Edited version of private advice

Authorisation Number: 1051757779215

Date of advice: 21 September 2020

Ruling

Subject: Crowdfunding

Question

Will the funds received through a crowdfunding campaign be considered assessable income?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for tax purposes with a relative who lives in Country A.

Your relative wishes to open a business in that country and will offer a crowdfunding campaign via a website to raise funds which can be used to purchase business assets and cover other expenses. This crowdfunding site will only allow bank accounts to be established from a restricted number of countries, one of which is Australia.

Your relative is unable to open a suitable bank account from Country A. You therefore propose to open a local bank account which can be used to receive funds from the crowdfunding campaign.

Once the crowdfunding campaign has ended all funds raised will be transferred to your relative.

You are not running a business in Australia, will not earn any income from this activity or make any profit from the crowdfunding campaign. You will not be participating in the business.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Assessable income - general

If you earn or receive any money through crowdfunding, some or all of it may be assessable income, depending on the nature of the arrangement, your role in it and your circumstances.

Funds you receive or the profit you make through crowdfunding are likely to be assessable income where you:

·         use crowdfunding in the course of your employment

·         enter into a transaction or scheme with the intention or purpose of making a profit or gain

·         receive money or property in the ordinary course of your business

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes income according to ordinary concepts.

Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that are earned, expected, relied upon and have an element of periodicity, recurrence or regularity.

Section 995-1 of the ITAA 1997defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'.

Taxation Ruling TR 97/11: 'Income tax: am I carrying on a business of primary production?' summarises the indicators that can be applied to your circumstances to determine whether you are carrying on a business:

·         whether the activity has a significant commercial purpose or character;

·         whether the taxpayer has more than just an intention to engage in business;

·         whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

·         whether there is regularity and repetition of the activity;

·         whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business;

·         whether the activity is planned, organised and carried on in a businesslike manner such that it is described as making a profit;

·         the size, scale and permanency of the activity and

·         whether the activity is better described as a hobby, a form of recreation or sporting activity.

Whether or not a person is carrying on a business is a question of fact, not a question of law. The determination of whether or not a business is being carried on is generally a process of weighing up all of the relevant indicators within the context of a given situation. There is no one factor that is decisive of whether a particular activity constitutes a business

Application to your circumstances

In this case, you have advised that you will not be involved in the business in any way. You will simply be a conduit through which the proceeds of the crowdfunding effort will be transferred to the actual business in another country.

We do not consider that any money received from the crowdfunding campaign will be earned or expected. The amount cannot be said to have an element of periodicity, recurrence or regularity. Further there is no evidence to suggest that you entered into the transaction with the intention or purpose of making a profit; as such you have not derived any assessable income.

At this point in time you have failed to demonstrate a purpose or prospect of profit.

We consider that when the crowdfunding campaign is launched your activities are preliminary to the carrying on of a business.

Therefore, the funds you receive through crowdfunding, from external contributors, are not assessable income when they are passed intact to the overseas business in Country A.

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