The Tax Office has warned businesses using internet platforms, mail-order subscriptions, benefit events and other methods to raise funds for a project or venture, to beware of tax consequences.
With small businesses readily turning to crowdfunding as a way to raise capital and boost their businesses, the ATO has issued a notice informing of their current view of the tax implications of crowdfunding arrangements.
“If you’re involved in crowdfunding – regardless of your role – you need to be aware of the tax consequences”, the Tax Office has said, explaining that these vary depending on the nature of the arrangement, a business’ role in it and their circumstances.
In a notice posted on its website, the authority advised businesses to determine whether the money they receive through crowdfunding is income and whether they need to consider GST.
“If it is income, you will need to include it in your tax return and there may be deductions you can claim,” the ATO said.
The ATO explained that tax laws which apply to investment and financial activity undertaken in a conventional manner – buying goods and services, buying shares, lending money – apply in the same way to investment and financial activity conducted under crowdfunding.
“You must keep records explaining all transactions that relate to your tax affairs, including any crowdfunding arrangement,” the ATO said.
“Generally, you need to keep records of most transactions, in English, for five years. The five years starts from when you prepared or obtained the records, or completed the transactions, whichever is the later.”
Tax consequences for recipients of disaster assistance
The ATO also advised businesses affected by natural disasters such as bushfires or floods, that are receiving assistance from crowdfunding platforms to consider how these payments affect their tax.
“If you or your business receive assistance payments from private funds, charitable groups or crowdfunding platforms the effect on your tax depends on how you use the funds,” it said.
The authority underlined that where the payments are intended to be used for business expenses, they must be declared as assessable income. However, it noted, that businesses may also be able to claim the associated business expenses as tax deductions.
“For example, if you spent all the money buying livestock feed (a deductible expense) there will be no net effect on your income tax. The increase in assessable income will be offset by the increase in deductions claimed,” the ATO said.
“If the amounts received are intended to be used for personal emergency relief such as food or clothing, or other such non-business purposes, they are not included in your assessable income.”
For more information visit the ATO’s crowdfunding overview.
Maja Garaca Djurdjevic is the editor of My Business.
Maja has an extensive career as a journalist across finance, business and market intelligence. Prior to joining Momentum Media, Maja spent several years unravelling social, political and economic intricacies in Eastern Europe.