02 Dec Crowdfunding: is it income?
Crowdfunding has fast become a go-to strategy for people in need of large amounts of money quickly, but is the money raised considered to be income and therefore taxable?
Crowdfunding is when an individual or business (the promoter) uploads a description of a campaign (eg to fund an activity, a project or a new invention) along with the amount they want to raise to a platform like Kickstarter, GoFundMe, Indiegogo or Pozible.
Other people online (the contributors) can then choose to support the campaign or cause by pledging money.
Many campaigns are donation-based. This is where contributors pledge an amount of money without receiving anything in return. If you’re a contributor in this case, you won’t be able to deduct an amount contributed in a crowdfunding campaign as a “donation” in your Australian tax return unless the cause you’ve donated to is an endorsed or legislated deductible gift recipient (DGR).
Other campaigns can be rewards-based. In these cases, the promoter provides a reward, such as goods, services or rights, to contributors in return for their payments. For example, differing levels of campaign-related merchandise may be available. Usually, your acquisition of goods or services for making a contribution means the payment is considered private in nature and not deductible.
As the promoter of a campaign (either donation-based or rewards-based), whether the money you receive is considered to be taxable depends on the circumstances. Generally, if the campaign is related to running/furthering your business or is a profit-making plan, then any money received would be classed as income.
Tip: If you’re thinking of starting a crowdfunding campaign or have already had success with one, we can help you deal with all the tax consequences, so you can concentrate on making your business or project a success.