Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the Agricultural Producers Association of Saskatchewan.
Article provided by the Farm Business Consultants www.fbc.ca
I’ll trade you these for two of those …
Bartering is alive and well on the farm and in business everywhere.
It also continues to have the attention of the Canada Revenue Agency, which maintains the practice is covered by the rules and regulations of the Income Tax Act.
Trading by exchanging one commodity for another may not involve the exchange of money, but it is taken for granted that each of those involved in the transaction believes the value of whatever is received is equal to the value of whatever is given.
Bartering can be as simple as a private exchange of goods and services between two people or as sophisticated as computer-controlled franchised, member-only barter clubs using credit units with an implied monetary unit value as currency.
Friends or neighbors exchanging services to occasionally help each other out receive a free pass on this one as long as it isn’t a frequent habit.
Digital currency is one of the newest developments in this area with Bitcoins one of the most prominent examples.
They can be bought or sold in return for traditional currency, transferred from one person to another and traded anonymously. They are not controlled by central banks or regulated by any country.
However, when moviegoers pay for their seats with Bitcoins, the value of those seats are considered taxable income for the theatre.
In general, the CRA says that when a taxpayer barters goods or services for other goods or services, then the value of those goods or services must be brought into the taxpayer’s in-come if they are business related.
The agency’s example cites a grocer providing groceries to someone in exchange for something else. The value of the groceries is treated as income to the grocer.
It calculates their value based on the price of the goods or services that the taxpayer would have normally received if they had been sold to a stranger.
If the goods and services that are given up cannot readily be valued but the goods or property that are received can be, then the price of the latter will be used to establish the price of the transaction.
Bartered goods might also result in a capital gain if property such as land, vehicles or a valuable painting is bartered for goods or services.
GST/HST must also be applied to barter transactions in the same way that it is on the supply of any taxable goods and services.
When the transaction takes place within a registered barter exchange network, then the tax must be applied to the value of the service supplied, such as legal fees, but not to the barter units used to pay for the transaction.
If registrants exchange similar types of property, such as farm property, and use it as inventory for commercial activities, then the value in each case is considered to be nil, and GST/HST is not applied.