Barter transactions can result in taxable income and
GST/HST payable
Do you trade goods or services which you would normally
sell in the course of your business?
If a transaction would have tax implications if money
changes hands, it will have the same tax implications if it is a barter
transaction. These transactions may result in taxable income or
tax-deductible expenses. They may be considered dispositions of capital
property, eligible
capital property, personal-use
property, listed personal
property, or inventory, each of
which has a different tax treatment.
A barter transaction occurs when two people or entities
agree to trade goods or services without any money changing hands. When
this occurs between people dealing with each other at arm's
length, the value
of the goods or services is deemed to be the value that would have been
obtained for those goods or services in a regular cash transaction.
When a person provides bartered goods or services which would normally be
sold by him in the course of his business or profession, the value of
those services must be included in income. If the person is a GST
registrant, then GST would have to be remitted on the income. The value
of the bartered services is included in income when determining if the person
has reached the threshold of income where
he must become a GST registrant.
When a person receives bartered goods or services which
would normally be purchased in the course of his business or profession, the
value of those services can be claimed as costs to the business. If the
person is a GST registrant, then an input tax credit could be claimed, if the
provider of the goods or services is a GST registrant.
Example:
 |
Mr. X is in the construction/renovation business, and
is a GST registrant. |
|
His friend, Mr. A, is a physiotherapist, and is not a GST
registrant. |
|
Mr. X does some renovation work for Mr. A. He
would normally charge $500 plus GST of $25 for this work. |
|
Mr. A provides physiotherapy services valued at $525 for Mr. X. |
|
Mr. X must include $500 in his business income. |
|
Mr. X must remit GST of $25. |
|
Mr. X can include the cost of physiotherapy, $525, as a
medical expense for purposes of the medical expense tax
credit. |
|
Mr. A must include $525 in his physiotherapy income. |
|
If the renovation work was to Mr. A's business office,
Mr. A can claim the $525 as either capital costs or expenses of his
physiotherapy business. |
|
If the renovation work was to Mr. A's home and not
related to business, he cannot claim the costs. |
