The ATO has released information on its views on the GST treatment of crowdfunding. Crowdfunding involves using the internet and social media to raise funds for specific projects or particular business ventures. Typically the promoter of the project or venture will engage an intermediary to operate an online platform that allows the promoter to connect to potential funders. Various models are used to attract funding.

The ATO said supplies by a promoter may not be subject to GST if either the promoter or the funder is not in Australia.

The ATO noted that the main crowdfunding models to emerge so far involve:
  • donation-based funding;
  • reward-based funding;
  • equity-based funding; and
  • debt-based funding.
The ATO information covers the GST implications of each of these crowdfunding models including examples.

ATO examples

Donation-based model

James carries on an enterprise of designing health-related products. He develops a concept for a health-related apparatus, but requires funding for product development. To raise funds, he engages an intermediary to raise funds through a crowdfunding platform. The proposal is marketed for its social benefits, and funders receive nothing apart from having their contribution acknowledged on James's website.

James has no GST liabilities as payments by funders are not consideration for any supply in return. Funders are not entitled to input tax credits. The intermediary makes a taxable supply of services to James which is subject to GST. James is entitled to an input tax credit for the services he acquires from the intermediary.

Reward-based model

Members of The Incumbents, an Australian rock band, have formed a partnership which is registered for GST. They want to record an album by raising funds from their Australian fan base. They engage an intermediary to raise funds through a crowdfunding platform to help pay for recording the album.

Depending on the level of contributions, The Incumbents will provide funders with goods or services, which may extend to a CD, merchandise, concert tickets or advertising rights. These supplies, made in return for payments, are taxable supplies for which The Incumbents have a GST liability.

A funder who acquires advertising rights is entitled to an input tax credit if the funder is registered for GST to the extent that they are acquired for a creditable purpose. The intermediary makes a taxable supply of services to The Incumbents which is subject to GST. The Incumbents are entitled to an input tax credit for the services acquired from the intermediary.

Equity-based model

Investment Pty Ltd is a start-up company involved in development of green energy products. It engages an intermediary to raise funds through a crowdfunding platform. Under the arrangement, funders will be allocated shares in Investment Pty Ltd in return for payments.

Supply of the shares in return for a payment is an input taxed financial supply and is not subject to GST. The funder is not entitled to an input tax credit. The intermediary makes a taxable supply of services to Investment Pty Ltd which is subject to GST. As the acquisition of the services provided by the intermediary relates to the input taxed financial supply of the shares, Investment Pty Ltd will only be entitled to an input tax credit for the acquisition of the services where certain requirements are satisfied.

Debt-based model

Fiona is a fashion designer who is starting carrying on her business. Fiona needs to buy material for her business, for which she requires short-term finance. Rather than asking her bank, Fiona engages an intermediary to raise funds through a crowdfunding platform.

Under the arrangement, funders loan funds to Fiona in return for agreed interest. Both Fiona and the funder make input taxed financial supplies and no GST arises. Neither Fiona nor the promoter are entitled to an input tax credit. The intermediary makes a taxable supply of services to Fiona which is subject to GST. As the acquisition of the services provided by the intermediary relates to Fiona making an input taxed financial supply, Fiona will only be entitled to an input tax credit for the acquisition of the services if certain requirements are satisfied.

Source: ATO publication, "GST and Crowdfunding", 13 November 2014, https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/GST-crowdfunding/