Newspaper article The Canadian Press

Beware of the Tax Man When Running Crowdfunding Projects, Says Expert

Newspaper article The Canadian Press

Beware of the Tax Man When Running Crowdfunding Projects, Says Expert

Article excerpt

Crowdfunding can carry taxing issues

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TORONTO - Crowdfunding campaigns have been used to raise money for everything from a potato-salad making project to funeral costs.

But as more Canadians dig into their wallets for these online projects, experts advise contributing out of generosity and not because you expect a tax receipt.

"Unless the provider or backer of the product is a registered charity, your donation is not eligible for a tax credit. It's not like making a donation to a Canadian foundation or hospital," said Allan Madan, a chartered accountant from Mississauga, Ont.

"It's considered a donation in the sense that you're not expecting anything in return."

Madan says donations to crowdfunding projects on popular websites like Kickstarter and Indiegogo don't result in tax credits with the Canada Revenue Agency (CRA) because they're considered gifts. Canadians can make and receive gifts of any amount without any tax implications.

In some crowdfunding campaigns, a donor may receive an item in return for their contribution. If that item is of "nominal" value, then the recipient would not likely be required to report it as income on their tax return. An example would be receiving a pair of movie tickets for a donation to fund a movie production. A rule of thumb is that the reward should not exceed $100, said Madan.

But the tax rules around receiving donations for a crowdfunding projects are a little more complicated, he said.

If the donation is a gift and there is no expectation that the project is a business or will generate a profit, then the recipient does not need to report the donations as income on their tax return. For example, an artist who fundraises money to commission a painting for his own use does not need to report whether they received $10 or $1,000 through crowdfunding.

But if that painting is sold, the donations and the selling price must be included as income.

Madan says the tax implications for donors and recipients of crowdfunding projects are not well defined, which can lead to confusion on what should be reported at tax time.

The CRA released some guidelines for crowdfunding in 2013. …

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