Supporting a Kickstarter project: Should a customer's pledge payment include sales tax, e.g. GST/HST in Canada?

Question

Kickstarter became open to Canadian projects some months ago. I discovered a Canadian software project and backed it with a $40 pledge. The project subsequently exceeded its funding target, almost raising $50,000, and Kickstarter charged my credit card my $40 pledge.

I would use the product for my business. I'd like to consider it an expense so my business can reimburse me (personally), and so the business could claim an Input Tax Credit (ITC) for any GST/HST (Goods & Service Tax, or Harmonized Sales Tax, in participating provinces).

Yet, it isn't clear to me how a Canadian-based Kickstarter project pledge payment should be treated from the tax perspective of a Canadian pledger/customer? I am aware that, from the project's perspective, the funding received is taxable revenue. What about the other end, w.r.t. deductibility? sales tax?

Points to consider:

• With my pledge, I'm not granted an equity stake. Hence, the pledge is not an investment.
• The project is not a registered charity, and I expect something in return for the pledge.
  Hence, the pledge is not a charitable contribution.
• I'd think the payment should be treated like a purchase (software) where goods haven't yet been delivered. Or, I could see it treated like a service, and I've paid towards development.
• If it is a good or service, and both customer & supplier are in Canada, wouldn't the supply be considered taxable under GST/HST?

Except: The receipt I received from Kickstarter didn't detail any GST/HST paid and no GST/HST number was provided. I was charged the $40 I pledged, not more, so it isn't evident any tax has been charged (and if any was, the details should have been provided.)

My questions are:

1. Can/should I treat this as a business expense, and not a personal one?
2. Are Kickstarter pledgers [those expecting to get something] equivalent to customers?
3. Does Kickstarter charge GST/HST in any case? What about sales taxes elsewhere?
4. Should GST/HST have been charged in this case? Why might it have been exempt?

I'm going to keep this expense out of the company for now, owing to the uncertainty & small amount, but I remain curious as I might want to support other crowdfunding projects in the future.

Answer 1

You can only claim an input tax credit if tax was actually collected by the seller, irrespective of whether it should have been or not. You need to contact the seller to request an invoice that shows the GST/HST, if any, as well as the seller's GST/HST number, which is required to be printed on invoices.

If the seller is not including GST/HST in the prices indicated on Kickstarter, I would like to know how they get away with that!

Answer 2

I agree with Jason Wood's answer, but if I had a $10 for every RFI like this that I'm waiting for a reply to...

I would approach it like this:

If the receiver is required to collect GST/HST, the sender should assume it's being collected. If the Kickstarter project is applicable to the sender's business, the sender can consider his payment is for some kind of good or service because usually that's what Kickstarter projects do. As such, the sender can make an argument that the GST/HST portion is declarable as an ITC.

In the end, if you're getting audited, you're explaining to a real live person, and half the battle is convincing yourself! With these things, it's easier to beg for forgiveness than ask permission.

On the receiver end, if he isn't collecting GST/HST or not providing a GST/HST number, it's not the sender's fault, let CRA deal with it, it's their job.