Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: NCFA In The News
Crowdfunding financing is taxable income, CRA says
National Post - FP Startups | Armina Ligaya | October 9, 2013
Artists and budding entrepreneurs who turn to crowdfunding to finance their early-stage ventures and passion projects will now have to face the tax man.
The Canada Revenue Agency has issued comments that indicate if a person gives funding towards a business venture, such as a musical recording, and receives a finished product or a promotional item — but not equity or a share of the profits — that money will be treated as business income and subject to tax.
The CRA’s comments released this week clarified a grey area for entrepreneurs, and is a stance which makes it more expensive to crowdfund a project.
This could significantly impact independent artists and start-up businesses who can’t access seed money in ways other than crowdfunding, said Ted Citrome, an associate in the tax group at Cassels Brock & Blackwell LLP.
“For profitable companies that are looking to crowdfunding as a way of funding a commerical venture, it will raise the cost of financing,” he said. “It will be more expensive for them to raise the funds.”
The CRA’s view on crowdfunding came to light in a technical interpretation, given in response to a query submitted earlier this year and released publicly last week.
Related: How Crowdfunding is Transforming Canada: Stories from the Edge
“In our view, amounts received by a taxpayer from crowdfunding activities would generally be included in income pursuant to subsection 9(1) of the Act as income from carrying on a business,” wrote the CRA in the technical interpretation.
In comparison, traditional financing for a business secured by issuing common shares or issuing debt would not be taxed, said Jamie Golombek, the managing director, tax & estate planning with CIBC Private Wealth Management in Toronto.
“They might have assumed that crowdfunding is similar to other types of financing in which you just go ahead and spend the money,” he said. “Where it is actually very different and the crowdfunding itself is the business income of the project or the company. It may certainly cause some plans to be revised.”
But it is consistent with CRA’s past policy, said Mr. Citrome, in which the money that comes in from a business is going to be subject to tax.
Joanna Griffiths, who raised $60,450 through an Indiegogo campaign in May and June this year to fund her Toronto-based high-tech lingerie line Knix Wear, said the ruling made sense and didn’t impact her business. Her company played it safe and claimed the amount raised from crowdfunding as income when their fiscal year ended in July, based on feedback from a tax lawyer, she said.
Related: Toronto Lingerie Line Knix Wear gets unexpected Crowdfunding Boost
“In general, people should just have an understanding of what they’re getting themselves into with crowdfunding… They’ll have to really look and plan and think about whether it is worthwhile for them,” she said.
Craig Asano, executive director of the non-profit National Crowdfunding Association of Canada, welcomed the clarity.
“There were a lot of cases where entrepreneurs were trying to be clever as possible to bundle products in kind,” he said. “And that’s where it became tricky, because the entrepreneurs would say, ‘Well, we’re using this new vehicle to raise funds, however we’re giving gifts away.’ But tax agencies certainly see it as advancing their business model, and it should be deemed taxable.”
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Crowd-funding: Can mass appeal translate into street smarts?
Globe and Mail by Tim Shufelt | September 5, 2013
Securities regulators in Canada and the United States are considering endorsing crowd-funding, an unsettling prospect to anyone who thinks crowds are more inclined to generate popular lunacies than collective wisdom.
Crowd-funding has arisen as a possible alternative form of raising funds in Canada for companies forsaken by venture capital.
Websites such as Kickstarter that solicit online donations to meet fundraising goals for specific projects are not currently allowed to issue equity. The Ontario Securities Commission said last month it was weighing an exemption to change that in Ontario. Equity crowd-funding would give emerging companies access to a new source of capital and investors the chance to bet on small private companies and start-ups.
The rationale behind raising capital from several small supporters relies on the judgment of the masses – a project or company is legitimized by the support of many ordinary investors. “That’s the power behind these platforms,” said John Wires, an adviser to the National Crowdfunding Association of Canada (NCFA Canada).
But Mr. Wires is also cognizant of the inherent risks of equity crowd-funding. “There is a lot to be said for the argument that the crowd is not wise enough. There is large exposure to the prospect of fraud.”
Nonetheless, there exists the need for something new. “There’s a gaping hole in Canada in terms of access to capital for small and medium-sized companies,” said Darrin Hopkins, a vice-president at Macquarie Private Wealth in Calgary, who, despite his opposition to crowd-funding, acknowledges the severity of the funding gap. “Right now, the public venture capital market in Canada is completely broken.”
NCFA Canada points out that investment in Canadian start-ups by venture capitalists, which hit almost $6-billion in 2000, fell 80 per cent over the following decade. Meanwhile, the costs of tapping public markets are prohibitive in Canada, where even a boilerplate prospectus costs six figures.
The U.S. Congress was an uncharacteristic catalyst for change when, last year, it mandated the Securities and Exchange Commission to legalize the issuance of equity without a prospectus to non-accredited investors. This legislation was to usher in a new way to connect entrepreneurs and investors – a model of raising capital for the digital age, its supporters claimed.
Critics foresee only the opportunity for investors to get fleeced. As it is, issuing equity requires meeting a demanding and expensive set of disclosure requirements, giving investors access to reams of information with which to weigh a company’s investment potential. And still they get it wrong, Mr. Hopkins said. Sophisticated investors lose money all the time. Even outright fraud can escape the scrutiny of investors, analysts and auditors.
“If you move to the other extreme where you have a private company raising money on one of these portals, you’ve got an unregulated administrator, a private company with no disclosure, and you’re selling it to the least sophisticated investor there is,” Mr. Hopkins said. “It’s naive to think you’re not going to have a ton of problems.”
But the mere absence of a prospectus does not automatically increase the risk of abuse, said Anita Anand, a law professor at the University of Toronto. In fact, she cited one study of funded Kickstarter projects that found a lower incidence of fraud than among traditional IPOs. Of course, the risks can never be eliminated, she said. “But it’s not the case that all capital markets activity has to stop until we figure out what to do about fraud.”
It’s possible to mitigate the risks, Prof. Anand said, through the right regulatory regime: minimum disclosure requirements, regulation of the crowd-funding portals and at least a temporary cap on the amount a single investor is allowed to commit per year.
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Canadians wary of jumping into less than crowded fundraising field
Ottawa Business Journal by Tracy Olson | August 26, 2013
When Paul Dombowsky first founded Ideavibes in 2011, he was hoping to tap into something big – the power of the crowd.
He envisioned his Ottawa-based startup as a place for crowdsourcing, a way of exchanging ideas by engaging the public. He also hoped it would be a portal for crowdfunding, similar to platforms such as Kickstarter and Indiegogo. Branding the crowdfunding side under the name Fundchange, Mr. Dombowsky hoped it would help charities raise money from the public for important causes and campaigns.
But by December 2012, Mr. Dombowsky found himself removing crowdsourcing from the equation and transferring his Fundchange customers to FundRazr, Canada’s largest crowdfunding platform. Ideavibes now focuses on providing a crowdsourcing platform for governments and organizations looking to collect feedback from their citizens, members and the public.
Crowdfunding just wasn’t viable for his startup, he said. Mr. Dombowsky said he thinks that’s because Canadians have been slow to pick up on crowdfunding, with the most enthusiastic backers coming from the United States.
“It’s just kind of how we do things here – it’s a more conservative approach to anything,” he said. “I also believe that maybe it’s just not our thing quite yet.”
So are Canadians less interested in crowdfunding than their neighbours to the south? That may be something with which smaller crowdfunding platforms have to contend, especially those based in Canada.
There are currently about 50 crowdfunding platforms across the country, according to the National Crowdfunding Association of Canada. Yet they’re dwarfed by U.S. crowdfunding platforms like Indiegogo and now Kickstarter, which recently announced it would be coming to Canada by the end of the summer.
Kickstarter campaigns have raised more than $693 million since the program was launched in 2009, easily outstripping the amount raised by any Canadian platform. FundRazr, the top Canadian platform, has brought in about $25 million so far.
And while Canadians are definitely becoming more interested in crowdfunding, many pay lip service to the concept but are hesitant to actually go out and take the risks involved, Mr. Dombowsky said.
“There are lots of examples of Canadian companies and artists and inventors who have used American sites, (like) Indiegogo,” he said. “There have been a few who have done well, but in general ... I think at the end of the day, it hasn’t really hit mainstream yet. I think you’re still getting outliers.”
One of those outliers might be Gabor Vida, president of Teknision Inc. His company develops user experience apps for mobile devices. Based in Ottawa, Mr. Vida and his team decided to crowdfund the development of Chameleon, a home screen replacement app for tablets and phones running the Android operating system.
When they began organizing their crowdfunding campaign last summer, the obvious choice was Kickstarter because of the brand’s reach and influence, Mr. Vida said.
Mr. Vida notes there was more work involved in using Kickstarter than with a Canadian crowdfunding platform, especially since it meant he and his team had to find a U.S. reseller to handle the payments pouring into the account because Kickstarter was not available in Canada yet. Teknision also ran into trouble when its first U.S. partner proved to be unreliable, dropping the project and losing $50,000 in campaign pledges. Mr. Vida had to set up a second campaign, which raised substantially less than the first.
But he said it’s something he would do again. While handling all the U.S. taxes with Kickstarter was difficult, Mr. Vida added that Kickstarter has a lot of clout, which makes it worthwhile. Going with a Canadian platform just wouldn’t generate the same kind of momentum, he said.
But that doesn’t mean smaller crowdfunding platforms can’t compete, said Daryl Hatton, founder and CEO of FundRazr, which is headquartered in British Columbia.
“How does David fight Goliath? It’s a challenge,” he said. Since FundRazr is a lot smaller than Kickstarter or Indiegogo, it has to be nimble and quick to adapt to succeed. It also occupies a niche within the crowdfunding space, he added.
For one thing, FundRazr focuses much more on social media than either Kickstarter or Indiegogo. Users can set up media galleries and get backers to “like” or comment on posts.
Many campaigners using Fundrazr are repeat customers. For example, U.S.-based scientific research organization the SETI Institute is using FundRazr to raise money for four campaigns under its Curiosity Movement. The most successful one has raised about $11,300.
FundRazr also offers customers the ability to embed the crowdfunding portal on their own websites, driving traffic to them instead of to its platform.
“Crowdfunding is growing here and will definitely happen,” Mr. Hatton said. “We’re going to see a period of time where all of a sudden, we have massive amounts of diversity and a whole bunch of different kinds of crowdfunding ... Natural selection will take over, and some models won’t work.”
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Will Canada make room for institutional crowdfunding?
Yahoo Finance Canada by Shane Shick | August 21, 2013
There was a moment a few months back when many people could not get over the gall of Zach Braff. Instead of going the usual route to make his next film, the actor-director turned to the popularcrowdfunding platform Kickstarter to raise money for the project. Though this may end up giving him more creative control, his move showed just how difficult it is to get anything financed, unless you take it to the people.
Optimize Capital Markets, which launched earlier this month, is a Canadian example of how the crowdfunding model is being applied to a more specific group of people, namely institutional and accredited investors. Though physically headquartered on Bay Street in Toronto, the company claims its Crowdfunding Portal can provide a more efficient and transparent means of exploring and evaluating investment opportunities than traditional financial systems.
Matthew McGrath, a former RBC vice-president who founded Optimize Capital Markets, said his venture is distinct from Kickstarter and other microfinancing sites in that the average deals will be much higher, and vetted much more thoroughly.
“One of the things you learn very on is that the critical success factor is due diligence, and when you start to roll up your sleeves and look at any transaction, you realize that, rightly or wrongly, deals in the $2 million to $10 million range represent terrific value for investors,” he says. “Those kind of firms are still faced with every bit of a funding gap as the smaller opportunities that are out there.”
The main challenge to this approach may be educating potential investors about the process -- and the potential pitfalls. While Canada has launched a number of crowdfunding initiatives already, the sector is somewhat scattered and fragmented. In response, an industry group called the National Crowdfunding Association of Canada (NCFA) has formed and is hosting Webinars and live events for those new to the concept.
“We’re looking at investor protection,” says Craig Asano, the association’s executive director, adding that a survey and other projects are under way to help bring Canadians up to speed quickly. “All that research and education will be useful for everyone, including the regulators and participants.”
As with anything in the tech space, there is already a worry that Canada is falling behind the U.S. and international markets, Asano adds. McGrath, however, suggests the pace of crowdfunding in Canada will happen as it should.
“If you look at when banks started to go online with services or brokers started going online with discount broker services, it wasn’t overnight that people fired their broker,” he says adding that Optimize Capital Markets is prepared for the fact that its first-mover advantage in the institutional investor niche may not last long.
“We will see a number of competitors entering the marketplace in the next six to 12 months. And there will not be one clear winner,” he says. “There will be number of very good quality firms that are in this space, with five to 10 firms that are dominating. We would expect that.”
In other words, expect the crowdfunding market in Canada to get a lot more crowded.
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Raising capital: Getting off the ground via crowdfunding
Vancouver Sun by Brian Morton | August 12, 2013
Anti-robot concept one of several money-raising successes to be discussed at Indiegogo conference
Vancouver artist Jonathan Tippett needs to raise $150,000 to get Prosthesis, the anti-robot, up and running. Or at least walking.
So he turned to crowdfunding, an emerging trend in raising money that involves soliciting donations over the Internet for projects or even causes.
“It hinges around the pursuit of physical mastery and the age-old impetus for humans to master physical skills,” says Tippett of his anti-robot, a 100 per cent human-controlled, two-storey tall, 3,500-kilogram, four-legged, wearable walking machine that is being built by volunteers at the eatART Laboratory in Vancouver and slated for completion in August 2015.
“Having no automated control system, and relying entirely on the skill of the pilot for its operation, Prosthesis is the world’s first sports robot.”
Tippett’s concept is one of several crowdfunding successes to be highlighted in Vancouver on Tuesday by Indiegogo, one of the most popular crowdfunding sites, which is hosting its first Vancouver session at the Roundhouse Community Centre.
Tippett said his project requires a crowdfunding campaign in order to get completed.
“Details aren’t finalized, but I think we’ll offer (donors) opportunities to operate the machine,” he says.
Tippett is among a growing list of people and organizations turning to crowdfunding sites to raise funds for everything from artistic ventures to business start-ups, even to purchase videos allegedly showing a big-city mayor smoking crack cocaine.
According to the National Crowdfunding Association of Canada, the global crowdfunding industry is predicted to accelerate to $5.1 billion in 2013. Canada, with over 52 crowdfunding portals, is Indiegogo’s second-largest market, with the number of active campaigns increasing by 213 per cent in the last year. A successful campaign must involve engaging people, said Indiegogo founder Danae Ringelmann.
“The pitch should have a video. The video should have someone talking about their project and not just what it is, but why it needs to come to life,” Ringelmann says.
“And you want to offer unique and custom perks to get funders excited about contributing.”
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Crowdfunding in Canada; An Interview with Craig Asano, Leader of NCFA Canada
By JD Alois | August 1, 2013 @ 9:06 am
Our neighbors to the North while much smaller in population have already established a vibrant crowdfunding scene. With over 45% of the entire Canadian workforce employed in small business driving 28% of Canada’s GDP, it is clear that the importance of fostering a positive environment for entrepreneurs is vital for the Canadian economy.
Venture capital investments has recently seen an increase, but has not yet risen to the amount seen in 2000. It is also interesting to note that crowdfunding superstar Pebble Watch started in Waterloo, Ontario. University student Eric Migicovsky received accelerator funds but was unable to raise venture capital funds in Canada. Enter crowdfunding and Kickstarter.
Craig Asano, Founder and Executive Diretor of the National Crowdfunding Association of Canada (NCFA Canada), is an entrepreneur and world traveler with great perspective – who understands the importance of crowdfunding and what this innovation can do for the economy of Canada. The NCFA was formed as a non-profit with the mandate to provide education, advocacy and to foster the growing crowdfunding industry. As a leading voice in the Canadian crowdfunding industry, Crowdfund Insider reached out to Craig for an update on crowdfunding in Canada today.
CFI: Please share how you became interested in Crowdfunding and how you decided to start the NCFA.
Craig: As an entrepreneur and intrepid international traveller of 15 years, I was constantly pursuing opportunities that would make a difference in this world. In October 2012, I saw crowdfunding as a multi-disciplinary activity that connected industries and organizations of different motivations together iterating at an exponential rate and packed in a strategic and social marketing wrapper. Crowdfunding was at the intersection of many of my personal interests including technology, finance, entrepreneurship and globalization. The advancements of technology were disrupting traditional industries, such as venture capital finance, and I wanted to be part of this great movement; one that supported collaboration, innovation and the development of crowdsourced principles. I saw it as a way to connect, problem solve, automate (the outdated), develop better products and right-sized solutions, cultivate shared values and build a sense of community – the way forward.
CFI: How many Crowdfunding platforms are currently operating in Canada? How many support companies? I believe you listed 45 in your directory.
Craig: NCFA Canada hosts a comprehensive list of Canadian Crowdfunding portals. As of July 2013, there are over 60 Crowdfunding portals + 8 providers operating in Canadian markets. Due to regulations, most of these portals are donation-reward based platforms however there are a few portals that are facilitating capital raising with an online presence that are operating under existing prospectus exemptions or that have been approved by the relevant commission.
CFI: What do you see as the NCFA’s most important role right now? Education? Being an industry advocate?
Craig: Being a community-based and membership driven non-profit organization, our mandate revolves around providing education, advocacy and business opportunities for our national membership. NCFA Canada has a number of exciting programs and initiaives that we are currently developing.
CFI: You list being active in reporting fraud. Please share your thoughts on Crowdfunding fraud and how you see the NCFA role evolving here.
Craig: NCFA Canada views Crowdfunding fraud as a collective challenge that can be overcome by having industry stakeholders, issuers, investors, government and academic partners come together to actively identify fraudulent activity and develop the appropriate safeguards to both protect and advance the industry. Central forums and data intelligence on fraudsters can be gathered and shared for the benefit of everyone involved.
We envision NCFA Canada’s role to contribute in a few ways:
(1) Establish a working committee that is entirely focused on fraud education, detection and prevention initiatives; (2) Work with the appropriate organizations to develop and distribute leading fraud detection solutions to market, and assist in educating industry participants on the benefits of using these services; and (3) Develop and distribute a national insurance program to protect industry participants that share group risk
CFI: Do you see Crowdfunding as the best vehicle to fill the funding gap for SMEs in Canada?
Craig: Yes, crowdfunding can be viewed as ‘additive’ and complementary to existing capital raising options and offers wide distribution, increased participation, and an increased pipeline and range of fundable projects/products. Is it enough to fill the entire gap? Possibly not, but it’s the way forward and path of choice during these turbulent times. Canadian SMEs need to tap into this unearthed potential that goes way beyond ‘funding’.
NCFA Canada views Crowdfunding as an efficient, effective and transparent way to assist SMEs to raise the much needed capital they require to innovate and grow their businesses. It also allows the wide public to participate in a range of projects and offerings that previously they had limited or no access to. Crowdfunding dollars can seed early stage ideas to the point that entrepreneurs and their businesses can clearly demonstrate traction and execution abilities to prospective angel and venture capital investment groups.
Crowdfunding is a tremendous opportunity for industry, government and academia to come together to create a marketplace for consumers and businesses to self-source, self-select and self-fund ideas and projects in a democratic, fair and social manner in support of innovation, entrepreneurship and job creation. The intangible benefits of Crowdfunding are hardly measurable given the infancy of the industry but they go far beyond the financial incentives and traditional funding mechanisms that may have created the funding bottleneck/gap in the first place.
CFI: How active have Venture Capitalists and Angels been in the past few years in supporting start ups in Canada?
Craig: In 2011-2012, Venture Capital activity rose to the highest dollar volume since 2007 (pre-recession) according to the CVCA with steady year over year growth in terms of the number and average size of deals.
CFI: Do many Canadian start ups migrate to other countries because of greater opportunity / access to capital?
Craig: Yes, many Canadian start-ups migrate to the US to access larger or differently structured capital markets (e.g., privatized health care in the US) and a more supportive entrepreneurial environment. One of the problems that Canada faces is the inability to cobble together enough funding and risk capital to commercialize its own technology, product innovations and even human capital resources. A classic Crowdfunding example is where Waterloo University student Eric Migicovsky, Founder of Pebble Watch, received accelerator funds to develop a prototype of his smart watch but was subsequently unable to raise venture capital funds in Canada. Not wanting to give up he moved to the valley and was introduced to Kickstarter where he went on to successfully raise $10 million in the US. “Innovation cannot be lost to a VC’s inbox. Innovation is too important for one man, or one firm, to pass judgment on.” – Eric Migicovsky, Creator, Pebble Watch
CFI: The regulatory environment in Canada is different from the United States as there is no single national regulator for Crowdfunding. Please explain how the regulatory structure operates.
Craig: One of the primary challenges is that Canada does not have a national regulatory body that regulates the securities industry across the country, such as the SEC in the United States. While the CSA (Canadian Securities Administration) is a working committee of the various commissions and tries to harmonize and regulate the Canadian securities industry, provincial regulators are able to set their own rules.
From a Crowdfunding perspective, donation/reward-based models are legally permitted in Canada while securities (equity/lending) are not. Note, there are occurrences of hybrid models such as income splitting (rev sharing) currently operating, too.
CFI: The OSC appears to be taking a lead role in equity Crowdfunding. What is the status of their process regarding exemptions for investment Crowdfunding?
Craig: Although the status of a possible securities-based Crowdfunding exemption in Canada is heating up and there is agreement that there is an SME ‘funding gap,’ there isn’t consensus among the commissions as to what the regulations should look like and varying opinions.
Some highlights to report:
- Last December 2012, the OSC who is taking a leading role in equity Crowdfunding regulations released a staff consultation paper (here) that proposed an equity Crowdfunding framework with issuer caps up to $1.5 million per 12 month period (with restrictions) and investor caps at $2,500 per deal up to a max of $10,000 per investor in any 12 month calendar period. The OSC consultation paper received over 100+ written responses that are all available on the OSC website for transparency (NCFA Canada’s response can be found here). Note: if you review the solicited feedback almost 95% of the written comments are pro-CF; while 5% are con-CF.
- Also last Dec 2012, CSA released a blanket order that relaxed some financial reporting requirements and are reviewing options under an existing OM exemption (view).
- Feb 2013, BC released a proposal to allow retail and accredited investors to raise up to $500k with investors capped at $2,000, some restrictions apply (e.g., exclusion of funds and real estate entities) (view).
- The exempt market in Ontario has grown tremendously and is now being scrutinized by regulators. In 2011, $28 billion was transacted in Ontario alone (excluding non-investment funds; $87 billion total distribution).
- On Jun 17, 2013, the OSC issued an exemptive relief order for MaRs VX to permit the sale of securities over the internet to AI investors for ‘social impact’ deals in Ontario only ($25-50k/year cap) – relief from KYC and Suitability (view)
- Jul 9, 2013, FCAA in Saskatchewan issued a new proposal for comment, which has been called ‘Crowdfunding lite’ (view).
CFI: There are some groups which appear to be against equity Crowdfunding like FAIR. Please explain their justification for opposing Crowdfunding.
Craig: FAIR’s primary objections with equity Crowdfunding seem to revolve around duly protecting investors only. This is a single mandate that is less broad than the dual mandate of the various commissions, which is to both (1) ensure efficient capital formation; while (2) protecting investors. Ultimately concerns are around suitable portal regulations, protecting investors who are assumed to be unable to protect themselves (so called unsophisticated) and unraveling the years of securities laws that have been built up in effort to assist SMEs who desperately need funds to innovate and create jobs.
CFI: Where do you see Crowdfunding going in Canada over the next few years?
Craig: Into outer space! Oh, I see we’ve already gone there view ……
Source: here
Canadian Regulators Heading Different Directions on Equity Crowdfunding
NCFA Canada | John Wires | July 25, 2013
In an effort to get out in front of the curve, the securities regulator in Saskatchewan (The Financial & Consumer Affairs Authority or "FCAA") released a proposed equity crowdfunding framework.
Much to the author's surprise, the proposal seems to be calling for very little regulation and red tape.
The FCAA proposal comes months after the Ontario Securities Commission (“OSC”) published their own proposed (and significantly different) crowdfunding framework. Interestingly, the key difference between the two is the amount that issuers (startups, entrepreneurs or small businesses) can raise. Other key features of the two proposals are outlined in the table below.
| Ontario | Saskatchewan | |
| Offering Size | $1.5 million per year | $100,000 up to twice per year |
| Limits on the types of securities | Common shares;Non-convertible preferred shares;Non-convertible debt securities;Securities convertible into common or preferred shares | Not specified |
| Advertising | Only though a funding portal or on the issuer’s website | Not specified |
| Police Background Check on Issuers | Not specified | Yes |
| Disclosure | Disclosure document at point of sale | Minimal disclosure |
| Ongoing disclosure obligations | Annual financial statements along with proper securities registers and documentation on how funds were spent. | Not specified, but presumably as required under corporate legislation. |
| Audits | Required if more than $500,000 is raised | Not specified. |
| Investor Risk Acknowledgement | Yes, signed by each investor | Yes, signed by each investor |
| Cap per investor | $2,500 per investor and up to $10,000 per year | $1,000 per investor but unlimited number of investments with different issuers |
| Report on trades sent to regulator | Not specified | Yes |
| Funding portals must be registered with the regulator | Yes | No |
With Ontario and Saskatchewan proposing different regimes, the country’s provincial securities regulators are heading down different paths.
The risk, of course, is reducing the success of crowdfunding by restricting investors to only be able to invest in companies in their province. On that point, the Saskatchewan proposal notes that:
If these [crowdfunding] exemptions are not adopted by other jurisdictions, these exemptions will likely be limited by law to Saskatchewan issuers and Saskatchewan investors.
The Risk of Having Different Provincial Crowdfunding Regimes
The power of crowdfunding comes from leveraging online technology and social media to spread the word about a worthwhile project, business, or idea.
Crowdfunding will not be successful without access to large numbers of people. The smaller the crowd, the smaller amount any prospective issuer will be able to raise.
If Saskatchewan moves forward with its proposal in cutting out access to investors in other provinces, or indeed, investors overseas, they limit themselves to a small population of just over 1 million people.
What’s the Solution?
Canada needs a harmonized approach to equity crowdfunding. Without issuers in Saskatchewan being able to raise funds from investors in Ontario, and vis-versa, the power of crowfunding is compromised.
Other provincial regulators, including P.E.I., have said they are going to wait and see what other provinces do, and whether a more harmonized approached under the Canadian Securities Administrators (“CSA”) can be achieved. With two proposed equity crowdfunding models on the table, now more than ever, we need policy makers, the CSA and politicians to step up and focus on creating the right solution for Canadian companies and Canadian investors.
About the Author
John Wires is a lawyer and founder of Wires Law a firm providing fixed price legal services to Canadian businesses. He is also an Advisor at the National Crowdfunding Association of Canada (NCFA Canada). John comes from a background of courtroom experience practicing complex corporate commercial litigation. Having litigated shareholder and employee disputes, he understands the value of companies protecting their businesses with the proper upfront legal work so many Canadian businesses lack. You can follow John @johnwires and contact him at jwires@wireslaw.ca.
