23 August 2019 External T.I. 2018-0779191E5 - Crowdfunding Contribution by Employer

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether an employer's contribution to an employee's crowdfunding campaign raising funds to help with additional costs for caring for their child, who was born with XXXXXXXXXX, is a taxable benefit.

Position: Question of fact. Voluntary contributions received by an individual in their personal capacity are generally not required to be included in income.

Reasons: Law and CRA administrative policies.

XXXXXXXXXX 						2018-077919
S. Springate	

August 23, 2019

Dear XXXXXXXXXX,

Re: Employer contribution to employee crowdfunding campaign

We are writing in response to your email dated September 4, 2018 concerning a potential one-time contribution to an employee’s crowdfunding campaign to benefit their child. More specifically, you asked whether the contribution to the crowdfunding campaign would result in a taxable benefit to the employee.

In the situation you described, an employee of XXXXXXXXXX recently gave birth to a child with XXXXXXXXXX. The employee would like to provide their child with additional therapies and support during the next XXXXXXXXXX years in the hopes of improving his development and mitigating potential lifelong impacts as the result of his health condition. The employee has estimated that the total cost for the therapies and support is approximately $XXXXXXXXXX and has established a donation-based crowdfunding campaign to help fund these costs.

As at XXXXXXXXXX, the crowdfunding campaign has received approximately $XXXXXXXXXX in contributions from XXXXXXXXXX contributors. XXXXXXXXXX is proposing to make a one-time contribution between $XXXXXXXXXX and $XXXXXXXXXX, which will likely be the largest contribution to the campaign.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

The Canada Revenue Agency (CRA) understands that crowdfunding is a way of raising funds for a broad range of purposes, using the internet, where conventional forms of raising funds might not be possible. Generally, the CRA does not consider there to be a difference for tax purposes between a person receiving funds directly from the contributors versus receiving funds through a crowdfunding platform.

Depending on the facts and circumstances, monies received by a taxpayer under a crowdfunding arrangement could represent a loan, capital contribution, gift, income, or a combination thereof. However, since the terms and conditions of these types of arrangements may vary greatly from one situation to another, the CRA's approach is to evaluate each situation on a case-by-case basis before making a determination on the income tax consequences of a particular crowdfunding arrangement.

Gifts and voluntary contributions

As stated in paragraph 1.4 of Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime, amounts received as gifts (i.e., voluntary transfers of property for no consideration) are not subject to tax in the hands of the recipient. However, when a voluntary payment or other valuable transfer or benefit is received by virtue of an office or employment from an employer, or from some other person, the amount of the payment or the value of the transfer or benefit is generally included in income under subsection 5(1) or paragraph 6(1)(a) of the Act. The broad wording of paragraph 6(1)(a) of the Act means that a taxable benefit may exist where there is any connection between a benefit and the particular office or employment.

Employment or Personal capacity

In light of the above, it is the position of the CRA that a crowdfunding contribution received by an individual from their employer is subject to tax as employment income where it was received in their capacity as an employee. However, where it is determined that the individual received the contribution in their capacity as an individual, as opposed to their capacity as an employee, the contribution would not be included in their income. The determination of whether an individual received a crowdfunding contribution in their capacity as an employee or as an individual is a question of fact.

All of the following criteria must generally be met for a person, who is dealing at arm’s length with an employer and is not a person of influence (such as an executive who controls employer decisions), for a benefit or amount to be received in the person’s capacity as an individual:

• provided for humanitarian or philanthropic reasons;
• provided voluntarily;
• not based on employment factors such as performance, position, or years of service; and
• not provided in exchange for employment services.

In addition, the CRA will also take into account case-specific factors before determining whether an employer-made crowdfunding contribution (or other voluntary transfer) is considered to be received by an individual in their capacity as an individual, as opposed to their capacity as an employee. Additional factors could include whether:

• the individual was affected by extenuating circumstances or an event (outside of work) that was beyond their control (e.g., serious illness or injury of the individual or a family member, disaster, funeral expenses);
• the contribution is based on compassionate grounds and is meant to provide short term financial assistance to compensate the individual for personal losses or damage suffered or increased living costs incurred as a result of the extenuating circumstances or event, or to cover the basic necessities of life;
• the contribution is received as a one-time lump sum amount;
• the employer has a reasonable expectation that the contribution will be spent within a reasonable amount of time and on items or expenses arising from the extenuating circumstances or event or on the basic necessities of life;
• the value of the contribution is reasonable and is made within a reasonable period of time following the extenuating circumstances or event;
• the contribution is not meant to compensate for loss of income and is not subject to any conditions tied to the individual’s employment.

While it is always a question of fact whether a benefit or an amount is received in a person’s capacity as an individual as opposed to their capacity as an employee, it appears that the above criteria is likely met such that the contribution you will be making to the crowdfunding campaign will be considered to be received by your employee in their capacity as an individual. As a result, the contribution would not be included in their income.

However, it should also be noted that where an employer’s contribution to a crowdfunding campaign for the benefit of an employee or their family member represents a form of disguised remuneration, the contribution will be considered employment income. For example, where a contribution is given in lieu of extra wages or benefits, or where an employee foregoes wages or other taxable benefits in favour of a contribution, the value of the contribution will be considered to be a taxable employment benefit.

Employer’s deduction

An employer who makes a crowdfunding contribution (or other voluntary transfer) to their employee in circumstances similar to those described above will not be entitled to a charitable deduction under subsection 110.1(1) of the Act since the contribution is not a gift made to a registered charity or other qualified donee. Additionally, as the contribution is also not an outlay or expense incurred for the purpose of gaining or producing income, it would not be deductible to the employer as a business expense under paragraph 18(1)(a) of the Act.

We trust these comments will be of assistance.

Sandro D’Angelo, CPA, CMA
Acting Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch