Crowdfunding has become a common way to launch a product, fund a project, or get through a personal hardship. But the tax treatment of the money raised isn’t always obvious. However, the ATO’s view largely comes down to one question: what was the money actually given for?
The ATO generally looks at the nature and purpose of a crowdfunding campaign to determine its tax treatment. It doesn’t apply a single blanket rule. Consequently, two campaigns that raise the same amount of money can have very different tax outcomes. The outcome depends on what backers received, or expected, in return.
Say you run a campaign offering a product, service, or reward in exchange for funding, like a Kickstarter campaign promising a finished product to backers. The ATO generally treats this as assessable income, since it’s essentially a pre-sale of goods or services. Therefore, you need to declare this income, and it may also carry GST implications if you’re registered.
If backers receive shares or an ownership stake in exchange for their contribution, the picture changes. The ATO generally treats the funds you raise as capital rather than income. However, the specific tax treatment depends on the structure of the offer and the business itself.
Genuine donations don’t usually count as assessable income for the recipient. This applies where backers give money without expecting anything of monetary value in return, such as a GoFundMe campaign for medical expenses or a personal hardship. Consequently, the ATO usually treats this type of crowdfunding similarly to a personal gift. That said, the specific facts of the campaign still matter.
If a business raises funds through crowdfunding to support ongoing operations, rather than a specific reward-based product, the situation gets more complex. The tax treatment depends heavily on the terms of the campaign. This includes whether the campaign involves a loan, equity, or unconditional support. It’s worth getting professional advice on this before launching a campaign, not after you’ve already received funds.
The tax outcome depends on what backers receive in return. That means campaigns that blur the line — offering token rewards alongside a genuine appeal for support — can be genuinely ambiguous. Therefore, document the intent and structure of a campaign clearly from the outset. This makes it much easier to determine the correct tax treatment later.
Keep clear records of what you raised and what you promised backers in return, if anything. Also record how you used the funds. Consequently, having this documentation ready makes it far easier for your tax return to reflect the correct treatment. Otherwise, you risk defaulting to the safest — and possibly incorrect — assumption.
EBATS helps individuals and businesses correctly classify and report crowdfunding income, based on the specific structure of the campaign.
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