Barter and trade exchanges
Business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions. In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or money value.
There are sophisticated forms of bartering in the market place, both locally and internationally. These arrangements are typically controlled by member-only organisations, with credit units the medium of exchange. The terms 'exchange', 'barter exchange', 'trade exchange' and 'countertrade exchange' are used to describe the organisation that manages the bartering operation.
Various terms are used to refer to the medium of exchange, such as units, credits, trade dollars or barter dollars. The most commonly used term is trade dollar. Trade exchange operations vary in size and sophistication, from community-based to business-based operations. A trade exchange provides its members with a trading account for the purpose of recording member transactions.
The trade exchange credits or debits the account each time a member makes a sale or purchase respectively. The account is also debited for fees the trade exchange charges its members. The trade exchange may buy and sell in its own right, acting as a member with its own trading account. Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions.
When an entity that is a member of a trade exchange makes a taxable sale to another member, there is a liability for tax, including GST. Payment may be in money or in kind, or in some instances a combination of these. The payment for sales between members of a trade exchange is the debiting of the recipient's account and the payment received is the crediting of the supplier's account.
Value of supplies made through a trade exchange need to be taken into account when determining whether an entity meets the GST registration threshold and is required to register for GST. As a general rule, when valuing the payment arising from barter or countertrade transactions, we will accept a fair market value as adequately reflecting the money value or arm's length value, as applicable.
In most cases, we will accept as a fair market value the cash price that the taxpayer would normally have charged a stranger for the services or for the sale of the goods or property. The rules of most business-oriented countertrade organisations specify a rate for converting credit units into an Australian dollar equivalent.
Customarily the rules specify that each credit unit has a value equivalent to one Australian dollar. Where the monetary value worked out using the rate specified in the rules represents a fair market value of the goods or services provided, that rate is to be applied when valuing the payment.
In all other cases, a conversion rate that values the goods or services provided at their fair market value is to be applied when valuing the payment. Transactions where the values are set at artificially high levels for the purpose of establishing an inflated income tax deduction may indicate fraudulent activity.
Parties to transactions that involve inflated credit unit values may have consequences other than an adjustment to the amount of income returned or the amount of income tax deductions claimed. Personal purchases are not deductible for income tax purposes and a GST credit cannot be claimed, whether the purchase is made using trade dollars or Australian currency.
Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey's trading account is credited with Better Bartering credits BBs for the supply of services to Tracey. The price of the supply is BBs. Payments to us of GST, income tax and the super guarantee levy must be made in Australian currency. Generally, only other members of the trade exchange and the trade exchange itself may accept payment in trade dollars. A tax invoice is required for a barter transaction as it is for any other business transaction.
However, where a member of a trade exchange makes a taxable sale and the payment is expressed in credits, the tax invoice must comply with all of the usual requirements for a tax invoice, and include either:.
Australian business number ABN obligations apply to bartering transactions to the same extent as for any other business transaction. Harvey and Carol are registered for GST. Harvey uses his Better Bartering credits BBs to purchase a new computer from Carol for his bookkeeping business.
Carol issues Harvey with a tax invoice, showing the price of the computer in BBs and the GST payable in Australian currency converted at the rate of one BB equalling one Australian dollar. Members of trade exchanges must keep records that record and explain all business transactions and other acts they engage in that are relevant to a particular sale, importation, purchase, dealing or entitlement.
The records must be kept for five years after the completion of the relevant transactions or acts. Show download pdf controls. Bartering and trade exchanges Business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions. How barter works Tax treatment of barter transactions Payments to ATO Tax invoices and ABNs Record keeping How barter works In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or money value.
Tax treatment of barter transactions Barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions.
Bartering is the trading of one product or service for another. Usually there is no exchange of cash. Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a barter exchange company. A barter exchange is any person or organization with members or clients that contract with each other or with the barter exchange to jointly trade or barter property or services.
The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis. Unlike one-on-one bartering, members of exchanges are not obligated to barter or purchase directly from a seller. Instead, when a barter exchange barter and trade exchanges sells a product or a service to another barter and trade exchanges, their barter account is credited for the fair market value of the sale.
When a barter exchange member buys, the account is debited for the fair market value of the purchase. The Internet provides a new medium for the barter exchange industry. Pure Internet-based barter companies differ from traditional, organized trade exchanges in that they do not have a physical office. In modern Internet barter exchanges, there is an agreement or process in place to value goods and services exchanged, which is facilitated by the barter exchange for a fee.
A barter exchange functions primarily as the organizer of a barter and trade exchanges where members buy and sell products and services barter and trade exchanges themselves. Barter exchanges have their own unit of exchange, usually known as barter or trade dollars.
Trade dollars or barter dollars are valued in U. Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other members. Barter exchanges act as the bookkeeper for keeping track of trade dollars that participants accumulate. Earning trade or barter dollars through a barter exchange is considered taxable income, just as barter and trade exchanges your product or service was sold for cash.
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Trade Dollars Barter exchanges have their own unit of exchange, usually known as barter or trade dollars. Related Topic Bartering Tax Center. Page Last Reviewed or Updated: