Business transactions involving bartering or trade exchanges are subject to the same income tax and GST treatment as normal cash or credit transactions.
Find out about:
- How barter works
- Tax treatment of barter transactions
- Payments to ATO
- Tax invoices and ABNs
- Record keeping
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. For example, if an entity has $60,000 of cash transactions and barter transactions valued at $20,000, it meets the GST registrations threshold.
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.
Example: GST payable on a taxable supply between members of a trade exchange
Harvey and Tracey are registered for GST and are both members of the Better Bartering Exchange. Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey's trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey.
Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440. The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent ($440). The value of the taxable supply that Harvey makes is $440 × (10÷11), which is $400. The GST on the supply is, therefore, $40 (that is, 10% of $400).
Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return.End of example
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:
- the GST inclusive price expressed in Australian currency
- the GST payable in Australian currency.
Australian business number (ABN) obligations apply to bartering transactions to the same extent as for any other business transaction.
Example: Tax invoice
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. The rules of the exchange specify that one BB equals $1, and the market value of the computer is actually calculated in BB credits on this basis.
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.
If Carol did not quote an ABN, Harvey would be required to withhold 46.5% of the payment and remit that amount to us.End of example
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.
In addition to ordinary accounting documents, this may include:
- invoices and receipts
- purchase orders, delivery dockets, contracts and barter scheme statements
- other relevant documents, such as the application for membership of the bartering scheme, the rules of the scheme, and any other documents governing the relationships between members, and between members and the trade exchange.
- GSTR 2003/14 Goods and services tax: the GST implications of transactions between members of a barter scheme conducted by a trade exchange (As at 29 May 2013)