Provincial and federal tax credits
There remains a great deal of ambiguity around how crowdfunding might affect a project’s eligibility and access to provincial and federal tax credits. The Canada Revenue Agency is currently conducting a review and examining questions relating to how crowdfunding revenues should be treated for the purposes of production tax credits and has not yet made a decision. In the meantime, provincial and federal tax credit administrators are waiting for the decision before they take action to change their own certification guidelines.
The key considerations regarding crowdfunding when it comes to tax credits include:
- Assistance. If the CRA concludes that crowdfunding dollars raised via a crowdfunding campaign should be reported as assistance (much like receiving funding through a fund like the Bell Fund), that amount would become deductible from the project’s eligible expenses.
- Revenues from the exchange of goods at a fair market value. The CRA could conclude that the exchange of incentives or pre-sold copies of a product falls under the provision of exchange of goods at fair market value. In this case there would be no implications regarding either eligibility or calculations for tax credits. However, this particular position could become complicated due to issues surrounding how the fair market value of certain intangible incentives (e.g. acknowledgement in the credits, a dinner with the creative team, a character named after the contributor) is ascertained. Moreover, there might be some grey areas about the true fair market value of goods in the crowdfunding world, which could differ from the value of the same goods in a retail, e-commerce or digital distribution context.
- Loans. A Lending Model campaign that follows a traditional lending agreement would likely be counted in the same way as traditional loans, which would have no specific implications when it comes to calculating eligible expenses for the purposes of tax credits.
- Equity crowdfunding. According to tax credit administrators, an Investment Model campaign would likely automatically disqualify a producer or project from access to tax credits. There are very strict regulations under the tax credit guidelines about what entities are allowed to hold interest in a production.
- Producer or distributor contribution. If a production company is structured in such a way that there is a parent company and then a single production corporation for a specific production, then producers could conceivably collect crowdfunding dollars on behalf of the parent company and count it as a producer contribution from that parent company. Similarly, for companies that have set up a distribution arm, the crowdfunding campaign could be done under the distribution arm of the company and any monies raised would be counted as a distributor’s contribution. If the CRA decides to sanction this way of accounting for crowdfunding dollars then it would not run counter to any tax credit regulations and would be considered a legitimate way of collecting and reporting crowdfunding dollars.
Published on April 24, 2013.