Contributing money to a crowd funding project can be a great way of showing your support for a creative, social or business initiative you believe has merit. However, you need to do some research to ensure your money is being used for a legitimate project. Here are some things to consider before you decide to get involved.
Crowd funding is used by artists and entrepreneurs to find money to fund their projects. Money is usually raised through a crowd funding website. The website enables people who are not professional financiers to pool their money towards a project.
Most crowd funding websites will have information on the project's aims and objectives, how it will work and its budget. Crowd source funding websites can be based in Australia or overseas. The projects they fund are usually creative, business or social initiatives with relatively small budgets.
Crowd funding projects are usually promoted using social media and word-of-mouth. Often project sponsors are friends and family, or people easily contacted through existing networks. However, anyone can pledge money to the project via the website and some get world-wide support from complete strangers.
There is no monetary reward for supporting a project and sponsors are often enticed with a small gift such as a signed CD, a free T-shirt or a discount on products in return for their support.
In most cases, only projects that raise enough money can go ahead. Most, but not all sites return funds if the target amount is not reached.
Crowd source funding websites make money through a levy on the total funds received for the campaign. Often the levy is only deducted if the campaign goes ahead.
If you want to participate in crowd source funding you'll need to:
Once the project has reached it's target funding, the money you've pledged will be deducted from your account.
Most crowd funding websites do not have Deductible Gift Recipient (DGR) status so you will not be able to claim a tax deduction for the money you pledge.
However, the project creator may have DGR status. If so, it is up to them to provide you with a tax deductible receipt if you request one.
You cannot claim a tax deduction if you have received a gift, reward or discount.
Raising money for a crowd funding project relies heavily on trust.
Even if there's a small gift involved, the main motivation for sponsoring a project is usually because you have an interest in the project and a desire to see it succeed.
If you've heard about a crowd source funding project that you'd like to support make sure you check the legitimacy of any website or social media page you're directed to. Remember to carefully read the terms and conditions on the crowd funding site before signing up.
You should also try to find out as much information as you can about the project and its owner before you sponsor them. For example:
Don't give your credit card details unless you're comfortable that the website, the project and its owners are legitimate.
Visit our credit card scams page to find out what to do if you think your credit card details have been compromised or you think you've been scammed.
Supporting a project you really believe in can be a rewarding experience but you need to be careful someone isn't taking advantage of your generosity.
Last updated: 07 Aug 2016
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Crowd funding | ASIC's MoneySmart
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