http:ato.gov.au

 

Bartering and barter exchanges

 

What is barter?

 

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.

 

Last Modified: Friday, 7 August 2009

 

How does bartering operate now?

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.

 

Last Modified: Friday, 7 August 2009

 

What is the tax treatment of bartering transactions?

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 supply to another member, there is a liability for tax, including goods and services tax (GST).

 

Consideration, including payment, may be in money or in kind, or in some instances a combination of these. The consideration paid for supplies between members of a trade exchange is the debiting of the recipient’s account and the consideration received is the crediting of the supplier’s account.

 

As a general rule when valuing the consideration arising from barter or countertrade transactions, the Tax Office will accept a fair market value as adequately reflecting the money value or arm’s length value, as applicable. In most cases, the Tax Office will accept as a fair market value, the cash price which 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 consideration. 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 consideration.

 

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. Transactions where the values are set at artificially high levels for the purpose (or a purpose) of establishing an inflated income tax deduction may indicate fraudulent activity.

 

 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 x 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.

 

Last Modified: Friday, 7 August 2009

 

Can GST be remitted in trade dollars?

No. For the purposes of the tax laws, payments such as GST, income tax and the superannuation guarantee levy must be remitted to us in Australian currency.

 

Generally, only other members of the trade exchange and the trade exchange itself may accept payment in trade dollars.

 

Last Modified: Friday, 7 August 2009

  

Can trade dollars be used to make personal purchases?

Yes. However, such purchases will not be deductible for tax purposes, and a GST credit cannot be claimed.

 

Last Modified: Friday, 7 August 2009

Is a tax invoice required for a barter transaction? 

Yes. 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 supply and the consideration is expressed in credits, the tax invoice must comply with all of the usual requirements for a tax invoice, and it must include:

       the GST inclusive price expressed in Australian currency, or

       the GST payable in Australian currency.

Last Modified: Friday, 7 August 2009

Do Australian business number (ABN) obligations apply to bartering transactions?

Yes, 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 acquire 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 48.5% of the payment and remit that amount to us.

Last Modified: Friday, 7 August 2009

Do records of barter transactions need to be kept?

Yes. 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 supply importation, acquisition, dealing or entitlement. The records must be kept for five years after the completion of the transaction or acts to which they relate.

In addition to ordinary accounting documents, this may include invoices and receipts, as well as purchase orders, delivery dockets, contracts, barter scheme statements, and any other relevant documents.

The other relevant documents may include 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.

Last Modified: Friday, 7 August 2009

 

Record keeping for barter transactions

What is bartering?

In its simplest form, bartering involves the direct exchange of goods or services for other goods or services without reference to money or a money value.

There are more sophisticated forms of bartering in the market place. These arrangements are typically controlled by member-only organisations, with credit units being the medium of exchange. These credit units are most commonly referred to as ‘trade dollars’ or ‘barter dollars’.

Businesses involved with bartering need to be aware that barter transactions are assessable and deductible for income tax purposes to the same extent as other cash or credit transactions. When a business makes a barter transaction, there is a liability for tax, including goods and services tax (GST). A recipient of goods in a barter transaction may be entitled to an input tax credit.

Because a barter transaction has a money value, you must keep records for taxation purposes for both your barter transactions and other business transactions that involve the exchange of money.

Last Modified: Tuesday, 31 March 2009

Recording the value of barter transactions

For tax purposes, we consider one trade dollar equals one Australian dollar unless it can be shown that the trade dollar is being traded consistently at a different value or the trade dollar amounts paid or received do not reflect the real commercial value of the goods and services exchanged. If the trade dollar amount attributed to the transaction does not reflect the real commercial value of the goods and services, the value to be recorded for the transaction must be converted to the GST-inclusive market value.

Example

Lewis is a commercial artist who is a member of the B-trade Barter Exchange. He provides artistic services to Christine who is also a member of the B-trade Barter Exchange. Lewis’s trading account is credited with 550,000 B-trade Barter credits for the supply of services to Christine. However, the GST-inclusive market value of the services is $550.

In this example, the 550,000 credit Lewis receives is not a realistic representation of the value of the service in dollar terms. Because the trade dollar amount does not reflect the real commercial value of his services, Lewis needs to record the GST inclusive market value.

The GST-exclusive value of the taxable supply that Lewis makes is $550 x 10/11, which is $500. The GST payable on the supply is therefore $50 (that is, 10% of $500).

If Christine is entitled to claim an input tax credit for her acquisition of services, she would claim an amount equal to the GST payable on the supply of the services acquired, which is $50.

What does a typical system for recording income from barter transactions look like?

Generally, businesses that have barter transactions will also have other transactions involving the exchange of money. The main method used to record income from barter transactions is to include them separately in a cash receipts book.

       Use a pre-numbered invoice book to record barter and other transactions. This helps keep track of all transactions.

       Maintain a filing system to keep track of transactions on barter accounts.

       Record the value of barter transactions expressed in Australian currency in your sales record. You can record this in a separate column in the same cash receipts book you use to record your other sales or in a separate cash receipts book to account for your barter sales only.

       Perform barter reconciliations between Barter Exchange statements and your sales record at least monthly.

       Keep the barter reconciliations and the individual barter records for 5 years.

Last Modified: Tuesday, 31 March 2009

What does a typical system for recording payments from barter transactions look like?

Expense records

Update and summarise barter transactions into a secondary record such as a cash payments book using individual barter records regularly. Record the value of barter transactions expressed in Australian currency. You can record this in a separate column in the same cash payments book you use to record your other purchases or in a separate cash payments book to account for your barter sales only.

You will need a valid tax invoice if the supplier is registered for goods and services tax (GST) and you wish to claim an input tax credit. A tax invoice for a barter transaction needs to include the GST-inclusive price expressed in Australian currency ($550 in the example) or the GST payable in Australian currency ($50 in the example).

If a barter supplier (including a contractor) does not provide you with an Australian business number (ABN) you must calculate 46.5% of the market value of the goods or services that you provide as payment for the supply. You must remit this amount to the Tax Office unless one of the exceptions to withholding applies.

       Keep all invoices and file in a systematic manner.

       Perform reconciliations between individual barter records, Barter Exchange statements and payments book at least monthly.

       Keep the barter reconciliations and the individual barter records for five years.

Last Modified: Tuesday, 31 March 2009

What type of record keeping system should my business use?

The Tax Office does not prescribe a defined method for preparing and maintaining a record keeping system, however, the record keeping system you keep should allow a tax officer to work out your tax and superannuation liabilities within a reasonable time. For example, a tax officer would be able to work out your barter related tax liabilities and credits by reviewing your Barter Exchange statements and barter sales and purchases records without having to reconstruct your barter transactions.

The types of records needed will depend upon the nature and size of your business. For example, if you have many transactions and source documents per day, it is beneficial to keep summary records such as cash receipts and cash payments books. This will help you to manage your business because you can monitor how much money your business is receiving and spending, and this will assist in identifying any cash-flow problems. It will also help you to complete your activity statements and tax returns correctly and on time.

Good record keeping is where you maintain a good filing system of invoices and purchase documents, record transactions or summary totals into a cash receipts and cash payments book and reconcile these amounts to bank statements and Barter Exchange statements on a regular basis.

Other relevant documents that you should retain are your application for membership of the barter exchange, the rules of the barter exchange and any other documents governing the relationship between members, and between the members and the barter exchange.

Last Modified: Tuesday, 31 March 2009

Other considerations

GST registered

If your business is registered for GST, the supplies you make may be taxable or, in very limited circumstances, GST-free or input taxed. It is important that you understand the difference between each type of sale and account for it correctly in your records. This can be done by setting up specific columns in a manual cash book or specific account codes in an electronic accounting package.

You are entitled to claim an input tax credit for the GST you pay on your barter expenses, provided you hold a valid tax invoice for barter purchases over $82.50 (GST-inclusive) at the time you claim the input tax credit. However, you should keep records that support all claims for input tax credits.

Cash and non-cash accounting

How you report your income for GST and income tax purposes will depend on whether you account on a cash or non-cash (accruals) basis.

If you use the cash basis to report your income, you will account for your income when you receive payment and, similarly, you account for your expenses when they are paid. You receive or make a payment in a barter transaction when the recipient of the supply signs the docket or transaction slip to authorise the exchange of credit between the supplier’s and the recipient’s barter account.

If you use the non-cash basis, you will account for your supplies when you have issued a tax invoice or when any of the payment is received, whichever is the earlier. Similarly, you will account for any purchases when you receive an invoice for the purchase or when you have provided any of the payment for the purchase, whichever is the earlier.

Last Modified: Tuesday, 31 March 2009

More information

To order any publications or obtain other tax information, you can:

       phone 13 28 66 for business enquiries

       phone 13 10 20 for superannuation enquiries

       obtain a fax by phoning 13 28 60.

If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

If you have a hearing or speech impairment and have access to appropriate TTY or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.

Last Modified: Tuesday, 31 March 2009