Crowdfunding in Canada

Hot topic these days, crowd-funding.

It seems there are at least two types, equity, and donation with benefits.

There's also legal controversy swirling around this topic. Here's some links from Alan Baggett who has been following this topic because it's new and interesting, of course, because it's about raising money for businesses...and who doesn't want to figure out how to do that more effectively.

http://www.prweb.com/releases/2013/10/prweb11267067.htm
http://business.financialpost.com/2013/10/09/crowdfunding-financing-is-taxable-income-cra-says/
http://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2013/4/130407.aspx

As for the two types, donations with benefits, and equity funding, they are quite different.

Remember, donations, they have to be for charitable purposes, and can't come with strings attached. And most sources of income are taxable, especially when you're in profit making mode, and your source of funds doesn't fit any of the criteria in S. 81 of the Income Tax Act. 

S. 81, that's what I call the hero section, where if you provide extraordinary service, for example, you take in someone who isn't family, who is on welfare, or you're a foster parent, or...here's the actual section, which sets out exactly what isn't income.. and crowd-funding, well it's not on that list.

http://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-81.html

Equity funding has typically come about by the issuance of share capital. How exactly will it work when you're issuing shares on the street without going through the usual channels? That's where the controversy likely comes in. I'm sure we'll hear more about this in the next few months as our securities system attempts to come to grips with this new financing methodology.