Barter transactions & taxation

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.

As a general rule, when valuing the payment arising from barter or countertrade transactions, the Australian Tax Office (ATO) will accept a fair market value as adequately reflecting the money value or arm’s length value, as applicable. In most cases, the ATO 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 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.

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.

Source: Australian Taxation Office © 2014