Why read this?
- › You are a sole proprietor and are crowdfunding a business
What to do?
Claim it as business income
- Crowdfunding websites don’t usually issue tax slips. You must track revenue, says Joseph Gill, corporate securities and tax lawyer with McKercher LLP. So keep all documents, such as transaction emails, for your records, but they’re not required for the return.
NOTE: If you don’t report all income, CRA may take back 10% or more of the amount you don’t declare. - Fill out T2125, Statement of Business or Professional Activities.
- List the URL of the crowdfunding campaign under “Internet Business Activities.”
- Calculate GST/HST if:
- the campaign gives backers a finished product; and
- the business has over $30,000 in revenue, or you’ve registered for GST/HST, says Philippe Brideau, CRA spokesperson.
NOTE: Check provincial tax rules for PST treatment.
TIP
If the backer gets something of “nominal value” in return, like a t-shirt, federal sales tax doesn’t apply, CRA says. CRA defines “nominal value” as less than $75 or 10% of an individual’s contribution, whichever is less.
- Complete Schedule 8, CPP Contributions on Self-Employment and Other Earnings.
- Enter the amount of contributions from Line 10 of Schedule 8 on Line 421 of the return.
- Enter the amount of credits from Line 11 of Schedule 8 on Line 222 of the return and Line 310 of Schedule 1.
Pay tax
Tip
If you want to apply your refund to your 2015 taxes, attach a note requesting that happen to the return.
- 5. Since crowdfunding income isn’t taxed at the source, you could owe tax. If you owe more than $3,000 for 2014, or in the past two years, you must pay at least quarterly, says CRA. You can choose to pay tax based on either your prior-year income or current-year income, or to let CRA calculate it.
- Use P110 Paying Your Income Tax by Installments to calculate net tax owing.
- Claim any tax already paid on Line 476 of the return.
- CRA will issue Form INNS1, Installment Reminder, or Form INNS2, Installment Payment Summary, which list payments already made, for your reference. These are only available in paper form.
Sources: Nick Moraitis, CPA, CA, TEP, tax partner at Fuller Landau in Montreal; Joseph Gill, corporate securities and tax lawyer at McKercher LLP in Sasktatoon, Sask.; Philippe Brideau, senior spokesperson for CRA.