CROWD FUNDING: Taxable or Not?

Posted on November 16th, 2022 in Domestic Tax

The word crowdfunding with an image of a lightbulb underneath. $ with arrows pointing towards the lightbulb.

A June 2, 2022, Technical Interpretation discussed the taxability of funds received through crowdfunding campaigns. CRA first noted that amounts received through a crowdfunding arrangement could represent loans, capital contributions, gifts, income, or a combination of two or more of these. This means that the funds received could be taxable (such as business income) or not (such as a windfall, gift, or voluntary payment). As the terms and conditions for each campaign vary greatly, the determination of tax status must be conducted on a case-by-case basis.

Where an amount is not a windfall, gift, or other voluntary payment, the amount may be taxable if it constitutes income from a source. To be a non-taxable gift or other voluntary payment, the following conditions must be met:

there is a voluntary transfer of property;
the donor freely disposes of their property to the donee; and
the donee confers no right, privilege, material benefit, or advantage on the donor or on a person designated by the donor.

CRA opined that contributions would likely be considered non-taxable gifts in the case of a “Go Fund Me” campaign created by family members of an individual with cancer to assist in that individual’s treatment.

In an August 23, 2019, Technical Interpretation, CRA considered whether an employer’s contribution to their employee’s crowdfunding campaign to assist with the cost of additional therapies and support for the employee’s recently born child would be received in the recipient’s capacity as an employee (taxable) or individual (not taxable).

CRA indicated that, where the person is dealing at arm’s length with the employer and is not a person of influence (such as an executive who controls employer decisions), the benefit or amount would generally be received in the person’s capacity as an individual (non-taxable) where the amount is:

provided for humanitarian or philanthropic reasons;
provided voluntarily; • not based on employment factors such as performance, position or years of service; and
not provided in exchange for employment services.

If considered non-taxable, CRA opined that, as the contribution was not an expense incurred to gain or produce income, it would not be deductible.

ACTION ITEM: Amounts raised by crowdfunding campaigns may be taxable or non-taxable, depending on the circumstances. Ensure to provide details on these activities so that the amounts are properly reported.

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Article originally published in: Tax Tips & Traps 2022 Fourth Quarter – Issue 140.