) and promoter (spruiker for the creator)
- Intermediary – provides platform, such as crowdfunding website
- Contributor – mum, dad and Self-Managed Super Funds who put in or pledge the money
Is contributed money taxable? Taxing Crowdfunding
Some, if not all of the contributions, may be ‘income’ and therefore taxable to someone. It depends on the arrangement. The ATO considers separately the tax implications for each of the Promoter, Intermediary and Contributor. The folks at the ATO (except for its litigation team) are not sophisticated and look at what is happening in a conventional manner: just like buying goods, shares and lending money.
We also can’t ignore that the Goods & Services Tax (GST) may apply. And, if so, then 10% of certain amounts are sent off to the ATO. Taxing Crowdfunding is going to become a lot more interesting.
Taxing Crowdfunding: what are the ATO’s view?
The ATO’s believes:
- Funds received or profits made by the Promoter, especially if donated, are generally assessable income, especially if the Promoter:
- 1. uses crowdfunding in the course of his employment (regular and recurring)
- 2. enters into a transaction or scheme with the intention of making a profit
- 3. receives money or property in the ordinary course of the business. This includes money and property received in exchange for goods and services. However, Legal Consolidated Barristers & Solicitors believes that money received by way of a loan is not income.
- A crowdfunding project is a profit-making scheme if the Promoter intended to make a profit, and the project was the carrying out of a business operation. What is the Taxing Crowdfunding model?
- Where the Promoter is carrying on a business, the reward-based crowdfunding model is characterised as the ordinary business of making sales to customers with an obligation to deliver goods or services. Recognition or timing of the income depends on whether the Promoter accounts for the income on a cash (receipts) or accruals (earnings) basis.
- For donations, whether the receipt of a voluntary payment is assessable income is determined on a case-by-case basis. The ATO is on thin ice here. The court has established the rules to determine whether a voluntary payment is an assessable income. For the ATO, the question is whether the donation is connected enough for the funds to be considered a product of the Promoter’s income-producing activities.
Goods and Services Tax (GST)
- For the donation-based model, a Contributor makes a payment expecting nothing in return. This is the very essence of a donation. There is no ‘supply’ and therefore GST can’t apply to this. The ATO agrees with our law firm’s position. The Promoter makes no supply to the Contributor and does not have any GST liability. What if the Promotor puts the Contributor’s name up on the website? A simple acknowledgement of the payment is not ‘consideration’ for any supply made by the Promoter. It goes without saying the Funder is not entitled to an ‘input tax credit’. No GST was charged. Therefore the Promotor can’t claim it back.
- Under a reward-based model, the Promoter provides goods, services or rights in return for payments by Contributors. The Promoter has a GST liability if a taxable supply is made to the Contributor. If the Promoter makes a taxable supply, the Contributor is entitled to an input tax credit. This is if the Contributor is registered for GST and the acquisition is made for a creditable purpose.
For more details see the ATO’s comments here: https://www.ato.gov.au/individuals/income-and-deductions/income-you-must-declare/crowdfunding/
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Barrister & Solicitor
Legal Consolidated Barristers and Solicitors, Australian law firm