You may earn your income in more ways than just from your job and ignorance is not an excuse from the ATO. There are many ways people may make an income and it all adds to your taxable income.
Most businesses don’t even think about paying taxes on crowdfunding – that is until they’re face to face with their tax agent. There should be no surprise that with the lifting of Australian restrictions in early 2018, crowdfunding is seen as a valid way to build an income. In fact, the A$111bn global crowdfunding market is projected to continue growing at 19% over the next four years. That’s a lot of growth.
If you earn or receive any money through crowdfunding, some or all of it may be assessable (taxable) income, depending on the arrangement, your role and circumstances in it. All assessable income needs to be declared on your tax return.
What is Crowdfunding?
Crowdfunding is a way for people, businesses and charities to raise money. Organisations or individuals invest in or donate to crowdfunding projects and receive a profit or reward. Internet platforms, mail-based subscriptions, benefit events and other methods to find supporters is utilised.
Tax consequences of Crowdfunding
If income is raised through crowdfunding, it is deemed taxable income and you might even need to pay GST on earnings. If money raised is taxable income, you’ll need to declare it in your tax claim.
There are usually three parties who take part in a crowdfunding arrangement:
- The initiator who starts or manages the crowdfunding campaign
- The organisation who provides the platform to run the campaign
- The individuals who contribute money towards the campaign
- Each party may have income tax and GST obligations depending on circumstances.
How is money raised?
There are four main models of crowdfunding. Each uses a different strategy to attract funding and may have different tax consequences for the parties involved.
- Donation-based crowdfunding – the contributor makes a payment or donation without receiving anything in return
- Rewards-based crowdfunding – the promoter receives a rewards in return for the contributors payment
- Equity-based crowdfunding – the contributor makes a payment in return for a share in the company which involves certain rights to the company
Debt-based crowdfunding – the contributor lends money to the promoter who pays interest and makes repayments
Crowdfunding and Income Tax
Crowdfunding is basically a business model as taxable income is raised and should be declared. There will also be deductions that the initiator may be eligible for. The tax laws that relate to any financial activity will apply in the same way to a crowdfunding model of business.
As with any business venture, records, receipts and all transactions should be kept for a period of five years.
There’s no doubt that lodging a tax return can be complex, especially when several streams of income need to be declared. Tax agents are fully certified accountants who have specialised in tax law. They understand the latest changes and what you need to include on your return – even if you don’t. All ITP Income Tax Professionals are registered with the Tax Practitioners Board of Australia. Book an appointment and speak to a professional today.