Whether you’re running a start-up or some form of charity, crowdfunding is undoubtedly one of the best ways you can get some quick funds into your business and avoid using some of the more traditional funding methods – that said, it also comes with a range of different tax implications that you’re going to need to understand in order to comply with all the various regulations set by the Australian Taxation Office (ATO).
Types of Crowdfunding
You’ll generally see crowdfunding get categorised into a few different categories – all of which have their own distinct implications regarding how they’re taxed:
- Donation-based
- Rewards-based
- Equity-based
- Debt-based
Donation Based Crowdfunding
This one’s generally more to do with charitable purposes rather than something like a start-up business. If you’re a registered charity, any donations that are given to your company are usually tax-deductible for the donors – you will need to issue a receipt that confirms this donation, though.
Rewards Based Crowdfunding
This one works a little bit differently as it involves giving some kind of item or service in return to any of the people who’ve contributed. As such, all of the funds raised through this particular method will generally be considered income and therefore subject to GST (that’s if your business meets the ATO’s turnover threshold) – oh, the value of the rewards that you provide them might also have an impact on the amount of taxable income.
Equity Based Crowdfunding
Anyone who contributes to this kind of crowdfund receives shares in your business in exchange for their investment – these funds aren’t usually considered as capital, but those who invested will be subject to capital gains tax once they sell their shares.
Debt Based Crowdfunding
Lastly, this one involved raising the funds through a loan, so this naturally needs to be repaid (but with added interest). Fortunately, these interest payments will generally be tax deductible expenses for you – the lender, on the other hand, has to declare any of the interest income that they earn.
Contact Accounting Tax Solutions today for help with your tax and business. You can call our office on 07 5559 1200, email us at info@accountingtaxsolutions.com.au or alternatively, pop into our office located at:
Suite 4, Riverwalk One Building – Opposite Target carpark
140 Robina Town Centre Drive, Robina QLD 4226
Ground floor, entrance via Lobby on lefthand side.