• GST and Crowdfunding

    For GST, Luxury Car Tax and Wine Equalisation Tax purposes, from 1 July 2015, where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in subsection 195-1 of the GST Act.

    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.

    GST treatment

    The GST treatment of crowdfunding for a promoter operating in Australia may vary according to:

    • the model adopted and what supplies (if any) are made to the funder
    • whether the promoter is carrying on an enterprise
    • whether the promoter is registered for GST, or required to be registered
    • whether the promoter makes supplies that are connected with Australia
    • whether the funder is in Australia.

    The intermediary will have a GST liability for services to the promoter if:

    • the intermediary is carrying on an enterprise
    • the intermediary is registered for GST, or required to be registered
    • the intermediary provides the services for consideration
    • the services are connected with Australia.

    Supplies by a promoter may not be subject to GST if either the promoter or the funder is not in Australia. Supplies by the intermediary may also not be subject to GST if the intermediary is not in Australia. Further guidance can be obtained in the public rulings listed in more information

    Attention

    For the purposes of this information, it is assumed that both the promoter and the intermediary carry on enterprises in Australia and are registered for GST. The intermediary provides services to the promoter for which the promoter provides consideration. The funders are also in Australia.

    End of attention

    Crowdfunding models and GST implications

    The main crowdfunding models to emerge so far involve:

    • donation-based funding
    • reward-based funding
    • equity-based funding
    • debt-based funding.

    Donation-based model

    Under the donation-based model, a funder makes a payment to the project or venture without receiving anything in return. The promoter does not make any supply to the funder and does not have any GST liability.

    If the promoter simply acknowledges the payment (for example, by an entry on a website), the payment made by the funder is not consideration for any supply made by the promoter, either in return or to another party. Accordingly, the funder is not entitled to an input tax credit. The intermediary makes a taxable supply of services to the promoter.

    Example 1

    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’ 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.

    End of example

    Reward-based model

    Under a reward-based model, the promoter provides goods, services or rights in return for payments by funders. The promoter will have a GST liability if a taxable supply is made to the funder.

    If the promoter makes a taxable supply, the funder is entitled to an input tax credit if the funder is registered for GST and the acquisition is made for a creditable purpose. Generally, no input tax credit is available if the acquisition relates to the funder making input taxed supplies. The intermediary makes a taxable supply of services to the promoter.

    Example 2

    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.

    End of example

    Equity-based model

    Under an equity-based model, the funder makes a payment in return for an interest in the equity of the promoter. Typically this will occur when the promoter is a company in which the funder acquires shares in return for their payment. Supply of shares is an input taxed financial supply that is not subject to GST and the funder is not entitled to an input tax credit for the acquisition of the shares. The intermediary makes a taxable supply of services to the promoter. Input tax credits are typically not available for acquisitions that relate to the promoter making input taxed supplies. However, if certain circumstances are satisfied, the funder may be entitled to input tax credits for acquisitions that relate to the making of input taxed financial supplies. Guidance on when an input tax credit may be available can be obtained in the public rulings listed in more information

    Example 3

    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.

    End of example

    Debt-based model

    Under a debt-based model, the funder loans money to the promoter who agrees to pay the interest in return. Under this type of arrangement, the promoter makes an input taxed supply of an interest in or under a debt to the funder. The funder makes an input taxed supply of an interest in or under a credit arrangement to the promoter. Accordingly, no GST liability arises, and the funder is not entitled to an input tax credit for the acquisition made from the promoter. The intermediary makes a taxable supply of services to the promoter. Input tax credits are typically not available for acquisitions that relate to the promoter making input taxed supplies. However, if certain circumstances are satisfied, the funder may be entitled to input tax credits for acquisitions that relate to the making of input taxed financial supplies. Guidance on when an input tax credit may be available can be obtained in the public rulings listed in more information

    Example 4

    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.

    End of example

    More information

    More information can be found at:

      Last modified: 24 Jun 2015QC 43118