Is there GST on crowdfunding? Do I pay tax on it?
Crowdfunding is a popular way of funding projects, whether they be software development, an indie film, or an artist’s new record. As with any business undertaking, it’s important to understand the implications of this type of funding so you don’t get yourself into any trouble.
The first question to ask yourself is whether or not the crowdfunding represents the activities of a hobby or a business. There are a bunch of different indicators to help you make this decision. Take a look here for help making the call on whether it's a business or not. If it turns out to not be a business (i.e. it's a hobby), then there shouldn’t be any tax implications in relation to the crowdfunding.
Now, if the crowdfunding project does relate to a business then all the money you raise will be considered to be taxable income. This usually isn’t a big deal because the funds are usually being raised to cover expenses which, typically, will be tax deductible. Taxable income in and deductible costs out generally means no taxable income leftover in relation to the project.
As for the GST, you’ll want to determine which crowdfunding model you’ll be using as this will dictate whether or not you have a GST liability. The most common models in use are:
Donation crowdfunding. Under this model the person giving the money doesn't expect anything in return other than good vibes and maybe a nice thank you note.
Reward crowdfunding. Under this model the person giving the money will be expecting something in return, often this is the output of the funding project in question (e.g. a copy of the artist's new album).
Debt crowdfunding. This is when the person giving the cash expects to get it back, the funding is basically a loan.
Equity crowdfunding. This model is where the person giving the money is actually making a direct investment in your business and will be getting shares (or some other kind of equity interest) in the business.
Typically GST will only apply under model #2 and not the others. This means when you give your supporters something in exchange for their funding other than debt, equity, or simply saying thanks, you'll have GST as part of the funding being received. For example, if you give each supporter a copy of the album you make as a result of the project, then the ATO would expect to receive some GST just the same as if you had sold your supporter the album. This GST amount needs to be reported on your BAS in the relevant period.
There is some more guidance on the GST implications here at the ATO website.
The above is general in nature only. If you have any questions in relation to your specific situation please give us a call, we'd love to help.