Kickstarter, GoFundMe and other crowdfunding platforms have exploded in popularity in the past five years, and it’s essential for anyone running a campaign to know how the Australian Taxation Office (ATO) views the money involved.
There are four main crowdfunding models: Donation-based, reward-based, equity-based, and debt-based. Because debt-based and equity-based crowdfunding schemes are not widespread in Australia, they’ll be left out of this article. Instead, we’ll focus on how the two most popular types – donation-based and reward-based crowdfunding – are taxed.
Which types of crowdfunding are taxed?
This funding is entirely philanthropic. Money raised in these campaigns is used for official charity appeals or to finance causes like a child’s medical treatment or a family funeral. If you seek donations to help with a charitable cause and you aren’t making a profit, then the funds you receive are usually not taxable.
This is where the person seeking funding promises to give the funder something in exchange for their backing. These rewards are commonly organised under tiers. For example, if you give $500, you might get one of the advertised products early. If you give $1000, you might get two of the products early and a discount.
These sorts of funding ventures are almost always subject to tax. If you are trying to bring a commercial product to market, then the funds you receive will most likely be taxable income. If you are providing goods or services in exchange for funding, you may also have to pay GST.
Crowdfunding is an exciting new way for charities and businesses to access money and for individuals to support projects and causes they care about. But, like most innovations, it’s only a matter of time before closer attention is paid to the legal issues like taxation.
To speak to one of our business law experts about legally crowdfunding your next idea, or if you have an enquiry regarding any other area of commercial law, contact Phoenix Law on (07) 3180 0908 or firstname.lastname@example.org.