My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, October 27, 2014

Crowdfunding – What is it? Are there Income Tax Implications?

Over the past couple years, crowdfunding has become a popular way to raise money online. As I only have a passing understanding of this concept, I have done a little research to enhance my own knowledge and for those of you not familiar with crowdfunding, provide a bit of a primer.

What is Crowdfunding?


According to the National Crowdfunding Association of Canada, crowdfunding is “the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media. … The key to crowdfunding in the present context is its inextricable link to online social networking and its ability to harness the power of online communities in order to extend a project’s promotion and financing opportunities. ...More recently, crowdfunding is becoming an increasingly common form of raising funds in the technology and media industries; including music, film and video games.”.

The top ten business crowdfunding campaigns as of April, 2014 are listed in this Forbes article.

Crowdfunding Models

There are four major crowdfunding models; however, there are multiple variations of these models.

(1) Donation Model – Crowdfunding is used to support a social cause or a charity by raising donations. These contributions are typically altruistic in nature and typically, official income tax receipts are not issued.

(2) Reward Model – Supporters receive non-financial rewards such as discounts on the product and early access to the product or service.

(3) Lending – Investors make interest bearing loans to the start-up.

(4) Equity – Investors obtain an equity stake in the company, similar to investing in any public company, although there may be ownership restrictions.


The regulatory system in Canada is a little all over the place for each province. In March 2014, the Ontario Securities Commission, the largest regulator in Canada, published four new prospectus exemptions including a crowdfunding exemption. The OSC provided a 90-day public comment period (ended June 18, 2014). These exemptions are intended to facilitate the raising of capital by businesses at different stages in their development, while maintaining an appropriate level of investor protection.

Canadian Lawyer Magazine  summarizes these exemptions for crowdfunding as follows:

1. Only Canadian reporting issuers and non-reporting issuers that are not investment funds, real estate issuers, or blind pools may access the crowdfunding exemption.

2. Issuers will be permitted to raise only up to $1.5 million total in any 12-month period. There is no limit to how often an issuer utilizes the crowdfunding exemption in any 12-month period, provided the issuer does not exceed the aggregate limit.

3. Issuers may only offer prescribed securities — for example, common shares or preference shares that are relatively simple.

Consistent with the policy of minimizing risk; investors will not be permitted to invest more than $2,500 per offering and more than $10,000 total in a calendar year.

Income Tax


The CRA has stated in a technical interpretation  (2013-0484941E 5) that funds received from crowdfunding campaigns are generally taxable as business income. The amounts taxable would generally be where the contributor receives a product or promotional item. Where equity or debt is issued in exchange for funding, those amounts will not be taxable.

The interpretation dealt with raising funds for a musical recording, where the contributors would receive a free recording or promotional item, but would not receive any equity or be entitled to a share of the profits from the venture.

The CRA went on to state that whether certain expenses are deductible is a question of fact. “Expenses related to crowdfunding efforts incurred by a taxpayer for the purpose of gaining or producing income from a business within the meaning of paragraph 18(1)(a) of the Act may be deductible. It is our view that the cost to a business to provide donor gifts (ex. cost of T-shirts) and fees paid to undertake crowdfunding activities may be deductible if the requirements of the Act are otherwise met.”.

Crowdfunding is an ever-evolving area, with regulatory and tax authorities constantly trying to keep up. If you intend to raise funds via crowdfunding, it is essential you obtain regulatory and tax advice before you start; hopefully from a professional if you can afford it, or at minimum from an organization such as the National Crowdfunding Association of Canada which may be able to provide some direction if not advice.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.


  1. Hello,

    I have a question about business losses.

    I had 2 Ontario Corporations that were dissolved a few years ago. 1 voluntarily and 1 by the Province. Both of these Corporations owed me money (ie shareholder loans) while having no assets on the books.

    I recently heard you can claim allowable business investment losses against all sources of income, not just as capital losses. Is this something I could claim for these amounts? Or is it just the cost of doing business?

    The shareholder loan amounts were mostly amounts owing to me for expenses I paid on the company's behalf, not for actual cheques I deposited into the co. account. No "official" paperwork was ever filed by me in the form of a lien on these amounts, if that makes a difference.

    On a related note, my active Ontario Corporation loaned money to an arm's-length unincorporated business about 10 years ago. The guy disappeared and I've long since given up ever getting this money back. Can this be claimed against all sources of income, or would it be strictly a Capital loss?

    You have a great Blog here. SO much information here!

    1. Hi anon

      Loans that meet the criteria for being ABILs can be claimed against regular income however u may have missed your opportunity to claim , u should speak to ur accountant The 10 year loan at best would be a capital loss, however again speak to ur accountant who knows the specific facts

  2. Hello,

    I feel like I have a pretty good understanding of the Canadian tax consequences of crowd-funding after reading this and other articles online, but where I'm still fuzzy is the financial accounting treatment of it. Do you know anything about IFRS' stance on crowdfunding? How should the funds raised (and the appropriate expenses incurred) from a rewards-based crowdfunding effort be treated on a company's Income Statement and Statement of Financial Position?

    BComm in Accounting

    1. Hi Anon

      Sorry, I see the initials IFRS and turn the other way and run :)