Crowd Funding is an emerging tool to get capital into your business but what does the tax man think of it?
A few weeks back I attended a great session at She Will Shine headquarters in Footscray on ways to get funding into your business. The session was great but what I realized is they didn’t actually mention how these different inflows of money get treated by the tax man. A particular interesting area is crowd funding such as using Pozible or Kickstarter.
This is a really new area and the tax office is still developing it’s rules and guidelines around it. The way these facilities work is that you ask people for money and in return provide them with a good of some sort. Sound familiar?
In your business when you sell your goods and/or services to a customer you earn income that needs to be declared. On the other side the cost of producing the good and/or services are an expense to your business.
So it follows on that is you are using Pozible or one of the other crowd funding platforms to raise money it will be likely be income to your business and the cost of the reward you provide will be an expense.
The other thing to consider is that if you are registered for GST then you will probably have to remit GST on the funds you raise as well.
What does all this mean? If you are using crown funding to raise money for your existing business you have to factor in any tax effect to the amount you are looking to raise.
More information can be found at on the ATO website.
