Crowdfunding provides an alternative source of funds than has traditionally been available. There are different types which depend on whether you’re giving a donation or getting a reward, making an investment or buying a product/service, and whether you’re getting a loan that has to be paid back. This isn’t a post on what Crowdfunding is (thats done excellently here) but looks at the tax impacts of "Rewards-Based Crowdfunding".
Overall, Crowdfunding is seen as a good idea to raise funds, because you not only get access to capital but also attract brand ambassadors to promote your business.
Whats the difference between a Donation-Based and a Rewards-Based Crowdfunding Campaign?
There is a large Charitable presence on crowdfunding platforms, while other campaigns are run with private purpose, such as funding medical bills or international travel. The difference here is that there is no “direct benefit” from contributing to the campaign.
Are the proceeds from a Rewards-Based Crowdfunding Campaign taxable?
At the end of the day, if you’re in business to make money then the IRD will want their fair share. We tend look at crowdfunding platforms as a go-between, and look at transactions as if the platform didn’t exist. In most cases this will mean that if you're selling a service or product as a reward for a contribution, then the proceeds will likely be taxable. However since you’re in business you’ll be able to get tax deductions on any expenses that go into producing the goods for services for supply.
If you’re registered then there will also be GST due on contributions sourced from New Zealand. If you're run a small crowdfunding campaign you might not have to register for GST.
What to watch out for:
- Make sure you get a breakdown of New Zealand and International contributors to your campaign
- Setup your campaign so you’ll receive the contributions in the same period that you will spend the money making the rewards. This will improve cashflow as you won’t have a period where you’re required to pay tax, and then a period when you’ll get a tax refund.
- Do build any potential GST or Income taxes into your cashflow forecast
- Ask as many questions of your advisors and crowdfunding platform as needed
I’ve contributed to a crowdfunding campaign, can I get a tax deduction?
In New Zealand you can claim 33.33% of the value of donations you make to charitable organisations each year. Crowdfunding platforms have made collecting donations easier for Charities. However as accountants we see very interesting things come through as “Donations” at year end. It’s important to remember that you can only claim a donation rebate on donations made to IRD approved organisations. The full list is here. http://www.ird.govt.nz/donee-organisations/
Got more questions about Crowdfunding? Contact Us
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