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Business Barter & Taxes

A barter transaction takes place when two persons agree to a reciprocal exchange of goods or services and carry out that exchange, usually without using money.

Just as cash transactions between businesses carry tax implications, it is the same with business barter.

We share the following information to make it easy for you to understand how to reflect your business barter transactions in your small business taxes. The information provided is for general information purposes only and is not a substitute for the professional advice of your accountant. We can also connect you to accountants in the Swapsity B2B community who can help you. Kindly refer to Canada Revenue Agency for the original source.

Overview

Simply put, there is no tax benefit to bartering. Barter does, however, conserve your precious cash, grow your business and create win-win relationships. In a nutshell, you should treat your barter trades like you would your cash ones.

Direct Barter

The Swapsity B2B operates on direct barter exchanges and does not utilize any credits as a medium of exchange. As such, it's important to set the value of each trade (based on the fair market value of each exchange) and issue a receipt to your fellow swapper, for record keeping purposes.

In a direct business barter exchange of equal dollar value between two parties, both parties are usually reporting both income and claiming expenses. If you're a HST registrant, you're responsible for remitting HST. Additionally, a HST registrant, can claim an input tax credit for expenses if the provider of the goods or service is also a HST registrant. The examples below present three scenarios for direct barter trades.

Barter Examples

Katie and Emily barter $1,000 worth of professional eco-cleaning services for marketing through a direct trade. Here are the tax implications.

 Scenario 1: Katie (non-HST registrant) and Emily (non-HST registrant).

  • Katie is in the eco-cleaning business, and is a not a HST registrant.
  • Her trading partner, Emily, is a marketing expert, and is also not a HST registrant.
  • Katie does some home office cleaning work for Emily. She would normally charge $1000 for this work.
  • Emily provides marketing services valued at $1000 for Katie.
  • Katie must include $1000 in her business income.
  • Katie can include the cost of marketing, $1000 as a business expense.
  • Emily must include $1000 in her marketing income.
  • If the eco-cleaning work was to Emily's business office, Emily can claim the $1000 as an expense of her marketing business.
  • If the cleaning work was to Emily's home and not related to business, she cannot claim the costs.
  • Katie and Emily issue receipts to one another.
TIPS:
  • Agree on the value of the trade to claim on both sides, this way the tax implications are equal for both parties.
  • Issue receipts to one another.

 Scenario 2: Katie (HST registrant) and Emily (non-HST registrant).

  • Katie is in the eco-cleaning business, and is a HST registrant.
  • Her trading partner, Emily, is a marketing expert, and is not a HST registrant.
  • Katie does some home office cleaning work for Emily. She would normally charge $1000 plus HST of $130 for this work.
  • Emily provides marketing services valued at $1130 for Katie.
  • Katie must include $1000 in her business income.
  • Katie must remit HST of $130 as self-assessed HST.
  • Katie can include the cost of marketing, $1130, as a business expense.
  • Emily must include $1130 in her marketing income.
  • If the eco-cleaning work was to Emily's business office, Emily can claim the $1130 as an expense of her marketing business.
  • If the cleaning work was to Emily's home and not related to business, she cannot claim the costs.
  • Katie and Emily issue invoices to one another.
TIPS:
  • Agree on the value of the trade to claim on both sides, this way the tax implications are equal for both parties.
  • Issue receipts to one another.

 Scenario 3: Katie (HST registrant) and Emily (HST registrant).

  • Katie is in the eco-cleaning business, and is a HST registrant.
  • Her trading partner, Emily, is a marketing expert, and is also a HST registrant.
  • Katie does some home office cleaning work for Emily. She would normally charge $1000 plus HST of $130 for this work.
  • Emily provides marketing services valued at $1000 for Katie. She would normally charge $1000 plus HST of $130 for this work.
  • Katie must include $1000 in her business income.
  • Katie must remit HST of $130 as self-assessed HST.
  • Katie can include the cost of marketing, $1000, as a business expense.
  • Emily must include $1000 in her marketing income.
  • Emily must remit HST of $130. As self-assessed HST.
  • If the eco-cleaning work was to Emily's business office, Emily can claim the $1000 as an expense of her marketing business.
  • Since both Katie and Emily are HST registrants, they may recover HST paid on purchases and business expenses, in the amount of $130, by claiming input tax credits (ITCs).
  • If the cleaning work was to Emily's home and not related to business, she cannot claim the costs.
  • Katie and Emily issue invoices to one another.

NOTE: In this scenario when business services are exchanged, each party reports the HST collected and the HST paid as an ITC, resulting in a non-cash transfer for the transaction. In other words, the net impact in cash HST remittance of trading is $0. That is assuming the barter exchange takes place in the same period. Otherwise, the applicable HST remittance and/or ITC deductions show up in the next period.

TIPS:
  • Agree on the value of the trade to claim on both sides, this way the tax implications are equal for both parties.
  • Issue receipts to one another.

Further Information:

Canada Revenue Agency takes the view that barter transactions are within the purview of the Income Tax Act and therefore any transaction can result in income or expense, and as a result should be considered on the same basis as a transaction involving currency. Barter income and expenses should be reported to Canada Revenue Agency as per document IT-490 Sections 3, 9, and 69. CRA's view is that giving up a good or providing a service as part of a barter transaction should be treated as though you have received a payment for that good or service you have given away. The payment is the fair market value of the good or service you have provided to the other party. The value of the services bartered must be brought into the taxpayer's income where they are of the kind generally provided by him in the course of earning income from, or are related to, a business or a profession carried on by him. By the same token, the cost of the goods or services provided can be deducted. In addition, other goods bartered may give rise to a capital gain. Such would be the case if capital property in the form of a valuable painting, a sailboat or land is bartered for goods or services. Canada Revenue Agency discusses capital gains and/or capital loss in barter involving capital property in section 6 of IT-490. Barter transactions cannot be used to intentionally avoid paying taxes. Kindly refer to the Canada Revenue Agency website for all details and consult a tax accountant to get a professional opinion. You can also connect with us if you would like to find a barter-friendly accountant.

Important Disclaimer: This material presented is intended for general information only from the perspective of Swapsity B2B members. It does not constitute legal advice. While we attempt to provide helpful information for you, we cannot guarantee it is current and complete. Please seek professional advice to ensure proper reporting to the CRA for your specific situation, as well as refer to Canada Revenue Agency website for all details. The business owners are solely responsible for reporting their trading activity to the extent required by tax laws or other laws and for the payment of any and all taxes to the CRA (including, if applicable, HST) that may arise as the result of a trade.